Get out of debt, but how?

Greece must find a way out of the debt crisis - this is for sure. Finance Minister George Papaconstantinou announced among others a reduction of salaries and job losses in the public sector. Overall, he is expecting a drop in real wages of five percent. In spite of the widespread strikes and protests by the workers, the Greek government regards itself as being supported by the population and maintains its recent course. Nevertheless, the measures announced carry an immense social and economic risk, in particular in times of crises. The latter will become apparent by a falling domestic demand, which is an additional burden on the Greek economy and could easily lead to a downward spiral. The European Council of Heads of State and Government is, at least for the time being, not in favour of other European Member States making direct financial support available. In the medium term, however, the EU will not be able to avoid getting actively involved in solving the problem.

Plea for more efficient monetary coordination

Before the introduction of the Euro, the EU Member States had fiscal instruments available to counteract a weak economic situation. In the case of Greece for example a devaluation of the national currency would have boosted exports. If the Drachma fell, a holiday in Greece and olive oil became cheaper and thereby more attractive to foreign demand. The common currency no longer allows national control. At EU level it is now the European Central Bank that has the option of reducing or increasing the base rate. That way it is possible to control the Euro and to promote or restrict investments. It is up to the Member States to adhere to the restrictive stability criteria and to implement public investment programmes to counteract economic downturns. What is obviously lacking here, is comprehensive common economic and fiscal coordination of the European Union, which has been demanded by AK and trade unions for years. Apart from a common fiscal policy, it has to include wage and employment policy elements and also prevent a tax or social “Race to the bottom”. That way, it would be easier to cushion financial problems of individual EU States in future.