Foreign Policy In Focus

Someone has pinched the heart of St. Lawrence O’Toole, and thereby hangs a typical Irish tale filled with metaphors, parallels, and some pretty serious weirdness.

Who done it? The suspects are many and varied.

Could the heist from Dublin’s Christ Church Cathedral have been engineered by the infamous “troika” of the European Commission, the European Bank, and the International Monetary Fund? Seems like a stretch, but consider the following: O’Toole—patron saint of Dublin—was, according to the Catholic Church, famous for practicing “the greatest austerity.” Lawrence liked to wear a hair shirt underneath his Episcopal gowns and spent 40 days in a cave each year.

That is a point of view the troika can respect. They have overseen a massive austerity program in Ireland that has strangled the economy, cut wages 22 percent, slashed education, health care, and public transport, raised taxes and fees, and driven the jobless rate up to 15percent—30% if you are young. At this rate many Irish will soon be living in caves, and while hair shirts may be uncomfortable, they are warm.

There are other suspects as well. For instance, St. O’Toole was friendly with the Norman/English King Henry II, who conquered the island in 1171. The Irish are not enamored of Henry II, indeed most of them did their level best to drive the bastard into the sea. Not Lawrence. He welcomed Henry to Dublin and, according to the Church, “Paid him due deference.”

So “deference” establishes yet another suspect: the current Fine Gael/Labor ruling coalition. Fine Gael leader and Irish Taoiseach (Prime Minister) Edna Kenny has already signed the new European Treaty, but was forced to put it up for a public referendum at home (no other EU county is being allowed to vote “yea” or “nay”). Kenny is pressing for a “yes” vote, and Labor’s Tánaiste Eamon Gilmore argues that a “yes” vote would be a “vote for economic stability and a vote for economic recovery.”

The Treaty will not only continue the austerity program, it will move decision-making to EU headquarters in Brussels. This will mean that governments will be powerless when it comes to the economy. Think “Model United Nations” and lots of earnest high school students.

Who will make these decisions? Good question. Well, it turns out that a committee of the German Bundestag debated the Irish austerity proposals before the Dublin government even got a chance to look at them. How did that happen? Again, good question, but no answer yet.

Maybe German Chancellor Andrea Merkel lifted O’Toole’s heart. She certainly has a motive: Merkel is leading the “austerity is good for you” charge, a stance that has battered economies from Spain to Greece. In any case, the Irish are already suspicious of the German chancellor. An anti-austerity demonstration outside the Dail, Ireland’s parliament, featured a poster calling government ministers “Angela’s Asses.”

Much of the economic crisis in Europe—and virtually all of it in Ireland— is due to the out-of-control speculation by German banks, along with the Dutch, Austrian, and French financial institutions. “Yet it is the working people of Ireland and Europe who are being asked to pay the price,” argues Des Dalton of Sinn Fein. It appears that the Germans have discovered that one does not need Panzer divisions to conquer Europe, just bankers and compliant governments.

“Compliant” however, has run into some difficulties in Ireland, a place where “difficulty” is a very common noun. On Mar. 2, Sinn Fein President Jerry Adams trekked out to Castlebar in the west of Ireland to resurrect the ghost of Michael Davitt, founder of the Land League and leader of the 1878 Land War (there was an earlier one from 1761 to 1784, but more on that later). Adams told the Mayo County crowd “The Irish people cannot afford this treaty.”

The Castlebar symbolism was about as heavy as you can get. Davitt, along with the great Irish Parliamentarian Charles Stewart Parnell, launched the land war from that city, calling up the words of the great revolutionary, James Fintan Lalor: “I hold and maintain that the entire soil of a country belongs by right to the entire people of that country.”

These days that is not a popular sentiment in most European capitals, where governments are shedding public ownership in everything from airlines to energy production. The Irish government is trying to sell off several lucrative holdings, including Aer Lingus, Ireland’s natural gas company, and parts of its Electricity Supply Board. The state’s forestry will be sold as well. “It is the depth of treachery to sell billions of Euros worth of State assets to pay bad gambling debts,” Socialist Party member Joe Higgins said in the Dail.

The land wars were a reaction to efforts by the English to apply to Ireland the Enclosure Acts, a policy that sold “common land” to private landowners and forced the rural population of England, Scotland and Wales into the hellishness of industrial Manchester, Birmingham, Glasgow and Liverpool.

As Laura Nader and Ugo Mattei maintain in their book “Plunder: When the rule of law is illegal,” what is currently happening in Ireland (and all over Europe) is a 21^st century version of the Enclosure Acts. The last vestiges of public ownership are being systematically auctioned to the highest bidder, and the concept of “the common good” is fading like the ghost of providence.

But not without a fight.

While Adams was resurrecting the spirit of Michael Davitt, demonstrators were besieging Parliaments in Greece, Spain and Romania.

Ireland rejected two previous European treaties, only to pass them in a second round of voting. However, under the new rules, it no longer has veto power. If 12 out of the 17 Euro Zone countries endorse—pretty much considered a slam-dunk—then the new treaty goes into effect.

A number of commentators are saying that the 12-country threshold makes the Irish referendum irrelevant, but a “no” vote will be a blow to the Euro currency, and it might eventually encourage similar “no” votes in other countries. In that sense, the Irish tail could end up wagging the European dog.

Since Irish stories always include parallels, there is certainly one to be made between the first land war and the current debt crisis. The 1761 effort by English landlords to apply the Enclosure Acts to Ireland ignited resistance, first in Limerick, then spreading to Munster, Connacht and Leinster. Crowds of Irish tenants dressed in linen masks and coats—hence their generic name, the” Whiteboys”— burned hayricks, knocked down enclosure walls, and hamstrung cattle. On occasion they pitched land agents into the local bog.

The Irish resistance to the Enclosure Acts was not unique, but a very odd thing happened in Ireland: they won. A combination of population growth and war had driven up the price of food, so even the small-scale agriculture practiced by the Irish was profitable. Plus the rent capital skimmed off the Irish peasantry was playing an important role in helping to capitalize the English industrial revolution. Add to this the resistance, and the English decided that it was in their best interests to back off.

The average Irish tenant knew nothing about international finance or capital accumulation, but they got the idea that if you dug in your heels and went toe-to-toe with the buggers, you could beat them. It was a momentous experience, and a collective memory that would help fuel more than 150 years of rebellion.

Can the current Irish resistance movement turn the tide against the austerity madness that has gripped the European continent? Well, the Left is on the rise (in some places, so is the Right). Sinn Fein’s support in the most recent opinion polls shows a 25 percent approval rating, up 4 percent. In comparison, Fianna Fail—the party that ushered in the current crisis—has dropped from 20 percent to 16 percent. Labor has fallen to 10 percent, and Fine Gael is at 32 percent. Other Left parties are also doing well.

Indeed, the Left seems to be resurging in other countries as well. A center-left party in Slovakia ousted a right-wing government, and France seems posted to vote socialist. The Greek Left is fractious, but its various stripes now make up a majority.

Weirdness. Remember weirdness? For starters, an 832-year-old heart is pretty strange. And it wasn’t just the heart that was snatched. Someone also stole a splinter of the “true cross” (if one added up all the splinters in all the Cathedrals of Europe you end up with a fair size forest). And then there is the matter of the cheekbone of St. Brigid that just missed getting lifted from a church in North Dublin.

In the end, saints will not preserve Ireland from an invasion of the austerity snakes. The Irish people will have to do that. But they sport an impressive track record of overturning imperial designs, and they have long memories: put enough people into the streets of Castlebar (Dublin, Cork, Waterford, Galway, Limerick, etc.) and the bastards will back off.

As Adams said in Castlebar, “Stand together, stand united, and there is nothing we cannot achieve.”

For more of Conn Hallinan's essays visit Dispatches From the Edge. Meanwhile, his novels about the ancient Romans can be found at The Middle Empire Series.

PAESTUM, ITALY -- Walls tell you a lot about a country’s history. Since their purpose is to keep people out who want to get in, they generally mean trouble. In the case of this stunning ruin of a city southeast of Naples, back in the 6^th century BC the Greeks were trying to keep out the Etruscans who didn’t cotton to a colony plunked down in their midst. 

Italy has lots of walls, particularly in the north and center where towns and cities cluster on the high ground. The Italians did not build on mountain tops for the view. What is picturesque now was safe haven from the barbarians back then.

Except, the barbarians are back, only this time they are not tribes with scary names like Goths, Huns and Lombards. Today the brutes have bland sounding labels like the International Monetary Fund (IMF), the European Union (EU) and Moody’s. And some of the worst are homegrown: Silvio Berlusconi and Giullo Tremonti.

Italy is in deep trouble, though it is hardly alone. While the headlines go to Greece, Portugal and Spain, Italy has the second highest rate of debt in Europe and one of the lowest growth rates. On July 8, Italian bond yields jumped to a nine-year high, and the country’s stock market tanked. Given that Italy has the third largest economy in the Eurozone, if it is in trouble, so is the Euro. And, unlike Portugal, Greece or Ireland, Italy is far too big for a bail out (not that the thuggish austerity programs being forced on all three of those countries have anything in common with “bail outs.” They are simply taxpayers covering ruinous speculation binges by French, German and Dutch banks).

There are signs that the Italian economy is running off the rails, but the signs are subtle. Lots of locked houses and long grass, for instance.

The locked houses are in Pompeii, where the government no longer has the money to shore up the walls of the 2,000 year-old city. From the Pompeii of glorious mosaics and stunning frescos it has become a ghost town that one views from roads and sidewalks.

The immense Doric temples at Paestum are wonderfully preserved, but grass has reclaimed much of the rest of the site. It is charming to wander through the ruins, finding lovely mosaic floors, peristyle gardens or swimming pools, but the Italian authorities did not let the grass grow in order to stimulate the curiosity of tourists; they don’t have the money to cut it.

There is a sense in this country that people are holding their breath. The current center-right government is pushing through a $68 billion austerity package that will increase the retirement age, cut medical benefits, and lay off state workers, but many of the cuts will not take effect until 2013 and 2014. Hoping to avoid the wrath of voters, the current finance minister, Giullo Tremonti, has back loaded the cuts so they won’t take effect until after next spring’s elections.

As in ancient Rome, there are graffiti everywhere. There are hammers and sickles painted on the walls in Naples, as well as scrawls threatening “death to the Communists.” The left took power here in the last elections and is currently locked in a battle with the local Mafia over corruption. A cursory glance at this teeming, energetic, and most Italian of cities suggests the left is holding its own: the Mafia’s tactic of flooding the place with garbage is not working. The streets are chaotic, loud, and anarchic, but clean.

Sometimes it is hard to decide if Italians are holding their breath or their noses. For instance, Tremonti’s political advisor, Marco Milanese, a member of parliament, was arrested last week as part of a corruption investigation, forcing Tremonti to give up using Milanese’s luxury flat in Rome. In the meantime, Prime Minister Silvio Berlusconi secretly tried to slip a clause into the budget bill that would delay paying a huge $1.5 billion fine against his flagship media company, Fininvest.

Compared to social unrest in Greece, Spain, Britain and Portugal, Italy has been relatively tranquil. While the Greeks are in open rebellion against the austerity packages of the IMF and the EU, Italian demonstrations have been big but generally quiet. Tremonti told the Financial Times that Italians are different than Greeks and would accept austerity, because “The Italian people understand,” he said, “their demand is to be serious and rigorous. People are strongly in favor of this discipline.”

Tremonti is whistling past the graveyard, his words an eerie echo of Greek Prime Minister George Papandrerou’s comment that Greeks were “unified” behind the government program.” Outside the parliament Athens seethes with rage, and hundreds of thousands of Greeks battle tear gas and police batons to demonstrate quite the opposite. A recent poll found that 80 percent of the Greeks oppose the austerity plan.

There is nothing to indicate that Italians won’t follow the Greeks into the streets once the cuts hit home here. A stencil on a wall in Citta de Castello shows two stick figures, one firing a gun at the head of the other. Underneath the picture is one word: “capitalism.”

Europe (and much of the world) is currently in the throes of a counterrevolution led by a combination of local capitalists and international finance. Using the crisis sparked by bank speculation, its goals are to weaken trade unions, roll back social services and pensions, and privatize as much as possible. Wages have fallen across the continent, and temporary jobs with sketchy or non-existent benefits have grown at the expense of regular employment.

The “crisis” is a one-way street. As a Financial Times analysis pointed out last month, “Millionaires across the world are richer they were before the financial crisis, the latest sign that the wealthy have weathered the downturn far better than other groups.”

The number of millionaires in North America went from 2.7 to 3.4 million from 2008 to 2010 and, in Europe, from 2.6 to 3.1 million during the same time period. Italy was the only EU country that saw a slight drop in the number of millionaires: 179 to 170. The countries with the largest number of millionaires are, in decreasing order, the U.S., Japan, Germany, China and Britain.

Capital is playing hardball in this counterrevolution.

On one level, governments like in Greece have unleashed their police in an effort to drive the hundreds of thousands of young people, teachers, government workers and trade unionists off the streets.

On another level, rating agencies like Moody’s, Standard & Poor’s, and Fitch deliberately downgrade bonds in order to protect private investors. When investors are asked to absorb some of the losses that their speculation generated, the rating agencies step in and make an offer no country can refuse: drop efforts to make private speculators pay or we tank your bonds and drive up the cost of borrowing money. “The credit rating agencies are playing politics not economics. The timing of the downgrades are not a coincidence,” one “senior EU official” told the Financial Times.

The “bailout” will not stop Greece from defaulting on its debt (with Ireland, Portugal and Spain likely to follow). Nor is there any way for a country like Greece to climb back out of the debt pit as long as its currency policies are dictated by Germany and France. 

Italy has some experience with this business of crisis and currency, although its current leaders choose to ignore it. Back in the early 19^th century, Naples was the largest city in Italy, and the south had a diverse and dynamic economy. It was the first region in Italy to build railroads, but the madness of the Catholic Church derailed the effort by blocking passage through the Papal States. Pope Gregory XVI called rails “roads to hell.”

According to Sir Martin Jacomb, former Chancellor of the University of Buckingham, the sabotage of railway development marks the beginning of the south’s decline. But it wasn’t until the lira was made the national currency in 1861 that “it [the south] lost its ability to correct its uncompetitive position. Able and enterprising people moved to the north or emigrated, and the situation became permanent, as it remains today. The tragedy endures.” 

Southern Italy has been locked into poverty for close to 200 years, a fate that is almost certain to befall other periphery members of the EU. Generations of poverty and emigration will be the price tag for protecting the investments of the very people who brought the current economic crisis on. The Citta di Castello stencil was, if anything, an understatement.

So far Italy is quiet, but everyone is aware that the coup of capital is being contested in the streets of Greece, Spain, Portugal and Britain, as it will eventually be in Rome, Naples, and Milan.

In the aftermath of the Peterloo massacre in 1819, where the British government sent cavalry to scatter a massive demonstration demanding political reform, an enraged Percy Bysshe Shelly penned “The Mask of Anarchy,” which ended in words that today’s powerful would do well to consider:

Rise like Lions after slumber
In unvanquishable number—
Shake your chains to earth like dew
Which in sleep had fallen on you
Ye are many—they are few.

More of Conn Hallinan's work can be found at Dispatches From the Edge.

All at once, human-rights crises in Libya, Bahrain and Syria have brought into focus the world's inability to arrive at a consensus on a course of action. In fact, they cry out for an authority higher than states, not to mention the United Nations, to adjudicate them and prescribe a course of unified action.

To at least as great an extent this is also true of environmental crises. As Al Gore writes in Rolling Stone:

All over the world, the grassroots movement in favor of changing public policies to confront the climate crisis and build a more prosperous, sustainable future is growing rapidly. But most governments remain paralyzed, unable to take action — even after [among other things, a] seemingly endless stream of unprecedented and lethal weather disasters.

The seas, especially, at the mercy of both climate change and foreign policy, embody the need for action by a higher authority than sovereign states. Regarding climate change, by now you may have read of a report, writes the Independent, by "a panel of leading marine scientists brought together in Oxford earlier this year by the International Programme on the State of the Ocean (IPSO) and the International Union for the Conservation of Nature (IUCN)."

The seas are degenerating far faster than anyone has predicted, the report says, because of the cumulative impact of a number of severe individual stresses, ranging from climate warming and sea-water acidification, to widespread chemical pollution and gross overfishing. . . . The report says: "Increasing hypoxia [low oxygen levels] and anoxia [absence of oxygen, known as ocean dead zones], combined with warming of the ocean and acidification, are the three factors which have been present in every mass extinction event in Earth's history."

Those include such earth-shaking events as the Cretaceous–Tertiary extinction 65.5 million years ago, the Triassic–Jurassic extinction 205 million years ago, and the Permian–Triassic extinction 251 million years ago. Sobering, to say the least, to our current crisis compared to those.

Regarding foreign policy and the high seas, does anything spell global apathy, impotence, and inertia as precisely as the return -- with a vengeance -- of pirating, a scourge we thought that, except for outliers, had gone the way of small pox? The ransoms demanded today -- and paid -- beggar credulity. At Moon of Alabama, Bernhard reports on a recent case, the seizure of the MV Suez, which exemplifies in a nutshell the inability or lack of will on the part of states to deal with an international crisis.

The MV Suez was captured by Somali pirates in the Gulf of Aden on August 2 2010. It was freed a week ago after a quite dramatic story. . . . As month after month went by the cases of the MV Suez sailors and their families grew -- via the local media -- into interior political issues in India as well as in Pakistan. The Indian government tried to apply pressure on the owner via the Egyptian government. . . . But the Indian government . . . showed no urgency to solve the problem. . . . Late in February the Pakistani human rights advocate Ansar Barney made phone contact with the pirates and started his own negotiations. . . . When the ransom deadline had passed without the ship owner paying, [the] Ansar Barney Welfare Trust, a humanitarian NGO, started to collect the demanded $1.1 million to free the sailors. . . . Somewhere along the Egyptian owners of the ship became furious about the court cases by the families of the Egyptian crew members on board of the MV Suez. The owners backtracked on a promise to pay some share of the ransom they had earlier agreed to [which subsequently] increased to $2.1 million.

One World Government: The Most Loaded Phrase on Earth

No matter how utopian sounding to some or dystopian to others, who fear the United States surrendering its sovereignty to George Soros and the Bilderbergers, none of these issues -- from humanitarian intervention to saving the seas -- may truly be resolved until or unless states finally reconcile themselves to world government.

True, serious consideration may yet take two or three generations -- and an exponential increase in the degradation of the quality of life on earth. But a model exists. In an April post spurred by the Libyan intervention, I wrote that, in a 2008 column for the Financial Times, Gideon Rachman acknowledged that world government represents "the kind of ideas that get people reaching for their rifles in America's talk-radio heartland." But, he wrote of the European Union:

So could the European model go global? . . . a change in the political atmosphere suggests that "global governance" could come much sooner than that. The financial crisis and climate change are pushing national governments towards global solutions, even in countries such as China and the US that are traditionally fierce guardians of national sovereignty.

Once states see the benefits that other states that have cast their lot together are reaping, state sovereignty suddenly loses its luster. Ian Williams explains in a 2009 World Policy Journal article.

Ironically, Albanians, Kosovars, and Serbs -- along with all their neighbors in the Balkan cockpit of nationalities -- unite in sharing the same overriding ambition. They all desperately want to join the European Union, which would entail them giving up much of the sovereignty that they have been so zealously squabbling over. . . . European Union citizens can live and work anywhere they want within the EU, claim education, healthcare, and welfare benefits -- and even vote in many elections. For all those nations, whose working definition of sovereignty seems to include the right, indeed the duty, to harass foreigners at the borders and inside them, this is serious self-denial in the interest of a broader human or economic security.

True, job openings for those who seek to rule countries may become scarce. But it's a small price to pay to ensure the continuation of life on earth.

(Pictured: Anti-austerity protest in Belgium.) 

When the current economic crisis hit Europe in 2008, small countries on the periphery were its first victims: Iceland, Ireland, and Latvia. Within a year it had spread to Greece and Portugal, though the GDP of both nations—respectively 11^th and 12^th in the European Union (EU)—are hardly central to the continent’s economic engine.

But now the contagion threatens to strike at the center of Europe. Spain, the fifth largest economy in the EU and 13^th largest in the world, is staggering under a combination of debt and growth-killing austerity, and the balance books in Italy, the Union’s fourth largest economy, don’t look much better. Indeed, Italy’s national debt is higher than that of Greece, Ireland or Portugal, three countries that have been forced to apply for bailouts.

Spain is a victim of the same real estate bubble that tanked the Irish economy. In fact, house prices in both countries rose at almost exactly the same rate: 500 percent over the decade. A feeding frenzy of speculation, fueled by generous banks and accommodating governments, saw tens of thousands of housing units built that were never inhabited. There are currently 50,000 unsold units in Madrid alone and, according to the web site Pisosembargados, Spanish banks are on track to eventually repossess upwards of 300,000 units.

Bailing out Ireland, Portugal and Greece has strained the financial resources of the EU and the International Monetary Fund (IMF), but rescuing Spain would be considerably more expensive. If Italy goes—with an economy a third larger than Spain’s and more than twice as big as that of the EU’s three current basket cases—it is not clear the Union or its currency, the Euro, could survive.

Given the current tack being taken by EU and the IMF, that might not be the worst outcome for the distressed countries involved. The current formula for “saving” economies in Ireland and Greece consists of severely depressing economic activity that is likely to lock those countries into a downward spiral of poverty and unemployment that will last at least a decade.

First, it is important to understand that the so-called “bailouts” of Greece and Ireland, and the one proposed for Portugal, will not “save” those countries’ economies. As Simon Tilford, chief economist for Center for European Reform, points out, the money is being borrowed—at a high interest rate—to bail out speculators in Germany, France and Britain. It is German, French, British, and Dutch banks that will profit from these “packages,” not the citizens of Ireland, Greece, or Portugal.

Indeed, Portugal was forced to ask for a bailout, not because its economy is in particularly bad shape, but because speculators in other EU countries drove up borrowing rates to a level that the government could no longer afford. Rather than intervening to nip off the speculators, the European Central Bank sat on its hands until the damage was done, the government fell, and Portugal was essentially forced to sue for peace. The price for that will be steep: severe austerity, brutal cutbacks, rising unemployment, and a stagnant economy.

Spain and Italy are vulnerable to the same forces that forced Portugal to its knees, only they are far bigger countries whose economic distress will have global effects.

The current blueprint for reducing debt is to cut spending and privatize. But in a recession, cutbacks increase unemployment, which reduces tax revenues. That requires governments to borrow money, which increases debt and leads to yet more cutbacks. Once an economy is caught in this “debt trap,” it is very difficult to break out. And when economies do improve, cutbacks to education, health care, housing and transportation put those countries at a competitive disadvantage.

For instance, Spain has drastically cut its education budget, resulting in a wave of “early leaving” students—at a rate that is double that of the EU as a whole—and a drop in reading, math and science skills. Those figures hardly bode well for an economy in the information age.

The “cuts to solve debt” theory is being played out in real time these days.

When the Conservative-Liberal alliance took over in Britain, it cut spending $128 billion over five years, on the theory that attacking the deficit would secure the “trust” of the financial community, thus lowering interest rates to fuel economic growth. But retail sales fell 3.5 percent in March, household income is predicted to fall 2 percent, and projections for growth have been downgraded from 2.4 percent to 1.7 percent. In terms of British people’s incomes, this is the worst performance since the Great Depression of the 1930s. “In my view, we are in serious danger of a double-dip recession,” says London Business School economist Richard Portes.

As bad as things are in Britain, they are considerably worse in those countries that bought into the “bailout.” Ireland’s growth rate has been downgraded from an anemic 2.3 to a virtual flat line 1 percent, personal income has declined 20 percent, and unemployment is at 14 percent. Greece is, if anything, worse, with a 30 percent jobless rate among the young, an economy that is projected to fall 4 percent this year, and between 2 and 3 percent the next.

If Portugal—with an unemployment rate of 14 percent—takes the $116 billion bailout, it will torpedo what is left of that nation’s economy.

Even the managing director of the IMF seems to be taking a second look at this approach. Dominique Strauss-Kahn recently quoted John Maynard Keyes about the need for full employment and a more equal distribution of wealth and income. He also warned that bailing out the financial sector and focusing just on debt at the expense of the economy is a dead end strategy: “…the lesson is clear: the biggest threat to fiscal sustainability is low growth.”

Is this a serious change of heart by the organization, or does one needs to take the IMF director’s recent comments with a grain of salt? He is rumored to be resigning this summer to run for president of France as a Socialist. Hard-nosed market fundamentalism is not exactly the path toward heading up that particular ticket. And while Strauss-Kahn says one thing, the IMF’s board of directors—largely dominated by the U.S. Treasury Department—has yet to signal a change in course.

However, the director’s comments may reflect a growing recognition that “bailouts” that protect banks and their investors, while locking countries into a decade of falling growth and rising poverty, are not only politically unsustainable, they makes little economic sense.

The next step is debt restructuring, which means investors will have to take some losses—a “haircut,” interest rates will be lowered, and payments stretched out over a longer period of time. So far, Greece and Portugal are refusing to consider restructuring because it will affect their credit status, but in the end they may have no choice in the matter.

“The basic reality is that we cannot service our debt,” Greek economist Theodore Pelagid told the New York Times. “We don’t need another bailout, we need creditors to take a hit.”

Of course, there is always the Argentine approach: default. Faced with an astronomical debt burden, a stalled economy, and growing poverty, Buenos Aires tossed in the towel and walked away from the debt in 2001. “The economy shrank for just one quarter,” writes Mark Weisbrot of the Guardian (UK), “and then grew 63 percent over the next six years, recovering its pre-crisis level of GDP in just three years.”

So far there is no talk of defaulting by the financially stressed European countries, but the subject is sure to come up, particularly given the growing anger of the populace at the current austerity programs. Hundreds of thousands of people have poured into the streets of Athens, Lisbon and London to challenge the austerity-debt mantra, demonstrations that are likely to grow in the coming months as the full impact of the cutbacks hit home.

Iceland recently voted to reject a 30-year plan to pay British and Dutch banks $5.8 billion to cover their depositors who speculated on Iceland’s high interests rates. Britain and the Netherlands are threatening to block Iceland’s EU membership bid if it doesn’t pay up, but these days, threats like that might be treated more with relief than chagrin in Reykjavik. 

The bailouts have had a devastating impact on European politics. Governments have fallen in Ireland and Portugal, and the Greek government is deeply unpopular. In essence, the demands of banks and bondholders are unbalancing democratic institutions across the continent.

Spain’s unemployment rate is 20 percent, the highest in Europe. If the EU and the IMF sells it a “bailout” similar to the ones Ireland, Greece and Portugal accepted, Spain’s “pain” will be long lasting and brutal.

And Italy—with its decade-long 1 percent growth rate—waits in the wings.

If Italy goes, the EU will be split between northern haves and southern have-nots. Can a house so divided long endure?

More of Conn Hallinan's work can be found at Dispatches From the Edge.

(Pictured: Greek protest.)

* In the Greek town of Aphidal, people have stopped paying road fees. In Athens, bus and metro riders are refusing to cough up the price of a ticket. On Feb. 23, 250,000 Greeks jammed the streets outside the nation’s parliament.

 * The Portuguese nominated the protest song “A Luta E’ Alegria” (The Struggle is Joy) for the Eurovision song contest and, when judges ignored it, walked out in protest. They also put 300,000 people into the streets of the country’s major cities on Mar. 12. 

 * Liverpool bailed from a Conservative-Liberal scheme to supplement government funding with private funding when it found there wasn’t any of either, and the British Toilet Association protested the closure of 1,000 public bathrooms across the country.

In ways big and small, Europeans from Greece to Portugal, from Britain to Bavaria are registering their growing anger with the relentless assault inflicted by government-imposed austerity programs. 

Wages, working conditions and pensions that unions successfully fought for over the past half century are threatened by the collapse of banking systems caught up in a decade-long orgy of speculation that the average European neither took part in, nor profited from. Even the so-called “well off” workers of Bavaria, Germany’s industrial juggernaut, saw their wages, adjusted for inflation, fall 4.5 percent over the past 10 years.

The narrative emanating from EU headquarters in Brussels is that high wages, early retirement, generous benefits, and a “lack of competition” has led to the current crisis that has several countries on the verge of bankruptcy, including Ireland, Greece, Portugal and Spain. Now, claim the “virtuous countries”—Germany, the Netherlands, and Finland—it is time for these spendthrift wastrels to pay the piper or, as German Chancellor Andrea Merkel says, “do their homework.”

It is an interesting story, a sort of Grimm’s fairy tale for the 21^st century, but it bears about as much resemblance to the cause of the crisis as Cinderella’s fairy godmother does to the International Monetary Fund (IMF).

While each country has its own particular conditions, there is a common thread that underlines the current crisis. Starting early in the decade, banks and financial houses flooded real estate markets with money, fueling a speculation explosion that inflated an enormous bubble. In climate and culture, Spain and Ireland may be very different places, but housing prices rocketed 500 percent in both countries.

The money was virtually free, with low interest rates on the bank side, and cozy tax deals cut between speculators and politicians on the other. That kept the cash within a small circle of investors. While Bavarian workers were watching their pay fall, German banks were taking in record profits and shoveling yet more capital into the real estate bubbles in Ireland and Spain. The level of debt eventually approached the grotesque. Ireland’s bank debts, if translated into dollars, would be the equal of $10 trillion.

The Wall Street implosion in 2008 sent shock waves around the world and popped bubbles all over Europe. While nations on the periphery of the European Union (EU) tanked first—Iceland, Ireland, Latvia, Romania, Hungary, and Greece, economies at the heart of the EU—Britain, Spain, Italy, and Portugal—were also shaken. According to the Financial Times (FT), total claims by European banks on the Greek, Irish, Italian, Spanish and Portuguese debts alone are $2.4 trillion.

The European Union’s (EU) cure for the crisis is a formula with a long and troubled history, and one that has sowed several decades of falling living standards and frozen economies when it was applied to Latin America some 30 years ago. In simple terms, it is austerity, austerity and more austerity until the bank debts are paid off. 

There are similarities between the current European crisis and the 1981 Latin American debt crisis. “In both cases debts were issued in a currency over which borrowing countries had no control,” says the FT’s John Rathbone. For Latin America it was the dollar, for Europe the Euro. Secondly, there was first a period of easy credit, followed by a worldwide recession.

Bailouts were tied to the so-called “Washington Consensus” that demanded privatization, massive cuts in social services, wage reductions, and government austerity. The results were disastrous. As public health programs were eviscerated, diseases like cholera reappeared. As education budgets were slashed, illiteracy increased. And as public works projects vanished, joblessness went up and wages went down.

“It took several years to realize that deflating wages and shrinking economies were inconsistent with being able to fully pay off debts,” notes Rathbone. And yet the “virtuous” EU countries are applying almost exactly the same formula to the current debt crisis in Europe. 

For instance, the EU and the IMF agreed to bail out Ireland’s banks for $114 billion, but only if the Irish cut $4 billion over the next four years, raised payroll taxes 41 percent, cut old age pensions, increased the retirement age, slashed social spending, and privatized many public services. When Ireland recently asked for a reduction in the onerous interest rate for this bailout, the EU agreed to lower it 1 percent and spread out the payments, but only on the condition of yet more austerity measures and an increase in Ireland’s corporate tax rate. The newly elected Fine Gael/Labor government refused.

To pay back its own $152 billion bailout, however, the Greek government took the deal. But the price is more austerity and an agreement to sell off almost $70 billion in government properties, including some islands and many of the Olympic games sites.

But the “deal” will hardly repay the debt. Unemployment in Greece is 15 percent, and as high as 35 percent among the young. Wages have fallen 20 percent, pensions have been cut, and rates for public services hiked. Growth is expected to fall 3.4 percent this year, which means that Greece’s debt burden is projected to increase from 127 percent of GDP to 160 percent of GDP by 2013. “Your debt will continue to increase as long as your growth rate is below the interest rate you are paying,” economist Peter Westaway told the New York Times.

Austerity measures in Portugal and Spain have also cut deeply into the average person’s income and made life measurably harder. In Spain, more than one in five workers are unemployed, and consumer spending is sharply off, dropping by a third this past holiday season. Portugal is actually in worse shape. It has one of the slowest economic growth rates in Europe, a dead-in-the-water export industry, and a youth unemployment rate of over 30 percent.

In Britain, the Conservative-Liberal government has cut almost $130 billion from the budget and lobbied for what it calls the “Big Society.” The latter is similar to George H.W. Bush’s “thousand points of light” and envisions a world in which private industry and volunteerism replaces government-funded programs. The actual result has been the closure of libraries, senior centers, public pools, youth programs, and public toilets. The cutbacks have been most deeply felt in poorer areas of the country—those that traditionally vote Labor, as cynics are wont to point out—but they have also taken a bite out of the Conservative Party’s heartland, the Midlands. 

Conservative voters have organized demonstrations to save libraries in staid communities like Charlbury and to protest turning public woodlands over to private developers. According to retired financial officer Barbara Allison, there are 54 local voluntary organizations that run programs like meals on wheels in Charlbury. “We’re already devoting an awful lot of our time to charity and volunteers,” she told the FT. “Am I not doing enough? Is [Conservative Prime Minister] David Cameron going to volunteer?” In any case, as Labor Party leader Ed Milliband points out, how does Cameron expect people “to volunteer at the local library when it is being shut down?”

U.S. Treasury Secretary Timothy Geithner strongly endorsed the Cameron program last month and said that he “did not see much risk” that the cutbacks would impede growth. But even the IMF warns that the formula of treating debt as the central problem in the middle of an economic recession has drawbacks. This past October an IMF study concluded “the idea that fiscal austerity stimulates economic activity in the short term finds little support in the data.”

But a massive program of privatization does mean enormous windfall profits for private investors and the banks and financial institutions that finance the purchase of everything from soccer fields to national parks. Those profits, in turn, fuel political machines that use money and media to dominate the narrative that greedy pensioners, lay-about teachers, and freeloaders are the problem. And austerity is the solution.

But increasingly people are not buying the message, and from Athens to Wisconsin they are taking their reservations to the streets. The crowd in Charlbury was a modest 200, and the tone polite. In Athens the demonstration drew 250,000 and people chanted “Kleftes,” or “thieves.” But the message in both places is much the same: we have had enough.

A bus driver in Athens told Australian journalist Kia Mistilis that his wages had been cut from 1800 Euros ($2,500) a month to 1200 Euros ($1,660). “There are more cuts coming into effect in the next three months, that’s why the protests are heating up. I am worried that my wages will be cut to 800 Euros ($1,110) a month, and if that happens I don’t know how I will survive.”

But he has a plan. “The situation is reaching a climax,” he told Mistilis, “because working people know that the austerity measures go too far, and with the final rollout, they can’t survive. So there is nothing to do but protest,” adding, “You wait until next summer. The situation in Greece will explode.”

It is unlikely that Greece will be alone.

More of Conn Hallinan's work can be found at Dispatches From the Edge.