Canadians trying to recover from the post-G20 blur have yet another worry on the horizon: the aftershock of the G20 leaders’ austerity plan.
Two years ago this fall, the G20 nations responded to the global financial meltdown with aggressive monetary stimulus and massive bank bailouts to quarantine the contagion; and a $5 trillion fiscal stimulus program to stem the economic free fall. Without this unprecedented collective action, the world would have plunged into a 1930s-style depression.
Even as the European debt crisis — the latest fault line in the financial crisis — continues to send shock waves through the global markets, powerful forces are aligning to flick the world back into its previous ideological default position.
Now that the depression bullet has supposedly been dodged, the G20 political leaders, despite paying lip service to the still fragile and uneven state of global economic recovery, are planning to rapidly eliminate their deficits — the very mistake governments made during the 1930s.
Contagion (a medical term referring to a highly transmittable disease) has become the metaphor for a world of highly interconnected and deregulated financial markets; where a financial crisis in one country quickly spreads to others infecting their real economies as well.
Collateral damage is what happens when contagion hits people who live and work in the real economy, and who pay the price of the financial market excess that caused the contagion.
Global unemployment has already risen by 34 million since the crisis began, with millions more workers unable to find regular employment.
Prodded by the financial markets’ whipping up of deficit hysteria, a new government consensus in favour of fiscal austerity is emerging. It is led in Europe by Germany and the U.K., and in North America by the Harper government. It contends that only swift and deep spending cuts will restore confidence among the bond market vigilantes.
This, its proponents argue, is necessary to prompt the private sector to spring into action, invest and spur the recovery. Although there is not a shred of evidence that this tough love approach will work, one thing is certain: It will deepen the suffering of the unemployed.
Draconian austerity measures are now being imposed in Europe and elsewhere: pension rollbacks and wage cuts for public servants, savage spending cuts. Millions are losing their jobs, their homes and their businesses.
These measures are guaranteed to deepen and prolong recession and, paradoxically, weaken governments’ ability to manage their debt.
The wealthy will suffer no similar fate. On the contrary, the latest Merrill Lynch world wealth report found that ranks of millionaires climbed 17 per cent in 2009 while their collective wealth surged 19 per cent to $39 trillion.
Stephen Harper boasted about getting G20 countries to agree to cut their deficits by one-half by 2013. If they follow through, the risk of backslide into global recession will grow. (Nothing about job creation targets in the summit communique.)
Harper also lobbied hard to kill an international bank tax that would help rein in the speculators that put the global economy in crisis in the first place, and provide a major new source of revenue for governments.
At home, egged on by business economists and its own ideological instincts, the Harper government is preparing to shrink its own moderate deficit and debt via major public services cuts, layoffs and asset sell-offs, even as more than 2 million Canadian workers (11.5 per cent) remain unemployed or underemployed.
The news of recent days makes the G20 decision all the more troubling. The U.S. economy is faltering, unable to create enough jobs as record numbers drop out of the workforce. Europe is struggling. The Japanese economy is anemic. Even China’s economy is showing signs of slowing. There is growing talk a double dip global recession.
In Canada, the economy stalled in April and today Statistics Canada will tell us how this has affected unemployment.
So, here and abroad the poor and the middle class pay the price of deficit reduction via social program cuts and continued high unemployment. They are collateral damage while the perpetrators get back to business as usual.
The destructive free market mindset — the real source of the contagion here — was not (as it should have been) extinguished months ago; and proponents such as Harper and other G20 leaders have worked hard to put it back on the front burner.
Clearly, they have not yet learned the lesson of the 2008 collapse. Until they do, the cycle of contagion and crisis will recur. And people — the collateral damage in this dangerous high stakes game — will continue to pay a heavy price.
Bruce Campbell is Executive Director of the Canadian Centre for Policy Alternatives.