Do Greece and Europe Need A New Marshall Plan?

Posted on: February 20th, 2012 by Stas

By Stas Margaronis

There is a growing concern here that Greece is facing economic disintegration as it continues to cut back on wages, pensions and public spending in response to European demands for Greece to accept new austerity measures in exchange for bail-out funding.

The unemployment rate has jumped to 21 per cent as the crisis worsens and the Greek Orthodox Church is reportedly feeding 250,000 people per day.

A report by the German magazine Der Spiegel notes that the austerity measures demanded of Greece by the European Union and Germany have worsened the Greek economy and not made it better. As a result, Greece is facing a growing gap between revenue generation and debt repayment that was not foreseen, the publication says.

During the Depression of the 1930’s, the British economist John Maynard Keynes argued that cutbacks and austerity measures were counter productive and the failure of such measures by then U.S. president , Herbert Hoover, proved him right.

The Athens News quoted Helmut Schmidt, former Chancellor of Germany, criticizing the current Chancellor Angela Merkel for her stance towards Greece. Addressing the German Economic Forum in Hamburg, Schmidt said: “It would be wiser not to insult the Greeks and to refrain from sacking ten million people along with their former governments and then lashing them. It is way easy for a fat German, with a population of 80 million, to corner the helpless Greek.”

Schmidt concluded that: “If the Europeans fail to save Greece, then to hell with them.”

The solution advocated by Keynes and the one successfully adopted by U.S. president Franklin Roosevelt’s New Deal was targeted government investments that created new jobs and generated new economic growth.

This suggests that the European Union needs to rethink its austerity and cutback strategy to address the European debt crisis and instead consider a European Marshall plan, similar to the United States aid plan to Europe that helped European economies emerge from the destruction caused by World War II. This investment is similar to Germany’s successful investment strategy in the former East Germany that modernized the region’s economy and infrastructure after German reunification.

Keynes argument during the 1930’s was that targeted government investments had a multiplier effect so that every dollar or euro of spending would have a multiplier of economic growth as private consumption was generated in addition to and as a result of public spending.

This is not the same strategy that was embarked upon by Greek Prime Minister Andreas Papandreou who came to power in the 1980s and engaged in an indiscriminate spending campaign that has contributed to the current crisis in Greece.

Nevertheless, the EU cutbacks promoted by Germany are not working in Greece, either. Instead, the cutbacks are accelerating an economic collapse that could take years for Greece to recover from.

And Greece may be the tip of the iceberg.

Even if Greece defaults and exits the Euro zone, there is concern that a failure in Greece may trigger a crisis of confidence that will have a domino effect in countries such as Portugal, Spain, Italy and even France.

If the end result of the austerity policy is an economic collapse of Europe, then maybe it is time for a new approach.

Then the idea of looking at a Marshall Plan to revive the continent’s economies may not seem so unrealistic.

The problem is that Europe may be running out of time.

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