Greece: breaking illusions

A recent poll conducted by the University of Macedonia found that 56% of those Greeks asked believed the Greek bailout extension had been a success compared with 24% who said it represented a failure. A Metron Analysis poll showed that more than two in three Greeks were satisfied with the way the government was negotiating with EU partners, while 76% were positive about the government’s overall performance so far. It also put support for Syriza on 47.6% compared to New Democracy with 20.7%.

That’s an indication that, with the four-month extension of the bailout programme with the Eurogroup, the Syriza government has won time with the Greek people hoping for an end to austerity, as well as with the Eurogroup leaders wanting more austerity in return for the remaining bailout funds.

But this ‘window of opportunity’ is small and probably smaller than four months. The immediate issue is finding funds to cover the upcoming €1.5bn repayment due to the IMF this month and the rollover of short-term government debt. The ECB has ruled out an expansion of T-bill issuance to cover this debt redemption and probably will not raise the Emergency Lending Assistance limit to Greek banks so they cannot use ECB credit to cover Greek government debt bills. And yet tax arrears and non-payment have built up so that the government has lost between €1-2bn in revenues since the beginning of the year.

The Eurogroup has said that no outstanding bailout funds will be disbursed to Greece unless they show ‘visible evidence’ that they are trying to keep to the fiscal and other conditions of the existing bailout agreement. This will all come to a head on 9 March when the ECB meets on Greece again and the Eurogroup considers what the Greek government has done. Greek finance minister Varoufakis says he will present six ‘reforms’, costed, for approval by the Eurogroup.

In the meantime, it looks as though the Syriza government will proceed with various measures to ameliorate the ‘humanitarian crisis’. Tsipras said that the government would introduce measures including the provision of free electricity to 300,000 households living under the poverty threshold and the introduction of a new payment plan for overdue taxes and social security contributions. The scheme is set to allow applicants to pay in up to 100 instalments and will mean that anyone owing up to 50,000 euros cannot be arrested over their debts. And the government will protect primary residences with a taxable value of up to 300,000 euros from foreclosures and reopen the public broadcaster ERT, shut down in June 2013. None of this will affect the budget targets, Tsipras claimed, although how that is the case remains to be seen.

Maybe it won’t if the government can find extra revenues from undeclared funds that should be taxed. The finance ministry is now planning an amnesty on undeclared capital abroad, aiming to tax it – but not necessarily to repatriate it – according to Alternate Finance Minister Dimitris Mardas. The government reckons that up to €120bn is being held abroad by rich Greeks and oligarchs, often hidden in real estate in the UK or Swiss bank accounts. The government says it can obtain up to 10-15% of this. In addition, special tax minister Nikoloudis reckoned he had 3,500 audits amounting to €7 billion in back taxes, €2.5 billion of which he hopes will be collected by summer. If this money can be collected, then the government can square the circle of paying its debts and keeping within the Troika fiscal targets and help out the poor – at least for a while.

But only for a while because Greek public debt is ‘unsustainable’ and will never be reduced to a manageable level by Troika-style spending cuts and tax measures. However, as the interest rate on the debt is relatively low (4% of GDP annually) and the repayment schedule on the loans owed to the Eurogroup has been put back to the early 2020s, if the government can get through this year’s redemptions, then it may find another small fiscal ‘breathing space’. And if the Greek economy can grow over the next year, tax revenues will improve.

It’s just possible that an economic recovery in the rest of the Eurozone might also provide a boost to the Greek economy too. But it is only possibility. The Greek economy is still suffocating from the stagnation in Europe and the Troika’s inexorable austerity measures. Indeed, Greek real GDP rose only 0.7% in 2014 while prices fell 2.8%, so nominal GDP contracted.

Greek inflation

Greece’s manufacturing PMI, the main measure of current business activity, was down at 48.4 in February, implying that the economy is still contracting. Greek investment and profitability remains at all-time lows.

Actually what is more important for the Eurogroup and big capital in Europe is that the neo-liberal ‘structural reforms’ of deregulating the labour market and other capital markets and the privatisation and ‘foreignisation’ of the best bits of Greek industry must go through. For them, that is the policy for restoring the profitability of the Greek capital (at labour’s expense).

These ‘structural reforms’ have been pursued with gusto by the conservative governments of Ireland, Spain and Portugal that have been under Troika programmes. Now the last thing they want is for Syriza to succeed in turning things round without imposing austerity and without restoring the profitability of the capitalist sector. So these governments have been the strongest supporters of a ‘tough line’ with Greeks. The French and Italian social democrat governments also continue to introduce measures to weaken the rights of employment and worsen the conditions at work.

But what happens at the end of June? Already there is talk of shackling the Greeks into a new bailout programme. In return for new loans (and a mixture of old ones) of up to €50bn over three years, the Greeks would be committed to yet more Troika monitoring and neoliberal measures to save Greek capital. This is the aim of the Eurogroup and its conservative governments.

Tsipras has made it clear that the Greeks will not enter a new package after June. If the government also says that it will honour all its debts to the IMF and the EU (even though it wants a new debt schedule), then either financial markets must be willing to buy Greek government debt and bank debt at reasonable rates of interest; and/or the government must find extra tax revenues to meet its debt commitments.

Perhaps the Greek government can avoid default and stay in the euro as the debt servicing schedule in 2016 is much lower. After all, the Greeks could meet the ‘ordinary’ budget targets under the EU Fiscal Compact. But can it get that far, and even if it does, how can it, at the same time, meet the needs of its people in raising wages, pensions, reversing privatisations, and restoring a decent health and education and other public services, and get the economy growing? To do that, Syriza needs a Plan B, as I proposed in a recent post (

Others see the issue as depending solely on whether Greece leaves the euro or not. Professor of Economics at the London School of Oriental and African Studies (SOAS), Costas Lapavitsas (see my post, is now a Syriza MP and a leader of the Left Platform within Syriza. In a recent article in the British Guardian newspaper (, Lapavitsas reiterated his view that “to beat austerity, Greece must break free from the euro”. Lapavitsas reckons that “we are deluded to think that we can achieve real change within the common currency. Syriza should be radical”.

Lapavitsas correctly gauges the deal reached by Tsipras and Varafoukis for the four month extension as a heavy price to pay “to remain alive”. But is it correct to argue that breaking with the Troika and reversing austerity must start with advocating leaving the euro, as Lapavitsas says? Tactically, it does not seem right to me. The alternative to the Troika should not be posed as ‘leaving the euro’, but rather ‘breaking with capitalism’.

Plan B must be to reject a new programme with the Troika after June. Instead, Syriza must introduce measures that can get the Greek economy growing sufficiently to enable wages and pensions to be restored, labour agreements honoured, increase employment and revive investment. That will mean taking over the Greek banks, introducing capital controls, and bringing into public ownership and control strategic industries and companies with a plan for investment. Such an investment plan should be pan-European, with an appeal to the labour movement through Europe to campaign for this.

But won’t Greece be thrown out of the euro anyway if it adopts these policies? Well, maybe, even probably. But there is nothing in the EU treaties that stops a member state from adopting these measures. Public ownership of the banks and ‘commanding heights’ might break EU competition rules, but that would not be enough grounds for Greece’s expulsion. After all, Germany runs state-owned banks in every region. And if Greece is managing to run ‘balanced budgets’, it won’t be breaking the EU fiscal compact either. There is just the question of its huge public sector debt that is supposed to be paid back (but not for decades).

The issue for the labour movement is not the “illusions” that the left has in the “absurdity of the common currency” (as Lapavitsas calls it), but the illusion that capitalism can be made to deliver people’s needs (something that Varoufakis has encouraged – see my post, It is breaking with capitalism that matters, not breaking with the euro. The latter may flow from the former BUT the former does not flow from the latter.

Breaking with the euro will not provide “a chance of properly lifting austerity across the continent”. Default and devaluation and the establishment of a new drachma will not mean prosperity for Greece if Greece’s weak and corrupt capitalist sector continues to dominate the economy.

Take Iceland. This is a very tiny economy with only 325,000 people, the size of smallish city in Europe or the US. It is often presented by Keynesian economists and others as showing a way out of the crisis compared to staying in a common currency. The argument is that Iceland defaulted on its debts and devalued its currency and so recovered its economy (on a capitalist basis), while Greece remains trapped.

I have written on the experience of Iceland in several posts and this story of default and devaluation is just not true (see my post, ). Iceland did not renege on the huge debts that its corrupt banks ran up with foreign institutions (mainly the UK and the Netherlands). It eventually renegotiated them and is now paying them back like Greece.

And devaluation did not mean that Icelanders escaped from a huge loss in living standards. They have done little better than the Greeks on that score – although of course, Icelanders started from a much higher standard of living than the Greeks. In euro terms, Icelandic employee real incomes fell 50% and are still 25% below pre-crisis levels.

Iceland real income

The same myth is peddled by Keynesians and others that having its own currency saved Argentina in its crisis of the early 2000s. See my post,, and my joint paper with G Carchedi (The long roots of the present crisis) for a refutation of that. Argentine capitalism is back in crisis now.

Greek capitalism’s demise is not because it joined the euro. It had already failed when profitability collapsed, as a heap of excellent papers by Greek Marxist economists show (for a summary of these, see the paper by Stavros Mavroudeas out only this February and essential reading, 2015_001-libre).

Greek rate of profit

And as Steve Keen has pointed out, “While Greece certainly had its own specific problems—especially with its current account—in general, its apparent boom before the crisis and the crisis itself had much the same cause as in the rest of the OECD: a private debt bubble that burst in 2008. Private debt grew rapidly before the crisis—on average by more than 10% of GDP per year.” (  Here is Keen’s graph showing that public sector debt only mushroomed after the crisis began.

Greek debt levels

The ultimate cause of the Greek crisis was falling and low profitability and the proximate cause was the huge increase in fictitious capital to compensate that eventually imploded in the Great Recession.

Greek capitalism is in no position to turn things round with its own currency. Greek capital will be saddled with huge euro debts following devaluation and it won’t be able to export enough to stop the economy dropping even further into an abyss and taking its people with it. Grexit also means not just leaving the euro but also the EU and without any reciprocal trade arrangements that Switzerland has, for example.  Currently, Greece contributes €1.7bn a year to the EU budget and gets back €7.2bn a year in various funds, a net 3% of GDP a year.

The issue for Syriza and the Greek labour movement in June is not whether to break with the euro as such, but whether to break with capitalist policies and implement socialist measures to reverse austerity and launch a pan-European campaign for change. Greece cannot succeed on its own in overcoming the rule of the law of value.

12 thoughts on “Greece: breaking illusions

  1. Steve Keen is currently the foremost expert on Keynesian crisis theory. However, his analysis is consistent with…

    * the new Cambridge analysis of the effects of an external sector on attempts to stimulate growth via fiscal expansion (Kaldor and Thirlwall).
    * the post Keynesian model of monetary flows.

    Steve Keen rejects equilibrium models and instead uses the differential feedback approach that is commonly used in engineering to design stable systems. The circuitist approach does not include disequilibrating causes but does describe their effects.

  2. Ok, let Greece introduce capital controls, take over the banking system and bring into public ownership strategic companeis, without breaking with Eurozone… And what about the debt? How is going to be paid in that case? What I want to say is that the question isn’t “in or out”. The question is how Greece is going to pay for a huge debt, when it requires enormous fiscal surpluses (i.e austerity). The only choice is cancelling a big part of it, and this, without question, means breaking with Euro.
    As for the “pan-European” investment plan, there is one: the Juncker package. It’s the only possible that kind of plan, under Eurozone rues and in fiscal discipline terms. I don’t think that anyone can hope to fiscal transfers from the richest countries of E.U. to the poorest, without the rules already governing european funds

  3. Michael,

    You don’t “break with capitalism” by “seizing commanding heights”– you break with capitalism by abolishing certain relationships– to begin with, that of debt.

    Nowhere in your post do you mention the imperative first step– and that is simply repudiating the debt in its entirety. Upon doing that, Greece will effectively be tossed out of the eurozone, and its survival will depend on actions of workers in Spain, Portugal, France, and most importantly Italy.

    Syriza won’t do that, repudiate the debt, because it can’t do that. Syriza is about saving capitalism, not “breaking with” much less abolishing it.

    There can be no plan B, repudiating the debt, without a plan A, which is repudiating the Syriza government.

    1. “Nowhere in your post do you mention the imperative first step– and that is simply repudiating the debt in its entirety.”

      This is about step number 178 according to my calculations. We first have the little matter of working class consciousness and international solidarity.

      if I were describing what Syriza were doing it wouldn’t be selling out but rather:

      In the absence of a serious and well organised opponent of the bourgeois they have taken it upon themselves to represent the working class and protect their position within capitalist society. I.e. protecting the modest gains made by workers within the wage slave system.

      1. Exactly what gains have the workers made since 2008 that Syriza is protecting?

        BTW I have never accused Syriza of selling out, or of betrayal.

        As for repudiating the debt– Syriza’s entire “turn” is based on decoupling the issue of debt from the issue of capitalism– as if the former can be mitigated, renegotiated, while keeping the latter intact.

        I think that is a delusion. The debt is the mechanism to drive down the price of labor-power below the cost of its reproduction. Preserving capitalism and submitting to the “reforms” inherent in the 2012 MFFA debt agreements are indissoluble.

      2. Brilliant, Edgar. Really, history didn’t start in 2008? Who would have guessed? Neither did capitalism; the assumption of debt; the privatization of assets; the shrinkage of manufacturing; none of that stuff. Which is why Syriza’s supposed “defense” amounts to is the nostalgia a dying person feels for different symptoms of the same disease.

      3. According to you it amounts to nostalgia a dying person feels for different symptoms of the same disease. To me it amounts to a tactical ploy necessitated by the 178 or so steps that need to come before the thing you considered was the first step.

        If you were to ignore the 178 steps that come before the thing you consider is the first step then your argument would nearly make sense.

      4. So reversing position, agreeing to the “reforms,” and agreeing to “pretend and extend” the bailout, the very things Syriza campaigned against is one of the 178 necessary steps to get to the point where the reforms are opposed; “pretend and extend” is terminated, and the bailout is abolished? That nearly makes sense? To you?

        Oh wait, I bet you’re going to tell me that it’s “dialectical,” right?

  4. “The issue for Syriza and the Greek labour movement in June is not whether to break with the euro as such, but whether to break with capitalist policies and implement socialist measures to reverse austerity and launch a pan-European campaign for change. Greece cannot succeed on its own in overcoming the rule of the law of value”.

    With all due respect for Michael’s economics work, the first phrase is a false counterposition. The Eurozone is only an issue because of the debt, and as sartesan correctly asserts, it is the debt itself that is the main lever for the imposition of capitalist politics. In the actual concrete situation that faces us, breaking with capitalist policies means breaking with the debt, and that inevitably means breaking with the Eurozone, and perhaps also the EU itself.

    There Is No Alternative to that.

    Of course it goes without saying that no country can go it alone, and that any “radical left” government would have to build international solidarity. Unfortunately, Syriza shows little sign of pursuing an international strategy. I’d love to be proved wrong, though….

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