Tags: Europe, European Union, Eurozone, France, Germany, Greece
On June 3, when the President of the European Commission (EC), Jean-Claude Juncker conveyed the collective demands of Greece’s creditors—the European Central Bank (ECB), the European Commission, and the International Monetary Fund—to the embattled country’s Prime Minister, Alexis Tsipras, a member of his governing Syriza party said of the Greek delegation: “They came, they saw, and they had their balls handed to them.”
Five months after the anti-austerity party rode to victory in the Greek elections and had renounced efforts by previous Greek governments to impose austerity measures that had led the country’s debt grow from 124 per cent of GDP to 180 per cent and its unemployment rate soar to 25 per cent (and youth unemployment to 60 per cent) and its pensioners see their meagre pensions decline even faster, the German Chancellor Angela Merkel invited the IMF’s Managing Director Christine Lagarde and the President of the ECB, Mario Draghi to a previously scheduled meeting between herself, Juncker, and the French President Francois Hollande on June 1 to draft a common negotiating position among Greece’s creditors. Prime Minister Tsipras was notably not invited.
Papering over their differences, the 5-page demands Juncker delivered to Tsipras made some concessions to Greece—lowering the demand that the primary surplus for 2015 be 1 per cent rather than the 3-4 per cent that had been the earlier demand—but also included “red lines” that the Syriza-led government had vowed never to cross such as generating 2 per cent of the GDP from cutting pensions and raising VAT to a uniform level (except on food, medicines, and hotels), not to reverse the labor market reforms that the ‘troika’ (the ECB, the EC, and the IMF) had forced down the throats of previous governments, and even to establish an ‘independent’ tax and customs agency and thereby making its operations beyond the ambit of elected officials.
Yet, far beyond debates on primary surpluses and ‘red lines,’ the real struggle between Greece and its “European partners” is over politics. The positions are clear. Because of the single currency, an indebted country like Greece cannot devalue its currency and thereby cheapen its exports and with the increase in exports (and tourism) repay its debts. Hence the ‘troika’ (now renamed ‘the institutions’) were attempting to impose an ‘internal devaluation’ on Athens: forcing it to cut minimum wages and increase labor market ‘flexibility’ (making it easier to hire and fire workers and thereby also curb labor militancy) to force down the prices of Greek products to increase exports, to privatize government assets, improve taxation and efficiency in collecting taxes, and to sharply reduce government expenditures by severely cutting welfare programs and reducing public sector employment and pensions. Syriza and other opponents of the ‘austerity’ measures have argued that these measures actually impede Greece’s ability to repay its loans: if people don’t have money due to welfare cuts, job losses, etc., they cannot buy goods and hence more businesses fail. Indeed, Greece’s GDP has contracted by over 25 per cent in the five years of troika-mandated austerity and its unemployment remains high while its debt as a ratio of GDP has grown from 124 per cent to 180 per cent.
As Robert Preston, the BBC’s economics editor puts it:
But although for the pride of the creditors, the question of whether Greece is obliged to generate a surplus on its budget, excluding interest payments, of a bit more than zero or 3%, feels like a world of difference – it is a rounding error compared with the money Greece owes them, which is equivalent to 180% of Greek GDP.
In the highly unlikely event that Greece could generate a 2% or 3% surplus year-in and year-out without its economy shrinking further (which few economists would anticipate), it would take around half a century for Greek public sector debt to fall to a level regarded as sustainable. gett A half century of austerity? In what modern democracy would that be regarded as a realistic option?
Most egregiously, sharp cuts in expenditure has meant that in some hospitals budgets have fallen by 94 per cent. How can this be sustainable in a continent as rich as Europe?
It is clear that one way or another, as Nils Pratley wrote in the Guardian, there will have to be a debt write-down. What Greece’s European “partners” are unwilling to countenance is Syriza’s demands to reverse the “austerity” measures because they want to root out any left-wing challenge to the reigning neo-liberal orthodoxy. Once Greece caves in, subjects itself to ‘vasectomy’ in the words of one of its MPs, then debt-relief could be offered but not before. To offer a write-down of the debt is particularly terrifying to Spain where the governing party has already lost many local elections to a Syriza-like party, Podemos, which now controls the three major cities of Madrid, Barcelona, and Valencia. It is also threatening to other EU economies like Portugal, Ireland, and Italy which have been compelled to implement austerity measures.
Syriza has, however, done its cause no favors despite some eloquent posturing by its Finance Minister, Yanis Varoufakis. It has not demanded a write down of the debt—and we must remember that when the troika made the first loan to Greece in 2010, Germany and France explicitly demanded that the austerity not be extended to the military—and Greece has been the best customer of the German arms industry. How is the cutting of pensions and salaries to workers while maintaining higher than the EU average in military spending morally justifiable?
With Syriza maintaining the charade of negotiating with its European ‘partners’ over the last months, Greece’s position has rapidly deteriorated as frightened depositors have withdrawn their money from the banks and even transferred them outside the country. By the end of April, Greece’s bank deposits were at their lowest level since 2004 and by the end of last week deposits were being withdrawn at the daily rate of 1 billion euros.
Interestingly, the Speaker of the Greek Parliament, Zoe Konstantopoulou, has set up a Debt Truth Committee to report to parliament on June 18
is said to be on the point of finding some of Greece’s original bailout debt, from either 2010 or 2011, was unlawfully contracted. In addition, Ms Konstantopoulou is armed with a finding from experts that Germany owes Greece €350bn in war reparations – more than the whole of its debt to Europe.
This could open up a host of legal challenges even if Tsipiras was to finally cave into the troika’s demands. The question is whether the Left Platform within Syriza is strong enough to prevent a cave in when there is nothing the troika would like than to install a government of national unity with a rump Syriza. That would, temporarily at least till Spain’s November election, decapitate the European Left. Will it happen?
In the short run, if no resolution is found, Greece will be unable to make scheduled payments to its creditors and being declared to be in default would make its borrowing costs in private capital markets intolerable; Syriza’s reluctance to impose capital controls would lead to the swift collapse of its banking sector unless the government begins to issue a virtual currency against future revenues which could ease the liquify crunch domestically at least. But Greece cannot be thrown out of the EU without its consent as all decisions must be unanimous. Even if Greece were to exit the common currency—Grexit as it has been dubbed—it would call the whole European project into question. It is also unrealistic to expect a country as bankrupt as Greece to police its borders when hordes of refugees from Africa and the Middle East are streaming to Europe—and from Greece, they could move to any country in the Schengen area. Will this be enough for its European ‘partners’ to blink?