by Michael Roberts
All the polls show that the leftist Syriza alliance is set to
win the general election in Greece next Sunday. It may not get an
outright majority and may have to form a coalition with one of the small
centre parties. But it looks most likely that the incumbent coalition
of Samaras’ conservative New Democracy and the degenerated
social-democrat PASOK will lose power.
Financial markets are getting worried and Greek government bonds have
dropped sharply in price as investors fear a default. Greek banks are
losing deposits as Greek corporations and the rich (or at least those
that have not already done so) shift their euros overseas. Three banks
are now asking for what is called Emergency Liquidity Assistance (ELA)
from the Greek central bank (in effect, liquid funds from the Eurosystem
controlled by the European Central Bank).
So what will happen if Syriza becomes the government next week? A
guide to this was provided by a question and answer session with
Syriza’s ‘shadow’ finance minister, Euclid Tsakalotos (soon to be
finance minister?) at the London School of Economics that I attended
this week. Tsakalotos is an Oxford university graduate, now at the
University of Athens (http://uoa.academia.edu/EuclidTsakalotos).
The meeting was arranged by Professor Mary Kaldor at the LSE and Paul
Mason, the Channel Four broadcaster (you can read his comments on the
meeting on his blog, blogs.channel4.com/paul-mason-blog/Greece-syriza-election/2941).
Other attendees included some leftist think-tanks like the Jubilee
debt campaign and Red Pepper. But also present were none other than
Professor Chris Pissarides, the Cypriot-born economist at the LSE and a
Nobel prize winner for economics for his work (see http://personal.lse.ac.uk/pissarid/). Pissarides announced that he was currently an economic adviser to Samaras!
Along with Pissarides was the former head of the Cyprus central bank
and ECB council member, Panicos Demetriades. Demetriades was sacked by
the Cypriot president after the bailout debacle there last year. He had
been appointed by the previous Communist president and then was blamed
by the Conservatives for the bank meltdown. But if he was a ‘liberal’,
he did not show it at the meeting! His main line was that the ECB and
the Euro leaders would not compromise on debt reduction and Syriza was
living in cloud cuckoo land.
What was Tsakatolos’ position? He said that Greece had to get
‘fiscal space’. By this he meant that the government needed funds to
spend on ending the humanitarian crisis, save health and public services
and end desperate poverty. This could be done if the EU agreed to a
debt reduction sufficient to reduce debt servicing to the minimum; and
for the government to run a primary budget balance rather than a 4%
surplus as the Troika (ECB, EU, IMF) demands.
Tskatolos was clearly right in his priorities. The Greek economy
remains in a parlous state. Unemployment was more than 25% at the last
count. GDP has collapsed by more than 30% since its peak before the
crisis: a decline comparable only to that seen in the US during the
Great Depression. Public services have been decimated and poverty is
rife, despite the resilience of the Greek people. The austerity
measures demanded by the Troika for its loans and implemented by the
coalition government with hardly a whimper has been draconian. A widely
recognised measure of fiscal stance is the underlying (cyclically
corrected) primary balance (the deficit less debt interest). It shows
that Greek austerity has been huge.
If Greece got its ‘fiscal space’ then the Syriza government would have €6-7bn a year to spend.
The debt issue is clearly essential to deal with. Greece’s public
sector debt to GDP ratio is at an astronomical 175% of GDP. Whereas the
majority of that debt was held by French and German banks up to 2012,
after the ‘orderly restructuring’ of the debt, now 78% of the Greece’s
€317bn of public sector debt is held by the Troika.
As I have pointed out in previous posts, around 90% of the €217bn of
loans provided by the Troika went to pay off Europe’s banks and the
hedge funds that held the debt. The banks got most of their money back,
leaving the Greek people with the bill. This is now owed to the
Troika. Back in 2012, the EU leaders finally recognised that the huge
public sector debt that the Greeks had incurred in bailing out their
banks and in funding the repayment of debt and interest to foreign
lenders (mainly German and French banks) was just too great. They agreed
with the conservative government in Athens that more funds would be
made available, but that private creditors would take a ‘haircut’ in
what was owed them. So French and German creditors swapped their Greek
government bonds for new ones worth a little less, but guaranteed by the
euro stability funds (see my post, https://thenextrecession.wordpress.com/2012/03/09/greece-the-biggest-debt-default-in-history/).
This ‘haircut’ (along with savage austerity measures) was designed to
reduce Greek government debt from 165% then to 120% of GDP by the end
of this decade. But the problem is that, if the Greek economy does not
grow and drops into a deflationary spiral, then, even if the euro value
of Greek debt is reduced, the euro value of Greek GDP will fall even
more, so that the debt burden rises, not falls. And that is what has
happened. Three years later, the Greek debt ratio is even higher at just
The IMF continues to have the ludicrous position that this debt ratio can fall by 40 percentage points by 2019 – if austerity continues, as agreed by the conservative government with a primary budget surplus of 4% of GDP, if real GDP grows by over 3% a year and if
inflation returns at a rate of over 1% a year. Instead the Greek
economy is deflating. The debt ratio is likely to rise even more.
Tsakalotos reckoned that the EU leaders would agree to debt relief
and an adjustment of the fiscal programme because it was sensible and
had support in other parts of the Eurozone too. But the question of how
to grow the Greek economy even if Syriza gets a debt deal with the EU,
which remains in doubt, was not properly dealt with in his answers.
Nobel prize winner Pissarides argued that the real task was to raise
productivity through ‘labour market reforms’ along the lines of the
Germans and now Italy’s social democrat PM Renzi. Pissarides meant by
that ending restrictive practices in the trade unions; money for
training instead of welfare benefits, privatisation etc. This openly
neoliberal position was, of course, opposed by Tsakalotos.
Instead, Tsakalotos advocated a ‘social market’ model (apparently he
is an advocate of the old ‘Alternative Economic Strategy’ in the UK
promoted by the likes of Stuart Holland and other left reformists) where
government intervenes to correct or help the capitalist sector. And he
called for an investment programme using EU money from the EIB etc. But
there was no mention of control of the Greek banks and strategic
industries and we know that defence spending will be maintained and
Syriza will not leave NATO (as Paul Mason pointed out).
Overall, my impression of Tsakalotos was his strategy was to put
forward a ‘reasonable’ set of proposals to the Troika and hope/expect
them to compromise on a debt deal. This was partly a hope and also
tactical for the media.
What will happen? Can Syriza maintain what some have called the
impossible triangle: namely 1) stay in power, 2) reverse austerity and
3) stay in the euro? Or will one or more have to go? Well, if Syriza does not get an outright majority, then debt
negotiations will be weakened by a coalition government and there would
be the possibility of a new election by the summer.
Probably the best that Syriza can expect is possibly some form of
‘London agreement’ (debt reduction along the lines that Germany got
after the war) or more likely an extension of the terms of the debt with
lower debt servicing costs or even perpetual rollover bonds. But this
would have to be made available to the likes of Portugal and Ireland who
otherwise may object that Greece is getting special treatment. But
then the Germans could say, as they have already done, that Greece is an
exception that proves the rule that the Eurozone works.
I still think the Germans do not want to push Greece out of the euro,
despite the pressure of the eurosceptics in the AfD, as they see the
risk of an involuntary exit with debt default as risky for the Euro
project. So they may eventually offer some concessions (but probably
way short of what Syriza needs).
The Breugel research think-tank has done some estimates of the likely
losses that Germany would incur if there is a ‘Grexit’, i.e. Greece is
forced out of the Eurozone. The Eurosceptic IFO Institute reckons that
Grexit would cost Germany €76bn while a Greek default within the
Eurozone would cost €78bn. Not much difference. But Breugel reckons
that IFO has ignored the impact of losses for German corporations if
there is Grexit and many Greek companies default on their trade debts.
German banks and industry could take a big hit if Grexit happens (http://www.bruegel.org/nc/blog/detail/article/1542-why-a-grexit-is-more-costly-for-germany-than-a-default-inside-the-euro-area/).
The negotiations on the debt are likely to be tortuous and so I
expect the EU leaders/ECB to keep the Greek banks and government afloat
over the next few months. I doubt there will be a run on the banks or a
collapse of Greek banks. It is too dangerous for the Eurozone as a
whole for the ECB to allow it.
Then the question is posed to Syriza: do they accept less than
acceptable debt terms and hope to use the time to grow the economy on a
capitalist basis; or do they reject them and opt Argentina-style for a
unilateral debt reduction and budget spending? The latter option would
mean possible EU loan suspension and ECB lending (although that would be
illegal under EU rules). Then Syriza would have to take over the banks
and leading industries, involve workers in production control; slash
defence spending and monies for the army and police; and appeal for EU
support for an EU-wide growth plan based on public investment.
I think a compromise deal is most likely; giving Syriza some time to
hope for recovery on a capitalist basis. What are the chances of that
working? Well, Greek labour costs have been slashed so Greek
capitalism is more ‘competitive’ …
but the private sector is not investing and profitability is very low.
The EU will likely inject some EU funds into Greece but not €6-7bn a
year as Syriza hopes – and even that is nothing after the 40% cut since
2009. So over time, the pressure will build from below for more
serious action to end poverty, create jobs and restore public services,
particularly education, housing and health.
If Syriza cannot or won’t respond to that pressure, then it will
split or its supporters will become disillusioned and Syriza will fall
back. Syriza is divided between those like Tsakalotos who look for a
‘social market’ solution within the Eurozone and those like Costas
Lapavitsas who reckons the only answer is for Greece to leave the
Eurozone. Lapavitsas is a professor at London University most noted for
his work on financialisation in modern capitalist economies (see my
post, https://thenextrecession.wordpress.com/2013/11/12/the-informal-empire-finance-and-the-mono-cause-of-the-anglo-saxons/). Now he is standing as an MP for Syriza.
And he is not the only leftist/Marxist economist doing so. It seems
that Syriza has more UK or US-trained economics professors on their MP
list than any party in Europe!
Another on the Syriza list is Yanis Varoufakis, professor of economic
theory at the University of Athens, who has been calling for a
Europe-wide, EIB backed investment programme to revive the Eurozone
economy (http://yanisvaroufakis.eu/). He has had misgivings about being a candidate for parliament as he is not sure ‘the triangle’ is possible (http://www.bostonreview.net/world/varoufakis-greece-austerity-syriza-left).
During the Cypriot banking crisis and bailout last April, he advocated
selling back the recapitalised banks to the private sector
Public ownership of the banks and strategic industries should be a
central part of Syriza’s programme for economic revival, but it is not.
The ‘impossible’ triangle for Syriza of staying in power, reversing
austerity and keeping the euro remains a question mark. But no crisis
of policy and action is likely in months as some at the LSE seminar
seemed to think. I think we could be discussing the same dilemmas on
debt, growth and the EU this time next year.
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