In May 2023, when the British Office of National Statistics (ONS) released the March-quarter national…
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”.
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.