Michael Hudson on the Greek experiment.
The Greek crisis is being used to find out how far finance can drive down
wages and privatize the public sector.
Michael Hudson interviewed by Paul Jay
Note: This is my editing of an interview Professor Michael Hudson gave to The Real
News Network. I have edited Professor Hudson’s interview for clarity and
have not changed the meaning of any of his statements. It is posted on this
site with Professor Hudson’s permission. — Paul Craig Roberts
PAUL JAY, Senior Editor, TRNN:
Welcome to The Real News Network. I’m Paul Jay in Washington.
In Greece, the financial elites of Europe have received agreement from the
Greek government to another round of what some people are calling savage
austerity measures, for example, lowering the minimum wage by 22 percent, a
new round of privatizations, and cuts to pensions and many other social
Now joining us to discuss all of this: Michael Hudson.
So, Michael, what should we be learning from what’s going on in Greece?
HUDSON: We should be learning what the European bankers are learning, which
is that a great experiment is being conducted. For the last five years in
Latvia, the neoliberals have lowered wages by about thirty percent. The
basic premise of today’s model builders is: you don’t know how far you can
lower wages and pensions until people begin to press back. Well, in Latvia
they still haven’t begun to press back when they’ve lowered by thirty
percent. Now they’re moving towards Greece on the way to Spain and Portugal
and Italy, and they’re trying to figure out how much can wages be lowered,
how much can an economy be drained until there is unrelenting pressure from
the afflicted population.
The EU and the banks have appointed a bank lobbyist, who is euphemistically
called a “technocrat”, to be in political charge of Greece. His job is to
see how much labor renumeration can be squeezed out. The neoliberals realize
that the left in Europe is completely fragmented and does not have a defense
against neoliberal policies. However, lowering wages shrinks an economy.
When you’re cutting the budget deficit, you’re reducing the amount of money
that comes into the economy to promote demand. So in effect what the EU is
doing is bleeding economies, very much like a medieval doctor would bleed
blood, believing that the loss restores health.
The only response that the Greek people have, as they are not represented by
“their” government, is to tear the economy apart so that nothing is left for
the creditors. The PASOK and the socialist party that bought into the
austerity program now have an eight percent approval rating in Greece.
That’s even lower than Obama, the greatest fraud in American political
The Greek people are saying: look, when the premier said that they were
going to have a referendum for whether we want to cut back wages in order to
pay the bankers, the first thing Angela Merkel said was, you cannot have a
referendum. We’re going to suspend democracy, we’re going to impose a
dictator on you, and we’re going to tell you what to do.
Under international law, if there is no democratic commitment to the debt,
the debt taken on is null and void. Therefore, the European Union has had
its lawyers say, okay, we’re going to get the agreement of the Greek
congress. Well, the Greek people can say, look, you can come down with bags
of money and you can buy all the parliament members that you want to approve
the deal, but as soon as there is an election, we’re going to throw them
out, because they are not acting on our behalf.
JAY: Is not one of the big objectives here privatization? Will the Greek
government have to sell everything off? Apparently they’re talking now about
selling airports and seaports.
HUDSON: Yes and also the water systems, the sewer systems, real estate, the
islands. The debt crisis is being used to create a grab bag for private
interests to take ownership over the Greek public sector. And bankers and
people who have a plan usually do much better in a crisis than people who
don’t have a plan. So this indeed seems to be it. Finance today achieves
what military invasion used to do in times past. So the new mode of warfare
is financial, not military. It’s much cheaper and it’s much safer for the
country doing the attack.
To enforce privatization is why yesterday [February 14] the European Union
said, wait a minute, we’re not even going to lend you the money to pay our
own banks that have bought your bonds, unless you spell out exactly what
you’re going to privatize and commit to it now. And this is a sticking
point. In the past, the Greeks have made promises, and thank heaven they
haven’t privatized, because once they begin to sell things off, there’s
going to be a real squeeze and even more of an opposition. So you’re right.
The bailout is a property grab.
JAY: There does seem to be some kind of different approach between Wall
Street and the Europeans. Some Wall Street representatives actually say, no
to the austerity measures. Why the mixed message?
HUDSON: There are two reasons. Number one, from the very beginning, from the
last century, America has already had in the private sector what was in the
public domain in Europe. Europe had its power companies, electric and gas
systems in the public domain. America privatized them, but as regulated
public utilities. The public utilities were regulated as to how much bond
and equity they could get, what their rate of return would be. Europe has no
body of law to regulate the prices or rent extraction the public utilities
can charge, because they’d always had these in the public domain, just like
the Soviet Union had no regulated private system. In Europe there’s much
more property and public assets to grab than were available in the United
States. There is no regulatory body in Europe, because in the past, power,
sewer, water and other public utilities were supplied either at cost or at
subsidized rates to make the economy more competitive.
The idea in Europe is not only that you cut wages by thirty percent, but
also prices can be raised for access to water, sewers, transportation,
everything else. The rise in price means higher profits for the private
interests who privatize Greece’s public sector.
The result in Greece will probably be the same as it was in Iceland, Latvia,
and other countries. There’s going to be a large emigration of working-age
labor. And the result will, of course, be to make the economy much less
In this morning’s newspaper it turned out that Greece’s GDP fell at a seven
percent annual rate, not the five percent expected, as usual the newspaper
said, to everyone’s surprise, the situation is worse than projected. Well,
of course it wasn’t really to our surprise, because we know that when you’re
strangling an economy, of course it can’t cope very well. And they’re
strangling the Greek economy.
Greece is being used as a laboratory experiment to determine the results
when labor is squeezed very hard. It’s like trying to feed a horse less and
less and see whether it’s really going to be more efficient until it keels
[I believe Professor Hudson meant to add that some on Wall Street are
worried that harsh austerity measures will result in Greece defaulting, thus
exposing US financial institutions, such as Goldman Sachs, to having to make
good on the swaps that guarantee Greek public debt.]
JAY: Large-scale unemployment is always a good threat against the employed
within a country, the more you can beat up Greece and Spain, Portugal, the
more you can threaten the working class of France and Germany, where I guess
the big targets eventually will be.
HUDSON: Well, if that happens, there’s going to be a renewed nationalism
that’s going to break the common market apart. There will be a sudden
realization that when Europe united, the whole idea of unity was to prevent
another European war. But now with unity under neoliberal bank rules, the
implication is class war.
If the EU is merely a mechanism for war of the rich against the poor, a
number of countries are going to say NO to Europe, just as the Icelanders
have voted not to join Europe, just as other countries that had planned to
join Europe, all the way to Turkey at the other end, are saying, wait a
minute, if that’s the Europe that’s coming, an oligarchic Europe whose
program is austerity and shrinkage, why on earth would we want to join?
The EU is proving that it works for private banks, but not for its citizens.