Monthly Archives: February 2015

Greece – between a rock and a hard place?

The recently elected Greek government has won itself some breathing space as a result of last Friday’s agreement with the other members of the Eurozone. Not much of a breathing space, just four months, and in the meantime there are strict conditions attached to the extension of the current finance agreement. However an immediate collapse has been averted and the ball is now firmly in the hands of Syriza. As I have previously written, Syriza has a strong case, at least in economic terms. Alas, the key decisions will be taken by politicians and not by economists. The Greek government has to persuade a majority of the other governments of the Eurozone. The omens are not looking too good.

It is worth emphasising here that it is not helpful to describe this as the rest of the Eurozone ignoring or thwarting the wishes of the democratically elected government of Greece.  All the governments in the Eurozone are democratically elected. You and I might not like who has been elected, but we must respect their rights as much as the rights of the Greeks. And for Syriza to achieve its twin objectives – an end to austerity and to remain in the Euro – it needs the agreement of the other Eurozone governments.

An end to austerity and stay in the Eurozone?

The difficulty for Syriza is the twin nature of these objectives.  Most Greeks almost certainly agree with these two objectives, to end the austerity measures in place in Greece, and to stay in the Euro.  However it will be very hard for Greece to get a majority of Eurozone governments to agree to this, other than some cosmetic changes. The reason is that some countries, such as Germany, Austria, Finland and others, are wedded to the virtues of austerity. Austerity is seen as much as a moral issue and has been good for them. So they see no reason why Greece should be let off the hook, as they would probably put it. Other governments, such as Ireland, Spain and Portugal, which have willingly agreed to their own austerity programme, have no interest in supporting an abandonment of austerity for Greece.  They would have a damming political price to pay if austerity was seen to have not been necessary after all.

Syriza has been elected on the promise to end austerity and stay in the Euro.  What if that proves to be impossible? This is the great unknown at the moment. If an agreement, acceptable to Syriza is unforthcoming, then the people of Greece will have to choose between maintaining austerity or leaving the Euro. While many non Greeks, on both the right and the left, would love Greece to exit the Euro, it is not at all clear that most Greeks agree. So far opinion polls have consistently shown a majority in favour of remaining in the Eurozone. Though some members of Syriza are for a Euro exit, the majority are not and Syriza’s election platform was to stay in the Euro. So if push comes to shove, and the people of Greece have to choose, it is quite possible that they will choose to stay in the Euro and just put up with the austerity. In this respect it is worth reminding ourselves that Syriza only won 36% of the votes in the recent election.

Can austerity be ended anyway?

The other difficulty for Syriza and for all Greeks is that ending austerity may not be achievable anyway. At least not in the short and medium term. If there is no agreement with its partners, and Greece does decide to leave the Euro, or is somehow forced out, the options are none too good. Leaving the Euro would almost certainly mean a default, at least in practice. While this would at a stroke remove the debt overhang, the country would for some time have no access to borrowing. The government does run a budget surplus, so would be able to pay its way in Greece. However the big downside would be the creation of a replacement for the Euro. Whatever this is, New Drachma?, it would be worth very little. While this would help Greek exporters, it would punish all those who rely on imports. And here is the rub for Greece – its imports are probably more important than its exports. Greece has not much of a manufacturing base and just about all of its energy needs are imported. All of which have to be paid for in Euros or dollars. Which would become terribly expensive for most Greeks. Even the much vaunted tourism depends to some extent on imports – energy, transport etc.

This can of course change. As some imported goods become too expensive for most people, local substitutes will be found. Alas this will take some time. In the short and medium term, leaving the Euro and the massive devaluation that this implies, offers little, if any, gain for most Greeks.

The outcomes facing Greece are not good. The best outcome would be for the other Eurozone countries to admit the error of their ways and change tack on austerity, not just for Greece for all of the Eurozone. All the other outcomes just prolong the agony and suffering of lots and lots of Greeks. As someone once said, a week is a long time in politics, so let us hope that four months is long enough for something good to turn up.

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Is the EU about to implode?

Things are not looking good for the EU at the moment. The recent election of Syriza as the new government of Greece has unleashed some rather disturbing passions. All in response to their reasonable request for a new approach to the debt burdens hanging over many EU states. Unfortunately we are witnessing yet another round of the blame game, this time played out by the member states. As ever Paul Mason in his blog gets succinctly to the heart of the matter – a clash of wills between Germany and Greece. You can read his post here.

As Paul himself recognizes this is all very silly, but alas, potentially very dangerous. The real heart of the matter is how to clear up the mess created by the financial crisis of 2008/08.  A crisis that was not brought about by irresponsible governments. A crisis that was created by individuals and private businesses across Europe. Michael Pettis, an economist at Beijing University has publishes an excellent and detailed overview of this crisis and how it has still to be resolved.  It is a longish piece, see here, but well worth the effort. If Pettis’ article is too daunting, Matthew Klein from FT Alphaville has penned a neat summary of some of the key points. You can read Klein’s piece here.

Pettis concentrates on the eurozone, though it is worth bearing in mind that the crisis started in non euro countries as well, including the UK. Though it is fair to say that the crisis has affected the eurozone more damagingly than elsewhere. Pettis’ analysis is clear that as he puts it, “the euro crisis is a crisis of Europe, not of European countries.”  He calls upon some detailed historical evidence to justify this claim. He goes as far back as 1871 to demonstrate how even Germany has in the past had to suffer similar damaging consequences from too high and too sudden capital inflows.

As many others have regularly pointed out this is not a morality play. And it should most definitely not be presented as plucky little Greece versus nasty Germany. It is worth reminding ourselves that a majority of Greeks have been prepared to vote for parties committed to maintaining the current crippling austerity measures. Even with Syriza’s victory, they and the other anti austerity parties did not win over half the votes. So some Greeks, perhaps a majority, seem to be quite happy to see their fellow citizens continue to suffer. Equally not all Germans are to blame for the current austerity fetish which dominates the thinking of just about all governments in the EU. We should not need to be reminded that German workers have had to endure stagnant wages for over a decade.

The reality is that some people and some businesses, in particular the banking and finance sector, acted very, very irresponsibly. This happened across Europe. For every irresponsible Greek borrower, there was an equally irresponsible German banker. Quite why the workers of Greece or Germany should have to pay the price of this irresponsibility is a bit of a mystery.

The failure to resolve this financial crisis is what has caused the continuing economic mess across Europe. Pettis is very incisive on this point, when he writes, “The financial crisis in Europe, like all financial crises, is ultimately a struggle about how the costs of the adjustment will be allocated, either to workers and middle class savers or to bankers, owners of real and financial assets, and the business elite.” Well there doesn’t seem to have been much of a struggle here. All, and it is worth emphasizing this, all EU governments signed up for the current never ending austerity measures, this effectively putting all the costs onto workers and middle class savers.

At  least up to now, for with the emergence of Syriza and an explicitly anti-austerity government in Greece, there may actually be a struggle as to who should bear the costs of resolving the crisis. We can see why the governments of Germany and other right wing governments in the EU want to maintain the current approach. It benefits their key supporters – bankers, owners of real and financial assets and the business elite, to use the words of Pettis. This also explains why they are so alarmed at the arrival of Syriza.

What this does not explain is why have all the traditional mainstream left parties across Europe also signed up for this austerity nonsense? For this seems to me to remain the key political question. Just think of the roll call of once proud and once powerful parties of the left who now are fully signed up with their right wing counterparts – Labour in the UK, the SPD in Germany, PSOE in Spain, PS in France and of course PASOK in Greece.

Why did they all do it? What led all these self defining parties of the left and of working people, to become willing cheerleaders for neo-liberalism and never ending austerity? The other key, as yet unanswered question, is why has it taken so long for left critics of austerity to come together and form electoral alliances on an alternative to austerity? Perhaps the rise of Podemos and the victory of Syriza will encourage this process in other European countries.

The danger in all this is that the current crisis descends into a right-wing, nationalist extremism. There are no shortage of parties on the right who are already advocating this as a way forward. The growth in popularity of parties such as UKIP, the Front National and other ultra right wing groups should be a wake up call for the left. For all the faults of the EU, its break-up is most unlikely to usher in any kind of paradise for working people. More than ever we need to be building alliances across the EU to bring an end to austerity. We need to do all we can to prevent this crisis descending into a Germany versus Greece contest and instead work to bring working people across Europe together to hold rapacious bankers and business to account.

 

 

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