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Anger In Euroland, Where 'Good News' Is Just for the Markets

01/05/2015 15:50 BST | Updated 01/05/2016 10:12 BST

European finance ministers reacted angrily, it was reported, to what they perceived to be Greek intransigence during their meeting in the Latvian capital of Riga last week. They don't like the refusal of the anti-austerity Greek government to play their game, and they have yet to work out what to do about it.

The Greeks know that they can't repay their debts, and that some sort of debt-forgiveness within the Euro framework is a better outcome for all concerned that forcing Greece to abandon the Euro altogether. In the latter case the credibility of the single currency is undermined, default is certain and the lenders will have to sing for their money. In the former, order is maintained and only a proportion of debt is written off.

Logic, therefore, is on the side of the Greeks, which makes anger a natural response from their interlocutors, who have boxed themselves into a corner from which they can only lose. Their frustration is palpable: the big boys always set the rules, and hate it when others choose not to play. It remains to be seen whether they will swallow their pride and accept the Greek logic, or kick over the table and allow the pieces to fall to the floor.

It is not only logic that supports the Greek position. It is also supported by human need. When the provision of basics such as housing, food, education and healthcare is vulnerable to the workings of financial markets (of which ordinary people have neither understanding nor control) it makes sense to reduce that vulnerability. But when the chosen method makes things worse - when the outcome of prioritising sovereign debt repayments is to leave the sick, homeless and hungry unsupported - it is time to question the rigid assumptions that frame the institutional mindset.

This point is illustrated by a telling passage in the press statement that followed the Eurogroup meeting. Eurogroup President Jeroen Dijsselbloem spoke of "good news" from Cyprus, namely that "the Cypriot parliament legislated to establish an insolvency framework and that will also make an end to the suspension of the foreclosure framework". Unpicking that dense terminology we learn that Cyprus has caved into pressure to make it easier for banks to repossess the houses of people in difficulty with their mortgages.

Mr Dijsselbloem's comments on the equally "good news" from Spain were even more revealing, and are worth quoting in full:

We were debriefed by the Commission and the ECB on the main findings of their third post-programme surveillance mission to Spain that took place in mid-March...

We welcomed the significant progress made by Spain. All indicators are showing progress in both budgetary and economic terms.

We also realize that debt and unemployment remain high. So, clearly there are still important challenges ahead.

We are confident that Spain will maintain its good track record and adhere to its commitments under the surveillance framework.

The "good news" here is that all indicators are showing progress in both budgetary and economic terms. All indicators. Presumably that includes the debt and unemployment that, Mr Dijsselbloem concedes, remain high. "High" is understating it: unemployment in Spain remains stubbornly close to 25% and actually rose in the latest quarter. Among young people the rate is nearer 50%. If these levels applied in Britain - or the Netherlands, where Mr Dijsselbloem is Finance Minister - there would be revolution in the air. But never mind: the Eurogroup is confident that Spain will "adhere to its commitments under the surveillance framework".

Such language tells a clear story. At an institutional level there is unwavering belief in the framework, and everything else is subservient to that. What individual countries choose to do within the framework is up to them, but they must live with the consequences. In other words, the suffering of destitute Greeks, unemployed Spaniards and homeless Cypriots are the fault of choices made by their own governments, and nothing to do with the policy frameworks set down by the European institutions, including the European Central Bank (ECB).

There are (at least) two problems with this. The first is that the policy frameworks are far less rigid than the institutions are willing to admit. The German authorities had to be dragged kicking and screaming to agree the ECB's programme of quantitative easing, but with countries such as Spain now able to borrow at negative interest rates there is good evidence to suggest that the only harm caused by this policy is that it was so long delayed. Managed default in a case of unpayable debt is a perfectly respectable policy approach and it will be no consolation to the Greeks if the institutions decide too late that it would have been appropriate.

The second problem flows from the first. Because the frameworks are not set in stone, there is a much stronger connection between the institutional policy framework and the outcome for ordinary people than the institutions are willing to admit. In reality, the framework represents no more that a prioritisation on the part of the institutions - a decision to favour one set of economic actors over another for reasons that are largely political.

This does not mean that those reasons are necessarily self-serving. The collective mind of the institutions certainly believes that keeping the financial markets happy is essential to the wellbeing of ordinary people. It is the same mindset that assumes that the Transatlantic Trade and Investment Partnership (TTIP), which strongly favours the interests of large corporations, is also good for ordinary people, even if many of them suffer falls in wages or lose their jobs as a consequence.

It is a mindset, in short, that sees individual people as essentially passive, powerless pawns in complex, multi-dimensional, multi-participant chess game. The powerful, back row pieces are represented by institutions, banks, large corporations, rich investors - anywhere that large concentrations of wealth are to be found. Governments, and government institutions such as the E.U. and it agencies, are like the king, dodging around, keeping his head down and trying not to get cornered while the queen, bishops, knights and rooks freely exert their destructive power.

Real life is not chess, however. In a game with fixed rules the big pieces may be more powerful, but in life they are only as powerful as we let them be. In the post-war era up until about 1980 western economies grew rapidly and societies became progressively more equal because the institutions that governed them were not willing to concede everything to the market. The capacity of the already-wealthy to acquire more wealth was deliberately, institutionally, constrained.

One of the advantages of the European institutions is that they really are big enough to take on the markets. The problem is that they don't want to, and for reasons that are entirely political. And that includes the left: as Paul Krugman puts it in his Guardian piece, The Austerity Delusion, "...the whole European centre-left seems stuck in a kind of reflexive cringe, unable to stand up for its own ideas."

Coming from a prominent figure in that centre-left, the language used by Mr Dijsselbloem to describe the good news emanating from Cyprus and Spain (in contrast to the bad news coming from Greece) illustrates that cringe in action. Good news - the markets are functioning efficiently. The consequence, in unemployment, poverty and homelessness, are "important challenges", but never mind - just keep taking the pills.