With Portugal joining the list of European peripheral economies being bailed out through ?tough love? emergency aid, the terms being foisted upon the hapless indebted states of the continent are coming in for criticism. The severe austerity measures required of nations availing the European Financial Stability Facility (EFSF) have not yet helped previous recipients?Greece and Ireland?tide over their respective crises. Long after being bailed out, these two countries face double-digit yield spreads on 10-year government bonds, a crushing new layer of debt servicing burdens, and no sign at all of revival of economic growth.
Portugal is now awaiting the dreaded footfall of IMF and European Central Bank bailout specialists, who will arrive in Lisbon with a catalogue of conditionalities that the lame duck government has to sign on to. Whether drastic austerity measures imposed by the aid bureaucracy from Brussels will ever restore balanced budgets in prostrate European economies is the gnawing question.
Why were the ?PIG? economies not allowed to restructure their debt, i.e., by reducing or writing off gargantuan obligations to foreign banks, instead of having to fall under the knife of bailouts and extreme budget cuts? The bailout of Portugal, estimated to be around $113 billion, has been designed to assist the repayment of Portuguese debt to banks in France, Germany and Britain, which have high exposure.
In the context of European Union politics, these are the heavyweight powers that dominate policymaking and that are at the forefront of devising harsh fiscal conservatism preconditions on bailout recipients. Much to the resentment of the ?PIGS?, these heavy hitters have decided that they will do everything in the interests of previous loan recoveries for their own banks, even at the expense of peripheral economies stagnating in debt ghettos for years to come.
The New York Times quoted economist Simon Tilford as saying that the pound of flesh being extracted from ?PIG? by Europe?s big players on behalf of their bondholding banks is a case where ?taxpayers of Greece, Ireland and Portugal are bailing out German, French and British taxpayers and depositors?not the other way around.?
Undoubtedly, Europe?s present-day sick men have themselves to blame for past overspending and fiscal indiscipline or outright fabrication of national accounts, but the manner in which they are now being hammered through the collective will of the stronger economies of the EU smacks of utterly self-centred action, far from the supposed magnanimity of the block?s stronger economies.
As has been repeatedly pointed out, the absence of the option for Eurozone members to devalue individual currencies to beat back their mounting public debt has been another crippling institutional hurdle for ?PIGS? economies. Unfortunately, these countries have reached such a comatose condition in terms of their ability to bounce back with productivity, innovation and exports, that opting out of the European Monetary Union is not a solution either. If any of the disgruntled ?PIGS? economies exits the euro currency zone, it risks foreign investor boycott and even steeper increases in borrowing costs, squishing possibilities of eventually climbing out of the deep quagmire into which it has been tossed.
The only fair outcome for these debt-plagued economies would have been a generous and farsighted response from Europe?s better performing and stronger economies. But
alas, that was not to be, tearing to shreds the ideas of shared suffering and joint prosperity, which underpin genuinely solidarity-bound regional organisations.
The time to celebrate and toast the EU as the world?s most successful regional integration project is over today. Relatively speaking, the EU still towers over any other single market structure, but its undemocratic core has been exposed. The old questions of whether the EU benefits all members or is an instrument for domination and exploitation of a few over the rest are bound to resurface.
Since the crash of 2008, bailouts in advanced economies, including the US, have sadly been covert redistributive wealth transfer mechanisms
that hurt the weakest and undermined long-term rebounds. With Spain
next in line for a ?corporate welfare? rescue, the meltdown has become a
crisis of democracy rather than that
of capitalism.
The author is vice-dean of the Jindal School of International Affairs
