The myth of the new Marshall Plan

2011-08-02

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A poster from the original Marshall Plan Image Source: Wikipedia

When European Commission President Jose Manuel Barroso made mention to a “new Marshall Plan” for Greece, in the press conference following the EU summit on July 21, many were those who were celebrating. I certainly was not among them, since I analyzed the final document of the latest EU summit and I was sure that the “New Marshall Plan” was nothing more than the usual EU rhetoric that only succeeds in raising expectations in the very short-term.

The expectations were based upon the belief that the EU had finally realized that the strict austerity measures that were imposed on the countries that were receiving the bailouts, were plunging them into a much deeper recession. They were self-defeating. Something which has been proven in practice by the need to issue a second bailout to Greece whose economic position was not improved at all with the first bailout. Those who were celebrating believed that EU would raise funds to direct them to investments and structural projects that would stimulate the economies and thus ease the transition to recovery.

The “new Marshall Plan” is nothing more than a myth. There is no “Marshall Plan” for Greece or for any other country similar to the original one. All that there is, is a simplification of the current bureaucratic procedures that are required to absorb EU funds that are already issued to states.Once that is achieved those funds will be reallocated for “investment” purposes. Here’s the report from euobserver.com with respect to this reallocation of funds that has been baptized “Marshall Plan”:

Cash-strapped Greece, Portugal, Ireland, Romania, Hungary and Latvia may get a €2.8 billion cash boost under an “emergency package” allowing them to have the EU contribution to farming, regional and infrastructure projects increased from 85 to 95 percent.</p>

The total of €2.8 billion do not represent extra money, but will come from the budget already allocated for the six countries under farming, fisheries, regional and social funding for the period 2007-2013.

All that will be done is a mere reallocation of European funds, together with a rationalization of the bureaucracy that should anyway take place. But this alone cannot possibly be a drive for growth and thus it cannot be labeled a “Marshall Plan” when we include all the other parameters.

Greece with the new bailout will pay an interest rate of 3.5%, which in absolute terms is a very favorable rate. But for the case of Greece, this rate is still very high, since Greece’s economy does not grow at all. For the country to be able to cover the interest rate payments and at the same time make its debt sustainable, the growth rate must be higher than the interest rate. Prof. Vasilis Monastiriotis says on the issue:

Today nominal growth is zero (roughly, -3.5% real growth plus inflation of +3.5%) while the primary deficit is at 4%. For Greece to start reducing its debt without any substantial change in its growth rates would require interest rates not of 3.5% but of -3.5%.</p>

This together with the strict austerity measures that only succeed in shrinking the economy, in increasing unemployment and in raising taxes, coupled with the lack of sufficient foreign direct investment and the uncertainty around the fate of the Greek economy, mean that growth cannot be achieved unless all these parameters change.

Moreover European taxpayer’s money (the bailouts) is currently given to Greece (and Ireland, Portugal) just to pay its (their) creditors, who are in their vast majority German and French private banks. None of this money ends up in the real economy. It is an indirect financing of the quasi-bankrupt euro-system. Nothing more, nothing less.

Once all these are put together, then one can easily understand how devoid of real meaning is the phrase “new Marshall Plan”. It is nothing more than a myth aiming at calming down the markets and at preventing people who have entered the austerity shock therapy, from protesting against the new round of measures that is coming their way.

A true Marshall Plan would have been a bailout with zero interest rate, that would be directed to the real economy. Not to bankers and creditors, not at the cost of draining the real economy and devastating the middle and the lower class. The nice-sounding, seemingly promising, parlance of the EU fails to alleviate the pain of the unemployed and of the businesspeople who went bankrupt.

The “new Marshall Plan” is a myth. What happens in the real world is an unprecedented nightmare from which the people must awaken.

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