Syriza’s defeat deals a blow to the European Left

“Orderly debt restructuring has been done hundreds of times, hundreds, like with Germany in 1953”.

 Pablo Iglesias

As the leader of Podemos has rightly pointed out on many occasions, sovereign debt restructuring is nothing new. Why, we may ask, should post-war Germany be helped to meet its financial commitments and rebuild its shattered economies, but Greece and other southern European states should not? Well, the standard narrative on the right is that after an initial helping hand, German productivity and fiscal acumen allowed it to become a regional manufacturing powerhouse. After West Germany had sufficiently re-established itself as a responsible and affluent member of the international community, it was then helped to reunite with its crumbling, post-communist sibling. The beauty of this simplistic version of events is that it is essentially a story of redemption and triumph over adversity, and so lends moral weight to Germany’s central role in contemporary European affairs. It does not, however, hold up to scrutiny of the facts. It was Germany’s central position in the cold war, as well as its divisive position in post-war Europe that made the USA aggressively promote it as a new capitalist powerhouse on the continent. By promoting the European Coal and Steel Community (the precursor to the modern EU) with German participation, the USA embarked on a project to strengthen the Deutschmark as an additional pillar of capitalist strength, and work towards the creation of a vast trading block. Nowhere is the commitment to rebuilding the German economy clearer than in the details of the 1953 debt restructuring, where debt repayment was tied to export revenue. Creditor nations therefore had a vested interest in buying German exports, thus allowing the indebted nation to repay its debts and become ultra-competitive on the global scene.

But in the 62 years that have passed since, the rules of the game have changed beyond recognition. The European project has boomed into a vast bureaucracy overseeing a continental marketplace. With the advent of the single currency at the beginning of the century, the Eurozone members committed themselves to the observance of strict financial rules in exchange for the so-called stability of a single unit of currency designed to reduce transaction costs and promote financial security within the bloc. It is now widely known that countries, including Greece, failed miserably to meet the requirements of euro entry but were admitted anyway through a combination of financial fraud and European bonhomie. Although this may look like a tragic mistake in hindsight, it was crucial to the project that the southern European countries join the single currency in an irreversible manner. As soon as Greece, Italy and Spain were locked into a currency position which did not allow for default, they had sacrificed their only effective means of making their economies more competitive in the face of German exports (which, as I previously discussed here, are made so competitive by breaking Eurozone rules). In short, they were therefore doomed to run current account deficits vis-à-vis Germany ad infinitum. But to make matters even worse, the lack of mechanism for fiscal transfer within the Eurozone (with the original rules explicitly removing this possibility) meant that there has never been any way for the German surplus to be recycled within the union in the interest of stability and balanced growth. The single currency has been deeply flawed from the start.

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Crunch time in Greek debt crisis: time for compromise?

It is well and truly crunch time and this week will be pivotal in defining the future of Greece and the Eurozone. It was interesting to read criticism this morning of Syriza’s approach to negotiations over the last couple of weeks, with at least one commentator pointing out that Varoufakis’ negotiating actions have not matched his academic knowledge of game theory. Let’s not forget though that at least he is showing willingness to resolve the situation in a way that will keep Greece solvent and avoid disaster. This is more than can be said for his Eurogroup partners.

Later today Syriza faces a vote of confidence in the Greek Parliament. Although it is likely to gain enough votes, this is just a precursor to tomorrow’s meeting in Brussels of EU finance ministers which could be one of the last opportunities to take steps towards a compromise before things start to unravel. After the ECB stopped accepting Greek bonds as collateral on loans last week, the National Bank of Greece has been forced to increase its operations through the Emergency Liquidity Assistance (ELA) in order to prop up the Greek banks. This is essentially a form of credit sanctioned by the ECB but with the proviso that it can be cut off at any moment if the ECB feels it is excessive. The end of Greek ELA would be the point of no return, leading to a run on Greek banks, bankruptcy and a certain exit from euro. Even now, Greek bank deposits continue to plummet at an alarming rate, adding to the likelihood of a run on the banks. Unless things change dramatically Greece will surely have to institute capital controls very soon to hang on to what’s left in their financial system. According to the ECB, Greek banks have lost around 21 billion euros since December, amounting to unsustainable losses. Although capital controls would break the European Union Treaty, this is not without precedent, and Cyprus was allowed to introduce this measure, with some success, in 2013. However, this will be an unpopular measure within Greece and is likely to be a severe test for Tsipras and his government.

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5 reasons why a Greek euro exit is unlikely (for now)

Yanis Varoufakis (right) with Wolfgang Schaeuble.
Yanis Varoufakis (right) with Wolfgang Schaeuble.

I had originally intended to write today about something a little bit more abstract and theoretical as a tonic to the political commotions of the last few days. However, after Yanis Varoufakis’ whistlestop tour of Europe in support of Syriza’s electoral promise of Greek debt reduction, now seems like a good time to reflect on developments.

There were encouraging noises from unexpected quarters early in the week with George Osborne and Barak Obama both joining the calls for a review of the crushing austerity policies currently proscribed by the troika. “You cannot keep on squeezing countries that are in the midst of depression”, said Obama. Very true indeed. As the Greek delegation arrived in Germany, however, things predictably took a turn for the worse. The ECB’s announcement that it would no longer accept Greek bonds as collateral for additional funds was inevitable but still something of a surprise. Although Greek banks will still have access to the Emergency Liquidity Assistance, this was a setback, and one the markets did not take kindly to. After a meeting with ECB chief Mario Draghi, Varoufakis met his German counterpart, Wolfgang Schaeuble, in a much anticipated showdown. The fact that they couldn’t even agree that they had agreed to disagree speaks volumes on the lack of progress made.

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Syriza and the Propaganda War

Predictably, after last week’s Greek election it has not taken long for the aggressive war of words to begin in the rightwing media’s attempts try to undermine Syriza. Today’s Economist magazine sets its stall out in no uncertain terms with this pearl of wisdom:

“This newspaper’s solution: get Mr Tsipras to junk his crazy socialism and to stick to structural reforms in exchange for debt forgiveness…A very logical dream until you remember that Mr Tsipras probably is a crazy left-winger.”

What, I wonder, is so crazy about Syriza trying to implement the policies  that brought them to power? Clearly the Economist thinks that it is ridiculous that the Greek people should be allowed to have a say in their own destiny. And the type of language used adds nothing to the discussion and only serves to belittle anyone who thinks that there may be an alternative vision of European politics. Maybe its time to face the fact that if Greece were to ultimately leave the Eurozone, NOBODY knows for certain what the medium-term political and socioeconomic outcome would be. We can be sure of some of the short(er)-term economic impacts such as:

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