By Prof. Bulent Gokay | 01 June 2010
On 15 September 2008, the supposedly safe and perpetually prosperous world of post-industrial global economic order blew itself up when Lehman Brothers filed for Chapter 11 bankruptcy in the United States. The 158-year-old iconic investment bank was forced into this extreme act when the collapse of the US sub-prime mortgage market turned into the securitized mortgage-backed debt obligations into toxic assets. Today, 20 months after Lehman Brothers’ sensational collapse, the entire world economy is still in the grips of the most severe synchronized global recession, the worst in over 75 years. Growth in advanced economies remains very sluggish, and unemployment continues to rise to dangerously high levels. The enormous stock market bubble (massive amount of money that have been injected into the financial system) that has formed over the past 20 months is considered the main source of another possible crash, reflected in Der Spiegel’s front-page headline, ‘The Trillion Bomb’. The huge budget deficits in Greece, Ireland, Italy, Portugal and Spain threaten to break the euro’s back. The huge budget deficit of Britain, exposed recently during the general election campaign, is now nearing Greek territory, according to the latest figures on government borrowing. The probability of an eventual British default on debt remains quite likely.
At the same time, without any real economic recovery in sight, with sharp declines in household income and fast rising unemployment, social and political conflict is increasing in Europe. Greece offers the most serious example of how the financial crisis has moved into a new phase and exposed the deep-rooted contradictions within the current global system. ‘The Greek financial crisis has put the very survival of the euro at stake,’ Nobel laureate economist Joseph Stiglitz wrote recently. It is feared that Greece will be a window into the next phase of the global economic crisis. That is because the global crisis, which started with the collapse of the Lehman Brothers in September 2008, was never really resolved. Huge state bail-outs simply transferred all the debt to the public sector. Countries in the weaker periphery of the eurozone, such as Spain, Greece and Portugal, lack both the physical and human infrastructure required to make themselves more competitive in the global marketplace. Yet, it is in those areas (spending on roads, telecommunication, universities and skills) the IMF-imposed cuts will fall, which presents a serious problem not just now but for the future, as the ageing baby boomer generation presents Europe with a steady decline in its working age population. Europe is now facing a double-dip recession as debt crisis intensifies in Greece. All indications point out a scenario that eurozone economies will fall into a long prolonged no growth, or very low growth, period for the foreseeable future.
* Published in the Second Issue of Political Reflection Magazine (PR).