Greece – two alternative views

When I was in Europe recently, I had interesting discussions about the future of Italy, Greece and Spain with various people, particularly in relation to trying to understand the apparent dissonance between the strong support for the euro and the devastation that membership of the common currency has created in these countries. It is, of course, a very complex issue that goes well beyond economics (as most things do). I formed two alternative views from what I was heard from those on the so-called progressive side of the debate. Either they are kidding themselves or that they have crafted a plan to force Germany (mainly) to break up the currency union. The alternative scenarios was also quite distinct along national lines with Italians more likely to be in the former group and Greeks in the latter group, although my sample sizes were relatively small.

Relevant to this blog is the UK Guardian article from yesterday (December 23, 2014) – Syriza’s chief economist plots a radical Greek evolution within the eurozone – which I consider supports my dichotomy.

The article focuses on the “chief economist of Syriza”, the progressive party in Greece which in all likelihood will gain power as a result of the resolution to the current political instability. At least, that is what a lot of Greek-watching psephologists are saying. Me being just a Greek-watching economist!

Syriza is otherwise known as the – Coalition of the Radical Left.

The political signs are positive though. In the May 2014 – European Parliament – elections, Syriza triumphed moving from having 1 seat in the previous election to 6 seats in the EP and garnering 26.58 oer cebt if the vote. They are now the dominant Greek party in the European Parliament.

But then the Greeks also gave 9.4 per cent of the vote to the three successful neo-nazi Golden Dawn candidates to place it in third place overall.

So Greece is seemingly polarising, which is no surprise, but then again, it is questionable what the voting patterns at the European Parliamentary elections mean for any nation’s national elections.

The Guardian describes then as a “far-left party” which “sent markets into a tailspin as it edges ever closer to power in Greece”. Retain that information.

The chief economist, with a PhD ot two from Germany, told that Guardian that:

I am a Marxist … The majority [in Syriza] are … [and] … Alternative approaches to the economy and society have been excluded by the dominant narrative of neoliberalism.

It is unclear these days what a Marxist actually is given that politicians and apparatchiks call themselves Marxists but then defend private property, for example. There is certainly no mention of socialism on the – About Syriza – English page.

But as a badge, describing oneself in that way in these times is certainly not mainstream.

It seems that Greece will have a national election in the coming months and the Syriza might become the “the first elected left government in Greek history”, which would be something indeed.

But will it really make a difference?

First, Syriza – states – that it is committed to:

1. Ending “the modern Greek tragedy that the Greek people are living through, with an unprecedented unemployment rate of almost 30% (among young people the unemployment rate is more than 60%!), widespread poverty, over-indebtedness of households, closures of many small shops and businesses and an economic recession that has exceeded 20% of GDP in the past five years”. Good, about time the polity cared.

2. Abolishing “the memoranda signed with the Troika of lenders when it assumes office and will re-negotiate the loans.” Essential.

3. Promoting “a programme of social and economical reconstruction, aiming at development that promotes human needs and well-being and respects nature.” Essential.

4. Denouncing “the dominant extreme neoliberal and euro-atlantic policies and believes that they must and can be transformed radically in the direction of a democratic, social, peaceful, ecological and feminist Europe, open to a socialist and democratic future”. Essential.

So that sounds as though things would change rather dramatically in Greece should they get their hands on the controls.

The chief economist reiterated these aims. He told the Guardian that “the priority is dealing with the humanitarian crisis that has rolled over Greece like a tidal wave”.

He says that Syriza will:

… make concerted efforts to help those hardest hit by the crisis – free electricity for Greeks who have had supplies cut off, food stamps distributed in schools, healthcare for those who need it, rents covered for the homeless, the restoration of the minimum wage to pre-crisis levels of €750 a month and a moratorium on private debt repayments to banks above 30% of disposable income.

He thinks that most of these changes will be “covered by a reallocation of state revenues and crackdown on tax evasion”.

Which then raises the question of how the Party plans to fill the massive output gap that Greece has. While there might be good reasons for redistributing the existing fiscal outlays across the competing interests, the overwhelming fact is that the Greek public deficit has to rise substantially – by multiples of the current Stability and Growth Pact fiscal limits of 3 per cent.

Running a fiscally-neutral policy to help people will only partially stimulate overall spending in the nation. The reality is that Greece needs a public stimulus that is way beyond anything that is allowed under the current rules.

Okay, then the Greeks can fix that in a single decision – leave the Eurozone and restore currency sovereignty.

But here is the twist.

He told the Guardian that:

Everything we will do is in the context of staying in the eurozone … nobody believes all this talk about Grexit any more. [Angela] Merkel herself has said it is impossible for any country to leave.

How are we to interpret that statement?

Does Greece have the political clout in Brussels to change the overall Eurozone Groupthink from a harsh neo-liberalism to something different, more in keeping with the motherhood ambitions articulated above?

Answer: definitely not! The cornerstones of the monetary union, which makes it unworkable include the lack of currency sovereignty, the fiscal rules embodied in the Stability and Growth Pact and the related Fiscal Compact and other protocols (six and two packs), and the straitjacket imposed on the European Central Bank.

Will Greece be able to budge any of them? Highly unlikely, read – no way.

Can a nation prosper within the Euro system of constraints? For a time, but not in any sustained way.

Once bogged down in Depression with massive public debt to GDP ratios and no currency sovereignty, can a national resurrect itself within those constraints? It would be nigh on impossible.

So reading the narrative in one way leads to the conclusion that any commitment to stay within the monetary union is equivalent to madness and would certainly preclude the achievement of the stated aims articulated above.

The way the Eurozone was constructed, evolved and is managed defines it as a neo-liberal construct – it is neo-liberal to its core.

In my upcoming book on the Eurozone (to be released in English in May 2015 and in Italian a little earlier at present), I make the point that there are two essential steps a Member State has to take to restore sustainable prosperity:

1. Exit the Eurozone and restore currency sovereignty; and

2. Abandon neo-liberal principles with respect to the conduct of economic policy.

One without the other will not work. In that respect, a literal reading of what the chief economist of Syriza is saying leads me to think that they will not lead Greece out of the miasma the nation is stuck in.

So if Syriza wins power and embarks on a policy structure that would work then they would breach the fiscal rules of the monetary system that they want to remain in.

I suspect they know that and certainly the personal discussions I have had inform me that they are not stupid. More later on that point.

The other point is that Greece has a public debt to GDP ratio of 177 per cent or “more than a third larger than it was at the crisis’s start”.

Whatever the people of Greece might desire, their reality is that the private bond markets or the Troika are the dominant force for as long as Greece retains the euro as their currency.

Which brings to mind the old saying that if you are going to go bust you might as well do it in style with massive rather than smaller debts. Why? Because the consequences for the creditors are likely to be huge as well which can condition the way they think and act.

The chief economist said that this would put “the problem of public debt on a pan-European level, proposing the extension of maturities on bonds held by the ECB”.

It might.

He also certainly rejected the demands by the Troika and other conservatives that Greece run primary surpluses to start repaying the debt and considered that to be “an enormous austerity trap that deprives society of valuable resources”.

Which it is.

Essentially, Syriza is calling for a 1953 London Debt Agreement-style solution. The chief economist told the Guardian that:

More than 50% of Greek debt needs to be written off … The solution [of debt forgiveness] that was given to Germany at the London conference in 1953 is what we must do for Greece.

It should be noted that Greece has already defaulted on a significant portion of its public debt (around €100 billion out of a total at the time of €350 billion) in the March 2012. They didn’t call it a default but that is what it effectively was.

Whenever this issue is raised I think of the crippling debts of the less developed nations that the IMF and other advanced economies have imposed on them in the name of structural reform. Many nations have been impoverished by the bastard acts of the neo-liberals long before Greece encountered its more or less self-inflicted problems.

Why do I call them self-inflicted? Because they elected governments that took them into the Eurozone, when it was obvious from the start that the design of the monetary system would cause it to fail and the most vulnerable nations (such as Greece) would bear the brunt of that failure.

So letting Greece off the hook in this respect seems unfair in relation to much poorer and desperate nations. Does Syriza advocate a complete debt jubilee for all nations that are struggling?

As an aside, the debt forgiveness in the immediate Post World War II period was not confined to Germany. The 1953 London Debt Agreement was specifically about the German Debt issue that several previous approaches had failed to solve.

But earlier, as part of the Marshall Plan, which had provided US funds to the ravaged European economies, there was debt relief given to the allies by the US. It was not all generosity, however. First, The Marshall Plan was part of the preparation for the Cold War against the Soviet system. Second, the European countries had to use the grants to purchase US-produced goods and services.

Further, the US wrote off a portion of the debt that France and Belgium owed to them. Again, it was not all altruism. In the case of Belgium they swapped uranium (extracted from Belgium’s Shinkolobwe mine in its African colony in the Congo) in return for the debt relief. As part of Harry Truman’s Manhattan Project, the metal was used to bomb Hiroshima and Nagasaki.

It was even nastier than that. Belgium initially harshly exploited the natural resources of its African colony, which helped them gain the debt relief. Some have referred to the so-called ‘Congo Free State’ as a “a giant forced-labor camp where native people collected ivory and lumber, and harvested rubber sap under brutal conditions” (Source).

King Leopold II died in 1909 as a billionaire as a result of the surpluses he extracted from the Congo but never set foot in the place.

Then in 1960 when the Congo became independent, the Belgians insisted as part of the independence deal that the poor African nation assume responsibility for the debts associated with the mining developments that Belgium had so vicariously exploited.

They also sealed the prosperous Shinkolobwe mine with concrete as they because they feared the “lethal substance would fall into the wrong hands” (Source).

There was never anything nice about colonialism!

There is also a qualitative difference between cancelling current Greek debt relative to what happened in the case of Germany under the London Agreement.

At the time, most of the debt (around 80 per cent) owed by the German government was held within the country and the debt cancellation thus altered the distribution of income within Germany and wiped out the savings of many Germans.

In the case of Greece, a significant amount of the debt relief would apply to international creditors, which means the savings of foreigners would be called upon to aid Greece.

But that is not the main issue here.

The second alternative way to interpret all this – stated desire to stay in the Eurozone but an abandonment of the basic constraints that membership of the Eurozone requires (neo-liberal austerity) – is as follows.

Greece clearly would feel vulnerable if it was to announce a unilateral exit of the Eurozone and its capacity to redemoninate liabilities, while clear in law, would be hampered by relentless court actions etc, in the same way that Argentina is still being hassled by the zombie debt holders some 13 years after the default.

In the context of modern Europe, my understanding is that Greece is not a confident nation. It knows that it did not belong in the monetary union in terms of the convergence criteria and had to do a dodgy deal with Goldman Sachs to get close enough to the line to be dragged in.

Essentially, many nations were compromised in some way or another in relation to the convergence criteria, including Germany.

But it sees the European Project as an important sign that it can move beyond the era where military coups and Generals were at the ready to take over and run the place. Europe is a symbol of being part of something sophisticated.

So I am guessing the left-wing in Greece doesn’t want to be singled out as the party or coalition that brought Greece out of Europe and plunged it back into the dark ages again.

But the economists on the left also must know that they cannot achieve their clear aims to abandon neo-liberalism and revitalise the nation while they are bound by the fiscal rules and do not have currency sovereignty.

So the solution to that imbroglio would appear to be clear. Take power, create havoc with threats of default, increased deficits, renegotiations of existing pacts with the Troika so that a big nation like Germany finds it politically impossible to remain part of the deal.

It would be much easier for Greece, if Germany, for example, pulled the pin on the deal rather than the other way around.


Unless you want to conclude the left are naive and stupid (which I do not want to conclude) then this alternative is, for me, the only convincing explanation of what is going on at present in Greece. I will stand corrected if they get elected and betray their voters.

The Guardian notes that:

Ultimately, Syriza’s biggest challenge may not be Angela Merkel but the tortuous road it will have to take not to betray those who so want to see it in power.

We will see.

That is enough for today!

(c) Copyright 2014 William Mitchell. All Rights Reserved.

This Post Has 15 Comments

  1. Bill,

    You say: “It is unclear these days what a Marxist actually is given that politicians and apparatchiks call themselves Marxists but then defend private property, for example.”

    Private property is an interesting issue. Surely, all productive enterprises could be in collective hands (owned by the workers in worker collectives) or nationalised in some cases and yet individuals could still have private property. In your case, your personal musical instruments would still be your private property. Whether you wanted to share them, lend them out or give them away would be your decision.

    The first basic test would be based on this question. Is an asset a means of production or not? If not, then it can be a private possession depending on provenance (how you got it / where it came from).

    The second test would be this. If the asset is used for production or obtaining income in any way but is so used solo then this person constitutes a deemed “collective of one”. A true collective does not exist so it remains the property of one person solely i.e. private property. There would probably have to be a wealth limit on this rule but let’s not get sidetracked.

    If a person owns a house and simply lives in it then it could be private property depending on provenance. A monetary value limit should apply but additionally a quantity limit could apply for large. That is you can only own one place of residence (house, unit, flat or whatever). There would be appropriate transition rules for changeover of course.

    If a person owns a house and then rents a room, then the house in a pro rata sense becomes an income producing asset. But a single owner is still a collective of one.

    I guess this is not strictly Marxist but as a path to a more collective society it is possible… and without abolishing private property in total. I can see nothing wrong with having private non-productive property and then having quantity and wealth limits on it. In effect, it would saying private, non-productive property is okay up to a reasonable limit.

  2. Parties of the left and centre-left who have attained government in other countries (including Australia) have certainly proven themselves to be naive and stupid when it comes to developing sustainable economic policy. Witness the proclaimed objective of Wayne Swan to run budget surpluses, and to operate what amounts to neo-liberal policies in general. Therefore the question has to be asked, why would one expect Syriza to be any different?

  3. It looks like Greece has the same Tweedle Dee/ Tweedle Dum problem as Australia.

    And you probably will stand corrected in regard to Syriza.

    Golden Dawn is looking like the better option – a Greek tragedy.

  4. “…Take power, create havoc with threats of default, increased deficits, renegotiations of existing pacts with the Troika so that a big nation like Germany finds it politically impossible to remain part of the deal.

    It would be much easier for Greece, if Germany, for example, pulled the pin on the deal rather than the other way around….”

    Hope that’s the true intentions of Syriza – would be a brilliant political operation.

  5. Dear Bill

    The real mystery is why Greece wanted to join the Eurozone in the first place. I don’t want to join the chorus of Greece-bashers, but Greece is a country where people love to get a government job but hate to pay taxes. What we would expect in such a country is an overstaffed civil service and chronic deficits. The overstaffed government sector means that Greek GDP will be lower than it could be because of large-scale underemployment in the public sector. The chronic large deficits will mean inflation. Inflation is not such a problem as long as a country can devaluate its currency to avoid a real up-valuation. It should be noted that Greece had no serious economic problems between 1970 and 2000 when it had its own currency and was free to devaluate it.

    With such a history, why did Greece impose the straitjacket of the euro on itself? It is incomprehensible.

    Regards. James

  6. There was a deep programme of Calvinist propaganda in the Irish and med countries on EU entry.
    Read Desmond Fennels ” nice people and rednecks – Ireland in the 80s for this strange symbiosis of liberal and puritanical thought control.
    This has resulted in a continent filled with these strange creatures.

    This scot mind plantation was brought home to me again recently when reading the Scotsman.
    In a critic of the Edinburgh tram turkey almost every negative comment was based on the lack of revenue although not of passengers…..
    The lack of revenue was a result of pensioners using a free or reduced fare pass.
    It seemed lost on everyone that the lack of revenue was a simple result of the lack of purchasing power.
    Socialism seeks to manage this by giving free tokens once others pick up the tab.
    I am not a fan of this but their refusal to even consider management of capitalism is quite funny and unworkable.
    The benefits of industrial concentration cannot be managed under such strange belief systems.
    Its better to advocate and argue for agrarian distribution when confronted with such people.

  7. Of course there’s always the Ukraine option, because Greece really cannot be allowed any self-determination that will weaken the neoliberal project. When all else fails (as if, the people actually look like they are embracing liberalism), the US calls in its Neocons, who pump up Golden Dawn, and entice the Greek military (until now, watching from the sidelines) to support a Golden Dawn coup by offering them whatever shiny new trinkets of military hardware their wonderful hearts desire. After all, as the US showed in Ukraine, it has no problem whatsoever lying down with fascist fleas in its pursuit of world colonization.

  8. James: I think Bill addressed that. They were tired of high inflation, (mis)rule by military dictators, currency devaluations. They may not have made a good choice, as it turns out, but becoming part of the modern World, rule of law, close economic cooperation … I’m sure it sounded very good indeed, and parts of it still do … that is why a majority of the population says it wants to stick with the Euro.

  9. Greece, Italy and Spain too, are serious menaces to the euro. But the euro is a too big challenge… Because of the panic to the unknown. Is not curious that Syrizas and Podemos (Spain) have become much more moderate about the euro at the same time? They lie because if they say the true they’ll never win.
    In Spain it is impossible to win elections declaring the exit of the euro. Impossible. So, the only chance of Euro’s fall would be through a big financial crisis. But I’m sure that in this case Germany would make all it is possible to prevent it. And US BTW.
    In any case, I can’t see any rational or/and pacific solution to the enormous political and social crisis caused by the Euro, as in 1930 by the gold.

  10. Bill,

    What do you mean by “Germany, for example, pull{ing} the pin on the deal” ?

    Germany leaving the Eurozone, or kicking Greece out?

    As Miguel points out “Greece, Italy and Spain too, are serious menaces to the euro” I’d add France to that list too. But we need to remember that before the EZ the big exporters could manipulate their own currencies downward in order to remain net exporters. They can’t do that with the Euro so Germany, the Netherlands, Austria etc do need the other countries too. The Euro wouldn’t work any better if it were just restricted to the exporters.

  11. So people in the southern nations wanted to join EZ/EU because they expected that EU/EZ could do what they them self was not capable of, defeat domestic political corruption. A bit naive to expect “Germany” to turn them into “germanys” that would compete with Germany. Sell out your national sovereignty to an undemocratic supranational to the. Ore neoliberal body in the vain hope that they should do what you wasn’t able to do your self.

  12. @/L – In other words, trade often exaggerated domestic corruption for supranational rule, in fantasy by disinterested, enlightened technocrats, but in fact by entirely corrupt, mindless and venal apparatchiks. The power of this delusion, this wishful thinking is shown by the fact that according to Wray, with exceptions (Parguez, Sardoni etc) – it convinced most European circuitiste economists – basically MMT! – to support the Euro.

  13. I agree completely with Bill about the need to exit the euro. The euro should be scrapped and national currencies introduced for all eurozone countries. I also agree in his analyisis of Syriza, which seems to be somehow in thrall to idea of winning so much influence in the EU machinery that they and others can turn it around and getting it to implement an anti-austerity programme.

    Sorry, won’t happen.

    So euro exit should be the way to go, But a population majority is scared of doing that. There should therefore be a smooth and gradual process instead. This is feasible by introducing a parallel domestic currency, and accepting that currency partly in payment of taxes. If the government spend – say – 30% national currency and 70% euros, it can tax in the same proportion.

    A second point is that this national currency can be implemented as purely electronic money, no bills and coins. Transactions then go via mobile phone, and everyone has a free account directly at the Central Bank. This – called “Mobile Money” – is up and running from 1 December in Ecuador, even if they use USD. So the software and organisational issues are already solved and implemented, and can be copied.

    A 2012 paper of mine on parallel national electronic currencies to remedy the euro crisis is here, page 14:

    (in English, other papers mostly in German. Other participants with interesting yes-to-parallel-currencies papers, among them the former chief economist of Deutsche Bank, and also one of the top figures in AfD, the new German anti-euro party).

  14. Bill ~
    Just ran across this talk by Flassbeck from last month (perhaps you were there?) during which he mentions (at about 28 minute mark) Syriza’s idea that it can appeal for the necessary changes to the powers that be. While Flassbeck is sympathetic, he sees little if any possibility that Syriza will be taken seriously, and feels the Euro project has about a year left before France and others slide into the grip of the hard rightists.

  15. From what I’ve seen Syriza is by choice pro-euro. That includes Alexis Tsipras (prime minister) and the current economics minister Yanis Varoufakis. However, the ebb and flow of evens in real life can overturn people’s original intentions. I think that such will be the case in Greece as co-existence in a German dominated euro will make little sense on a medium-term basis.

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