Category Archives: Greece

The EU and Greece

Political parties are beginning to gear up for the prospective referendum on the UK’s membership of the EU. Arguments for and against our continuing membership are beginning to take shape. At the moment it looks like Greece, its woes and its alleged mistreatment by the EU will be used as a reason for leaving the EU. The latest to do so was Patrick Harvie, the leader of the Scottish Greens.

In an otherwise balanced article on Europe: the next referendum, Patrick Harvie writes the following:”We’ve seen the disgraceful treatment of Greece by the ‘troika’ which is utterly committed to imposing a hard right economic agenda on Europe regardless of the way people vote.”

Much as I admire Patrick Harvie, this claim is just untrue. It has become a very widespread claim, but it is nevertheless a gross misrepresentation of what happened in Greece. A brief look at what did happen may help to clarify the matter.

The economic mess in Greece was caused by Greeks
The current economic crisis in Greece has been decades in the making. Successive Greek governments presided over mismanagement, corruption and cronyism on a grand scale. This is not the view of an outsider, but the central criticism of most Greeks, including Syriza, who preside over the current government in Athens.

Over decades Greek governments did little or nothing to modernise the country’s economy. Instead they indulged in as much cooking of the books as they could get away with. All this changed with the Euro. With membership of the eurozone, Greek governments could no longer get away with hiding their corrupt practices.

It is to the credit of George Papandreou, that he finally came clean in 2009 about the extent to which Greek governments had lied to its citizens and the rest of the EU. When the true state of the government’s borrowing and tax revenues came to light the government quickly found that it could not borrow any more. The global financial institutions took fright and would only lend to Greece with prohibitively high interest rates. Which effectively meant that Greece was insolvent.

Greece asks the EU for help
Faced with this situation there were very few options open to any Greek government and all of them were bad and nasty. One option was to simply default. Another was to leave the euro and re-introduce its own currency. Or both. However none of these options offered immediate relief to the Greek economy nor to the Greek people. What is more important is that the Greek people by overwhelming majorities have consistently rejected both these options. Opinion polls and election results confirm that a clear majority of Greeks want to stay in the euro and to avoid a unilateral default.

This left Greek governments with only one option. To ask the EU to step into the breach and provide emergency funding to enable the government to pay its way. This help was provided with the assistance of the IMF and the ECB – the infamous troika.
However there is no such thing as a free lunch. The troika, quite reasonably, set out some conditions for their funding. Now we can disagree with the specific conditions set by the troika. I certainly do, the troika’s prescriptions are widely regarded as economically illiterate and counter productive. However the troika is the only show in town.

Greece has accepted the troika’s terms because a majority of Greeks are convinced that the alternatives would be even worse. This is not the fault of the troika. It was the Greeks, all on their own, who got themselves into this mess. Blaming others, whether the troika or anyone else for Greece’s predicament, is not going to help the country move forward.

The EU is not an independent agent
I have one further quibble with Patricks Harvie’s comments. This is when he claims that the ’troika’ is utterly committed to imposing a hard right economic agenda on Europe regardless of the way people vote. Again this is not true. As the article is about the EU, we should just focus on what the EU can and cannot do. The key point about the EU is that it is not an independent body that can act separately from the member states.

The EU is essentially a club formed by the member states. The governments of the member states get together and when there is sufficient agreement, they will adopt a particular policy or regulation. But only where there is either unanimity or a very wide consensus.

This near unanimity, alas, applies in relation to economic policies. Just about all the member states, including our very own UK, have democratically elected parliaments and governments committed to a neo-liberal, austerity agenda. This agenda has not been forced on any country. It is the opposite. It is the member states which have forced the EU to adopt and agree to this austerity agenda.

This austerity agenda is not the result of the EU ignoring the way people vote. It is precisely because the overwhelming majority of voters in EU countries have democratically voted for austerity parties that this has become the dominant policy in the EU. That one country, Greece, has voted for an alternative policy, cannot alter that fact. I assume that Patrick Harvie is not suggesting that the rest of the EU be forced to adopt whatever policy the Greek people want.

If we want to change the current dominant neo-liberal agenda in the EU, then we need to work even harder to convince our fellow citizens in all the member states to vote for parties committed to an alternative economic and social future. Distorting how the EU works will not make that task any easier.

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Can Syriza reform Greece?

It is interesting to note that media coverage of Greece has almost disappeared. For a couple of weeks in July, Greece and its troubled negotiations with the Troika was front page news, with rolling minute by minute reporting from Brussels and Athens. What most motivated this frenzied coverage seemed to be the prospect of a massive failure, with all the political bloodletting that would result. Great for selling newspapers and filling TV programmes. The main question was could Greece stay in the Eurozone or even in the EU or was the much talked about Grexit about to happen? When a last minute deal was somehow agreed the media quickly lost interest in the whole thing. The complex negotiations over a new long term deal for Greece is way beyond the interests or competence of our media. This tells us a lot about the media and its love of simplifying and bidding up any story. The latest media frenzy – the migrants at Calais, confirms yet again the failures of our media.

However this post is about Greece and the prospects for real change.  By whatever circuitous route it has been achieved it looks like Syriza is on the verge of securing a long term financial deal that will provide the country with support and stability over the coming few years. That this is a poor deal and not good for Greece is at one level, besides the point. For what Greece needs above all else is radical change, and only Syriza is in a position to ensure that this radical change is of a progressive and transformative nature. But in order to do this Syriza needs time and this is why a new financial package is so important. Syriza needs the time and space to turn away from negotiating deals with the Troika and get fully engaged in the serious business of transforming Greece.

This is in large part the key message from a longish article by Stathis Gourgouris on Open Democracy, entitled The Syriza problem: radical democracy and left governmentality in Greece. It is well worth reading in full as Gourgouris outlines in some detail the complexities both of Syriza as a coalition and of the challenges facing the government. The success of Syriza is vital for the people of Greece, but not only for Greece, but for the prospects of successful radical change elsewhere in Europe.

While most of the media attention is on the euro, the real challenge facing Syriza lies in Greece itself. As Gourgouris puts it: “Syriza needs time so as to set in motion the governance of its essential task, which is not so much the settling of accounts with the EU but, above all, the radical reorganization of Greece’s long term corrupt social and political institutions.”

It is in this context that reaching a deal that will bring stability to the country’s finances is of such importance. In the long run transforming Greek society away from the clientelist institutions and practices that have gone on unchecked for decades will do more for the people of Greece than anything else. It is also worth noting that even in times of great austerity, radical change can take place. Perhaps the immensity of the austerity that will be forced on Greece may even help win political and popular support for implementing the kind of radical change Greece so desperately needs.

The prospects for this are quite encouraging. As Jan-Werner Müller reminds us in an article for the London Review of Books, Syriza was elected on a platform not just to end austerity, but to tackle and change the root causes of the underperforming Greek economy. Austerity has not ended but much can still be done in reforming Greece. And as Müller points out, “Given his overwhelming support among citizens and the collapse of the conservative New Democracy and Pasok, Tsipras has a chance to become a great reformer.”

If Syriza is to achieve this then it needs all the support it can get. Tsipras and Syriza remain popular in Greece, but continuing support from the rest of Europe would no doubt be welcome. This support should include the left. We need to go beyond bewailing the nasty Troika and support whatever practical measures Syriza can enact to begin the radical transformation of Greece.

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Syriza – And Now?

As a former UK Prime Minister once said, a week is a long time in politics. Mind  you, it did not take a whole week for the political situation in Greece to gyrate almost 180 degrees. The big No vote against the EU imposed austerity measures barely lasted a day. Greece has now put forward new proposals which look remarkably like the one they rejected a week ago. These new proposals have even been enthusiastically approved by the Greek parliament. What is going on?

As I and others have consistently pointed out there is a yawning chasm at the heart of Syriza’s platform. This was to end austerity and to stay in the Euro. It was never made clear how they would be able to achieve both. The first, ending austerity, was not and still is not, something that Greece can do on its own. It needs the agreement of the infamous Troika, which is not really just three players, but anything up to 21. To get an agreement on changing the bailout conditions and thus ending austerity, Greece needed the approval of all 18 of the other eurozone members. Some of whom need to get Parliamentary approval to do so. Some are smaller and poorer than Greece, and they find it difficult to understand why Greece needs so much additional support.

The other big problem for Syriza is that while an overwhelming majority of Greeks want both an end to austerity and to stay in the Euro, Syriza never explained what might happen if both were not achievable. In large part this may be because the majority in Syriza regards euro membership as essential for the long term future of Greece. In this they are supported by an overwhelming majority of the Greek population. Polls consistently show anything between 70% and 80% in favour of staying in the eurozone.

However Syriza never really engaged with the people of Greece in terms of what alternatives there might be to not getting an agreement with the EU. Which makes last weekend’s referendum all the more puzzling. It is all very well to say you want to strengthen your hand in the negotiations, but for that you need to be able to threaten the others with something. That something could only be a default and with it a possible Grexit. But this is precisely what Syriza refused to do. It made it crystal clear that a No vote was not a vote for either default or Grexit. So what precisely was the point of the referendum?

Some informed commentators, with good contacts with leading Syriza members, have stated that the Syriza leadership expected to lose the referendum. They had reached the end of the road and wanted someone else to take on the burden of agreeing a new deal, with the extra austerity this would entail. This reading certainly makes some sense and is further borne out by the fact that after the resounding No vote, Syriza had no new proposals in place. It took until late on Thursday evening for their new plan to reach Brussels.

Whatever he expected from the referendum, given the massive No vote, Tsipras had no choice but to continue as Prime Minister. However he moved quickly to shore up his position by getting formal support from the main opposition parties in the Parliament. Hence the big vote in Parliament for the new EU proposals. Everyone now awaits the various meetings which will take place in Brussels tomorrow, Sunday. Most commentators expect the EU to agree on a new package for Greece, though it is by no means guaranteed.

What next for Syriza? If the deal goes ahead then the current financial crisis should end, and the banks reopen. The reforms will need to be legislated for and then implemented. Something that has not really happened up to now. Though the new austerity measures will be hard for many Greeks and completely unnecessary in economic terms, there is still much that a radical left government could do. Not everything depends on money. Once the negotiations are over, perhaps Syriza can spend more time on actually governing and implementing some of the small, but essential changes that will in time improve things for the majority of Greeks. Reducing the rather large military spending for example.

Other radical left forces in the EU need to reflect long and hard on the recent developments in Greece. In particular do not promise to achieve two objectives that are likely to be incompatible. In the case of Greece this was promising to end austerity and stay in the Euro. It is not that these two objectives could not be achieved, but rather that, given the current configuration of power within the EU, it was most unlikely. Power in the EU rests with the governments of the member states. And to the misfortune of Greece, almost all of these governments are right wing governments, some of them very right wing. All are committed to austerity and neoliberalism. All have been legitimately and democratically elected, so this is not a conflict between democracy and unelected institutions.

This should not have been news to Syriza. Which makes it all the more incomprehensible that they pointlessly stuck to their original plan. Which seems to have amounted to nothing more than hoping that the other 18 eurozone governments would be swayed by the eloquence of Varoufakis. In this situation it matters not a jot that Varoufakis may be right. What matters is that the others have the power and Greece did not and does not.

The only alternative to accepting a bad deal was to go for no deal and default and probably leave the eurozone. But the people of Greece, including the Syriza government, have consistently made clear that that choice would likely be even worse. Many commentators have urged Syriza to go for a Grexit, on the grounds that a devaluation would speed up an economic recovery and that anyway, things are so bad that they cannot get any worse.

I think they are wrong on both counts. Those arguing for a return of the Drachma and a massive devaluation point to the likes of Argentina and Canada as examples of where this has worked. This seems to me to ignore both that Greece and its economy is nothing like either Argentina or Canada, and just as importantly the global economy is pretty much stagnant at best right now. In the previous examples, both Argentina and Canada benefitted from rising global demand. Not to mention that Greece imports more than it exports.

As regards the argument that things are so bad, why not just go for it, this seems to me to be irresponsible in the extreme. Just to remind some people, things can actually get worse. In fact things can get a lot worse. The people of Greece need all the support they can get, but false promises of a new dawn are the last thing they need just now. Syriza in government can still make a difference to the lives of the majority of Greeks. Not as much of a difference as they would have liked, but still a difference. Let us wish them well and offer any support we can.

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Puerto Rico and Greece

While just about everyone is fixated on developments in Greece and the outcome of Sunday’s referendum, another little crisis is brewing away nicely on the other side of the Atlantic. Puerto Rico may be a few thousand miles away from Greece, but it is not a million miles away in terms of its economic woes. Even Paul Krugman took time to pen a brief article on Puerto Rico. So what is up on the sun drenched island?

Unsustainable debt is the short answer. According to the New York Times the state’s debt has ballooned because of a failing economy and an inefficient government that has taken in more that it has spent. Sounds a lot like Greece. Puerto Rico’s governor, Mr Garcia Padilla has declared that the state’s
$72bn debt is unpayable. Like Greece, Puerto Rico is now faced with further austerity. And in an further eerie parallel with Greece, the IMF has waded in with a call for debt relief. In the case of Puerto Rico this has come in the shape of a report issued by three former IMF and World Bank officials. They state quite categorically that even big spending cuts and tax increases will not fix the fundamental problem.

So, for both Greece and Puerto Rico a key element in any sustainable plan will include some debt relief and an extension of the pay back time for the rest of the debt. There is an added hurdle for Puerto Rico to overcome to get this part right. As a Commonwealth and not a fully paid up state of the US, Puerto Rico is not covered by the Federal bankruptcy law for municipalities and states. Basically this means that Puerto Rico cannot legally default! Action on this will need to be taken in Washington by Congress.

However there is no such thing as a free lunch. In exchange for debt relief, US commentators all seem to be in agreement that investors and Congress should press Puerto Rico to make significant regulatory reforms. Or, as the Economist likes to put it, many of the reforms needed to revive growth must be ordered from Washington.

With luck, both Puerto Rico and Greece can reach an agreement that is satisfactory to both sides, but in both cases it will involve some degree of continued austerity and almost certainly some economic changes that many will find difficult to accept. The alternative of a forced default is likely to prove even more unpalatable.

A couple of key differences in respect of the two crisis. Both Puerto Rico and Greece are part of a single currency zone. While many are using the Greek crisis as an opportunity to question the whole of the eurozone and its survival, nobody is doing this in relation to Puerto Rico. Whatever happens there, no-one is going to raise questions about the sustainability of the dollar zone. It also does not look like that anyone is calling for Puerto Rico to be expelled from the dollar zone either.

Another key difference is that Puerto Rico only has to deal with two political intermediaries – the President and Congress. Contrast that with Greece, which has to negotiate with the IMF, European Commission and all 18 other member states in the eurozone. While most commentators focus on Germany, all of the other 17 governments have their own concerns and electorates to worry about. Not to mention their own veto on any new deal with Greece. It should raise the question as to how Syriza has managed to alienate all of these partners?

Greece and Puerto Rico desperately need an agreed deal. I am not at all sure what outcome in Greece tomorrow is more likely to promote an agreement. One situation where I am glad I do not have a vote.

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Greece – what is Syriza’s plan?

The rather sudden and unexpected decision by the Greek government to hold a snap referendum on the latest proposals from the Troika has caught everyone by surprise. Something does need to be done to bring this long running and seemingly never-ending merry-go-round to an end, one way or another. Whether this particular referendum will help resolve the crisis is open to question.

The basics are pretty well known. Greece is effectively insolvent. Its debt burden is too great for it to have any prospect of ever repaying this debt. The unprecedented additional austerity measures proposed by the Troika, in the view of most people, will only make things worse. Most of the additional loans go immediately back to the lenders in the form of repayments on previous loans. Hence the merry-go-round analogy. Very little of the loans go to helping the Greek population. While the greater the austerity the greater the long term damage to the Greek economy.

Yet the Troika seem even more determined than ever to force further austerity on Greece. As Paul Krugman puts it, it has been an act of monstrous folly on the part of the creditor governments and institutions to push it to this point.

How should Greece respond? The Syriza led government has responded by proposing to hold a referendum for next Sunday. The Greek parliament has voted in favour of holding this referendum. But will the referendum provide a clear cut result for a way forward?

Various international observers seem to think so. Paul Krugman for example supports the referendum for the following reason: “… until now Syriza has been in an awkward place politically, with voters both furious at ever-greater demands for austerity and unwilling to leave the euro. It has always been hard to see how these desires could be reconciled; it’s even harder now. The referendum will, in effect, ask voters to choose their priority, and give Tsipras a mandate to do what he must if the troika pushes it all the way.”

This is in line with the view of those who believe that leaving the Euro offers the best option for Greece, at least in the long run. Unfortunately the actual question being put to the Greek people does not support this interpretation. According to Reuters, Greeks will be asked the following question: “Greek people are hereby asked to decide whether they accept a draft agreement document submitted by the European Commission, the European Central Bank and the International Monetary Fund, at the Eurogroup meeting held on June 25.”

Alexis Tsipras, the Greek Prime Minister has stated that an emphatic “no” vote would strengthen Greece’s negotiation position. The obvious question here is negotiating what? An improved bailout agreement or an exit from the euro? The referendum question says nothing about the euro and only refers to the bailout agreement. There is a further doubt about the validity of the referendum and that is that the draft document referred to, in effect no longer exists. So the Greek people are being asked to accept or reject a proposal that is no longer available. What’s the point of this?

A further problem with the referendum is that in order to secure any kind of strengthening of Greece’s negotiating position, Greece needs to still be in euro by the time the referendum is held. Will it? The Greek government has asked the EU to extend the current agreement for another two or more weeks to allow the referendum to take place, but this has been rejected. Unless something is agreed today, Sunday, then on Wednesday, 1st July Greece will have defaulted on its repayment to the IMF. Before then, absent an agreement with the EU/ECB, there will most likely be a run on Greek banks. To prevent this the Greek government will have to declare an extended bank holiday and probably institute capital controls to prevent euros draining out of Greece.

This is where it all gets very messy indeed. Greece almost certainly needs to default on most, if not all of its debts. The real issue is whether this is done in an orderly and agreed manner, or is done abruptly without agreement. This could happen if Greece is either forced out of the euro, or voluntarily decides to leave the euro.

The big problem for Syriza is that all the indications are that a large majority of Greeks want both an end to austerity and to stay in the euro. Which is why the referendum question does not mention the euro. However if by the time the referendum is held, next Sunday, it is clear to all that a rejection of the bailout agreement means leaving the euro, how will the Greek people vote then?

For underlying all this is the uncomfortable reality that there is no good option for Greece in the short to medium term. And the long term may be a very long time coming. Leaving the euro will not bring about an end to austerity. It may change who suffers most from continuing austerity, but things are likely to get even worse for many Greeks with a euro exit. There is no short term, painless fix for the Greek economy.

A further complication is that many legal and economic commentators have opined that even with a default there is no need for Greece to leave the euro. In fact it seems there is no legal, treaty based way for any eurozone country to be expelled from the euro. So, at least in theory, Greece could default on some of its debt, and try and remain in the euro. What this might mean in practice is unknown and at the moment unknowable. Much would depend on how willing the ECB and Greece’s partner countries would react. The prospects do not look good.

A final point on the portrayal of the referendum as a battle between democracy and the nasty world of finance. This is just nonsense and not at all helpful. Democracy is not just for Greeks. A commentator on another site puts it nicely and succinctly. “It is normal that a vote in Greece is not binding for Germany, France, Ireland, and the poorer than Greece countries of Eastern Europe. The Greek vote is valid only for Greece’s government. The democratically elected governments of the remaining Euro Group are negotiating according to their own voters opinions. The outcome may please some and not others.”

I agree with Paul Krugman that the governments of the eurozone countries have been acting with monstrous folly in relation to Greece. Alas democracy has never guaranteed the election of sane and reasonable governments. In the eurozone all governments have the same democratic validity. It does no good to anyone to pretend that the wishes of the Greek people are more worthy than the wishes of others.

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