Selected and edited from the Inroads listserv by Bob Chodos
In the Summer/Fall issue of Inroads, which came out in May, political scientist Irene Martín took the measure of Greece’s new left-wing Syriza government.1 Since then, Greece has rarely been out of the headlines for very long, with repeated loan payment deadlines, negotiations with the “troika” of institutions (European Commission, European Central Bank and International Monetary Fund), a referendum, a split in the governing party, and a new election in September that returned Syriza to power. In July, as these events unfolded, Inroads listserv participants debated the deeper causes of the Greek crisis.
From: Henry Milner | July 16
The current Inroads has a good piece on Greece up to a month ago by Irene Martin. Following upon recent events, however, hindsight makes obvious that:
- The majority of Greeks, given the choice, chose to up the ante, first by electing Syriza and then, via Syriza, by trying to bluff the other players, though holding no cards and already in debt beyond the capacity to repay to the others. This was a strategy bound to fail. Perhaps they held on to the notion that the eurozone countries were terrified of a Grexit, which gave them the illusion that they had cards to play. In fact, it was the Greeks who never for a moment considered the idea of a Grexit, which probably would have allowed the earliest recovery of the Greek economy, though at great short-term cost.
- For Greece to stay within the euro, the least bad strategy was to engage in confidence-building measures, showing that it was serious about living within its means by reducing its bloated bureaucracy and ending very early retirement – in essence voluntarily carrying out the measures it has now been forced to undergo – and to seek allies in Europe who would support debt relief measures. By choosing instead to play chicken right to the last possible moment, the Greeks alienated possible allies, in effect confirming the often-expressed views of those who said, on the basis of the sad experience of false national accounts, that you cannot trust the Greeks to do what they say. Which makes it all the harder now for them to get the debt relief that everyone understands is a sine qua non for the economy to recover. To a large extent then, in the last six months as in the profligate years, the Greeks have been the main authors of their own misfortune.
I realize that there are Greeks who gained nothing from the profligacy and who will suffer unfairly. Yet ultimately the responsibility lies with the Greeks who did benefit.
From: Harvey Schachter | July 16
Henry writes, “The majority of Greeks, given the choice, chose to up the ante, first by electing Syriza and then, via Syriza, by trying to bluff the other players, though holding no cards and already in debt beyond the capacity to repay to the others.”
This assumes that Greek voters were thinking like university professors or global strategists.
I doubt it.
They were acting like voters: angry, uncertain and confused. And each person was acting individually, not thinking what should we The Greek People do or knowing what the outcome would be.
I don’t mean to pick on university profs, by the way. Journalists do this a lot, particularly on election night.
It doesn’t take away from what you indicate was the impact of their vote.
From: Garth Stevenson | July 16
I agree with Henry that the Greeks (the politicians more than the people, admittedly) are largely to blame for their own misfortunes. The other thing I would say about the Greek situation is that it proves what Eric Kierans and Robert Bourassa said 40 years ago. Sovereign states trying to share a common currency is a nonsensical idea. It is especially so when some of the partners are much richer than others.
From: Patrick Balena | July 17
- Greece should never have joined the currency union to begin with, nor should the other members of the currency union ever have let it join. The whole euro currency affair has been characterized, from its inception, by deliberate overselling and obfuscation on the part of all of the states and institutions concerned.
- Foreigners who lent money to Greece need to lose that money. They made a really lousy business decision. Those who lend to sovereign states must – simply must – make a serious assessment of the actual creditworthiness of the borrower, and of what sort of use will likely be made of the funds. Put it this way: if I saw a country with a relatively small population and economy trying to host the 2004 Olympics, there would be no way I’d be subscribing their public bond issues, no matter the yield. In recent times, credit of all kinds, on all scales of action, has been so loose and liberally available that malinvestment predominates everywhere, while lenders and ratings agencies have seemingly lost all ability to do their jobs properly.
- At this point, default, or even outright repudiation, is the only practical option for Greece. It is scarcely possible, given the present structure of its economy and the demographic profile of its society, for Greece to generate a sufficient primary surplus to defray more than about a third of its public debt – unless the country itself is to be treated as a set of assets to be seized and liquidated. When I mention the structure of the present Greek economy, I am thinking of such examples of Greece being a Mediterranean country that is a net importer of fresh fruits and vegetables! That should give you an idea of what sort of trade distortions and malinvestment must have been taking place in Greece, and indeed across the European Union, over the past couple of decades.
- The tiresome game of “extend and pretend” is being played by all participants. The troika are mostly focused on recapitalizing overextended lending institutions, so they make a series of sternly silly calls on the Greeks for “reforms” while slipping any bailout money to their own banks. The Greek governments, regardless of party, don’t want to take responsibility for telling their people that they can’t be in the eurozone any more, so they’re prevaricating until Force Majeure conveniently arrives on the scene.
This is a tale of neoliberalism, so of course it’s a farce. Things will only really get interesting if Golden Dawn2 wins an election.
From: Henry Milner | July 18
Harvey’s point about interpreting the choice made by the Greek people voting for Syriza is true at one level. The decision was made by individuals, each of whom had their own reasons. But can we leave it there? They had been told clearly over four years by their creditors and by previous governments that the kind of cutbacks now imposed were inevitable. Instead a large enough number voted for an extremist party with no government experience that promised them the impossible. And six crucial months and loads of goodwill were lost. If we believe in democracy, we need to accept the fact that the people can make wrong decisions.
From: Reg Whitaker | July 18
I disagree entirely with both Henry and Garth about Greeks being authors of their own misfortune. The blame game in the euro catastrophe is pointless. Blaming the Greeks for what happened in the past as the basis of a formula for what should be done now (the German “solution”) is plainly irrational, just digging a deeper hole that threatens ultimately to drag in the rest of the eurozone.
Patrick is quite right: “Greece should never have joined the currency union to begin with, nor should the other members of the currency union ever have let them join.” The idea of a monetary union without a fiscal union is, and always was, foolish.
But there was complicity all around when members broke the fiscal guidelines that were supposed to emulate a common fiscal policy (and that even includes the Germans at one point). The German and French banks went to town encouraging the Greeks (and the Spanish and the Portuguese and the Irish and the Italians etc.) to keep on borrowing to support the banks’ reckless calculation of their windfall profits, all the while winking at departures from the fiscal guidelines.
There is a clear analogy to the U.S. subprime-fuelled housing bubble that led to the great financial crash of 2008: banks waved cheap up-front mortgages at people who had no capacity to pay in the long run, and then securitized the debt and sold it globally, while paying themselves huge bonuses on the basis of unrealized and unsubstantiated profits based on the speculative house of cards.
Goldman Sachs made close to $800 million selling the Greeks on a secret loan of €2.8 billion disguised as an off-the-books “cross-currency swap” – converting foreign-currency debt into a domestic-currency obligation using a fictitious market exchange rate. Then the whole thing exploded in the Greeks’ face, with them left to foot a ballooning bill while Goldman Sachs walked away with its near-billion-dollar profit.
In both cases, the banks then blamed the victims of their con-job salesmanship, demanding multibillion-dollar bailouts for themselves – and let the devil take care of the victims in the aftermath.
Be it noted unequivocally: there is no “bailout” of Greeks, only a bailout of banks. For their part, the Greeks are consigned to ever harsher levels of austerity which make it ever more difficult to pay off the ever-growing obligation to the banks. There is no way the Greeks can pay off this staggering bill, ever, as the IMF has made clear.
In the early 1950s, Germany faced even more massive debts, stemming from its moral culpability for two world wars. In an act of enlightened self-interest, the creditor countries recognized that forcing the Germans to pay it all would be self-defeating for everyone (see Keynes, Economic Consequences of the Peace). Half their total debt was forgiven, and they were required to pay back the rest only as GDP growth permitted.
Now these same Germans – who, be it noted clearly, as an export-driven economy have benefited enormously from the weak euro resulting from the Greek debt crisis – sanctimoniously demand that the Greeks bear the entire burden of the disaster.
Apart from the sheer hypocrisy involved here, the plain fact is that the Greeks can’t possibly bear the entire burden, or even a large portion of it. The result would be a humanitarian catastrophe that would shame Europe, if it can still be shamed, or the coming to power in Greece of the Nazi Golden Dawn, just as Hitler rose on the disaster of the debt-ridden Weimar Republic.
From: John Erik Fossum | July 18
I thought Henry was putting too much of the blame on the Greeks. It is difficult to think that the EU was unaware of what the general situation was in Greece. There was, for instance, lots of talk about an implementation deficit way back in the 1990s, and the European Commission cannot have been entirely unaware of the economic situation there when it admitted Greece into the eurozone. So part of the story would seem to be neglect. And, I should add, perhaps also EU impotence to deal with structural flaws and defects in the member states, stemming largely from member states jealously guarding their prerogatives and preventing the EU from taking positive action.
Another factor pertains to the monetary union which is not only highly lopsided but also now based on an unsustainable economic philosophy (growth through austerity). A monetary union without a stabilizing fiscal union and very tough measures to punish those that fail to comply is inherently vulnerable (the chain is never stronger than its weakest link). Competitiveness gains cannot come from devaluation and therefore will almost inevitably come in the form of regressive social policies. The main casualty is the European social systems.
One might even be tempted to say that it might be a kind of counter-countercyclical system that punishes those in recession and locks them into a monetarist straitjacket that will at best allow them very limited patterns of growth. Note also that Germany and France were among the first to violate the stability pact in 2003, creating the need for tougher sanctions. A major reason for the German breach stemmed from the heavy costs of German unification. So it seems hypocritical of Germans to pontificate over profligate Greeks. It might be useful to remind them of the vast sums they spent to absorb East Germany.
A third factor is that the European Monetary Union became a zero-sum game, and Germany, through the socially regressive Hartz reforms under Gerhard Schröder, became the most competitive economy in the eurozone, with very strong exports to the BRICs.3 So a monetary union system created with hopes of engendering convergence has seen deep divergence. It is also worth keeping in mind that Germany has benefited to the tune of hundreds of billions from the low value of the euro as opposed to the Deutsche mark.
Fourth, whereas they (Schäuble) insist that EU law prohibits giving debt relief, the Outright Monetary Transactions that the European Central Bank has launched are of dubious legal status. They have throughout the crisis “stretched” the treaties to make them work their purposes. Finally, the two previous bailouts for Greece may have been as much motivated by the goal of rescuing their own banks as by restoring Greece to economic viability. In many ways the measures were preemptive – to prevent the massive fallout from a Grexit.
This is not to say that there are not big internal problems in Greece; there certainly are. Greece needs modernization, and a workable public system. But the crisis has exposed deep structural flaws in the EU construct, and the way the EU has handled the crisis earns it little credit. There has been quite a bit of integration, but through strengthening the EU’s intergovernmental quasi-diplomatic components at the cost of democratic and constitutionally sanctioned procedures. A major casualty has therefore been democratic constitutionalism in Europe. The present situation is a toxic mixture of recognition denied (in debtor states) and regressive patterns of redistribution.
From: Henry Milner | July 19
I don’t think where blame lies is the issue. The question is how to understand the current situation. Initially I thought that with the expression of willingness to reduce tax cheating and take a few other measures described by Irene Martín, the Syriza government was negotiating in some semblance of good faith. It turned out, especially when they called a referendum in support of their refusal to act, that this was not the case.
The simple fact is that this spring the Greeks were still continuing to increase their indebtedness, i.e. to live well beyond their means on other people’s money. It has been long understood that to live within their means, the Greeks had to reduce bureaucracy, cut early pensions and raise the VAT. This is something that was supposed to happen last fall, but the election put it off – until the day the money ran out.
This brings us to the question of debt relief. How the Greeks expected their creditors to forgive their debt when they were continuing to build it up is something I cannot understand. Of course, if the decisions were entirely in the hands of technocrats in Frankfort and Brussels, such subjective factors could be expected to be irrelevant. But the decision lies in the hands of politicians accountable to voters. It’s easy to attack the Germans, but the Germans’ feelings are largely shared in the eurozone, especially among the poorer countries that have not had the largesse from which Greece benefited.
The analogy to 1950s Germany brought forward by Reg is way off. It had no bloated bureaucracy, no army of young pensioners. Though very poor, without the means of repaying its debts, it had immense unused capacity. The Marshall Plan made perfect economic sense.
In simple economic terms, the best thing here would likely be haircuts for all: for the Greeks to leave the euro in a structured manner with the help of Brussels and Frankfort. But the Greeks are determined to maintain the illusion of being rich that the euro provides, and expulsion would have been seen as punishing the victim.
From: Reg Whitaker | July 19
Let me fix on one element that rather leaps out for me, beyond the cockeyed economics of neoliberal austerity robotically applied where it can only make things worse. I am speaking about the political dimension, of how the once infamous democratic deficit in the architecture of European union has now turned into something much, much worse: an authoritarian coup by the unrepresentative and unaccountable elites of wealth and power that seek to go beyond simply ignoring, to actively punishing, those who have dared challenge them in the name of ordinary people.
Pinochet (Wolfgang Schäuble) has rounded up the leading left-wing suspects (the Greeks) in the soccer stadium holding tank. But whatever torture (austerity) is inflicted on the Greeks is not an end in itself, but an example: pour encourager les autres. The prisoners are, to be sure, offered a Hobson’s Choice: they can stay in the stadium and await their fate at the hands of the police, or they can leave – and promptly plunge into the chaos of a return to the drachma under conditions of financial collapse and international quarantine. Some choice.
Thus, henceforth no one should dare to challenge German hegemony, or they will be subjected to the same treatment as the Greeks today. Take note, Spaniards, Portuguese, Italians or anyone else who veers from the path of obedience to Berlin.
Henry explains this all as follows: “A large enough number [of Greeks] voted for an extremist party with no government experience that promised them the impossible. And six crucial months and loads of goodwill were lost. If we believe in democracy, we need to accept the fact that the people can make wrong decisions.”
Syriza “an extremist party”: the words of the Euro elites. It is “extremism” to assert democracy at the only level of Europe where people can actually elect more or less accountable governments, the national level. Democratic opposition is indeed forced to extremes when there is no normal, institutional, outlet.
Unfortunately, most of the Eurosceptic opposition has taken the form of far right-wing nationalist populism. Like UKIP in the United Kingdom, or LePen and the Front National in France, or the openly racist anti-immigrant neofascist movements in many other countries. Syriza is emphatically not like that at all. Nor is Podemos in Spain. These are progressive left movements with national democratic aspirations that eschew immigrant scapegoating and focus more on class as an organizational target.
It is quite true that Greek political culture is deeply implicated in clientelism and attendant corruption that is itself a major barrier to democratic advance. Both the old parties, New Democracy on the right and the so-called “socialist” PASOK, were and are no more than patronage scams to enrich their own supporters. They are at the root of the very economic behaviours (like the flagrant tax evasion of wealthier Greeks) that the German Euro cops are now decrying. But these discredited old clientelist parties are the very ones that the same cops want to put back into office, and whose votes Tsipras has now been forced to rely on to enforce Schäuble’s medieval bleeding prescription.
Syriza promised a break from this corrupt old culture, but its tragedy is that it has only arrived in office (not in power!) as a result of the catastrophic crisis in which Greece is engulfed, which gives it no room to do anything but bow to the overlords of the north, and fall back on the old parties to enforce the overlords’ will (“goodwill” in Henry’s words?).
Schäuble et al are determined to crush the “populist” opposition to the Euro elite project. In crushing Syria and its democratic aspirations, they are congratulating themselves. But with more than 50 per cent of young Greeks now unemployed, and that number sure to rise yet further and nothing but endless economic misery on offer, the political prospect may be for the further rise of Golden Dawn which joined Syriza dissidents in voting against accepting the draconian “bailout.” Golden Dawn is not, in my view, properly termed “neo-Nazi”: it is just plain Nazi.
If despairing Greeks turn to this very dark and ugly pretender to democratic expression, Schäuble et al. may have reason to regret their unbending ideological zealotry.
This is where, contra Henry, I think the 1950s forgiveness of German debt does have very high relevance to today. That act was one of enlightened self-interest, and it worked wonders. Where is the matching imagination today?
From: Patrick Balena | July 19
Henry, if you have even the least concern for the prospect of economic and administrative reform in Greece, the only practical place to start is with default. Any other suggestion is, in today’s parlance, “non-serious.”
Trying to maintain as much as possible of Greece’s existing public debt will doom any prospect of effective reforms, because more and more economic activity in that country will simply find its way into the grey or black market. Over time, the parallel economy will become more entrenched than it is already; corruption will become worse than ever.
In order of priorities, the housecleaning in Greece must start with a massive writeoff for the foreign creditors. No worthwhile reforms in Greece can begin until that happens.
Greece cannot become economically competitive while most Greeks are encumbered with high euro-denominated prices for real estate and other fixed costs which have mostly accumulated in recent years. It will take far too long for “internal devaluation” to occur through the eventual renegotiation of myriad contracts involving millions of people in Greece. That is not a practical option.
The only way to make an orderly adjustment is therefore through an external devaluation. This would be easier to do if there was a cooperative effort to help Greece reestablish a separate currency. In any case, whether Greece remains in the eurozone or not, the foreign creditors must get wiped out.
It’s not a question of austerity. Of course there will be austerity. Real and valuable resources were invested in Greece, but those investments were mostly nonproductive. The money was wasted, and it cannot be paid back. That is a plain physical fact.
The question is about the distribution of the austerity. That is a question that neither the various recent governments in Greece, nor any other governments in the EU, seem to be able to handle in a mature and businesslike manner.
I don’t know what it is about today’s capitalists, but they just don’t seem to do physical reality very well.
From: John Richards | July 20
I am willing to follow Reg and others in their denunciation of the behaviour of Goldman Sachs and other financial institutions in New York, London, Paris and Bonn over the two decades leading up to the Lehman Brothers collapse in 2008. This was capitalism at its worst. One consequence – among many – was encouraging corrupt governments in Greece to take on too much debt.
I agree also with all those, from the IMF to Paul Krugman, who insist that a necessary condition for Greek economic revival is a major writeoff of debt – or a smoke-and-mirrors equivalent by extending repayment and lowering the interest rate.
Reg acknowledges that “Greek political culture is deeply implicated in clientelism and attendant corruption.” But this is an afterthought. It is not integral to his analysis. It should be. I have no privileged insight into the German elite’s thinking, but a reasonable interpretation of Merkel’s weekend television interview is as follows: “Of course there must be debt relief for Greece, but before we entertain the idea, we want evidence of Greek politicians’ willingness to tackle the many perverse institutional distortions in Greek politics and society.”
While Greece was not part of the Soviet empire, it has suffered similar politicization of all aspects of its economy, with the consequent impact on productivity. Understanding this dimension of the Greek tragedy helps understand the “chorus” of eastern European states that echoed German criticisms. They rightly perceive Greece as the equivalent of what they were a quarter century ago.
Greek writer Nikolas Bloudanis argued recently on the Libération website that, for over a century, Greek nationalism has been perverse in that it acknowledges no internal Greek responsibility for the country’s political problems, first as victims of the Ottomans and finally as victims of the Germans.4 The effect has been to render responsible government impossible. Thomas Piketty and others draw a parallel between Greece now and Germany in the early 1950s when its impossible debt load was written off. The distinction is that no government was more enthusiastic in rooting out past domestic nationalism than the post–World War II German government. The World War II allies agreed to help. Until/unless Greek elites undertake something similar to the cultural revolutions in eastern Europe and Germany over the second half of the 20th century, the eurozone countries remain sceptical and, in their overnight bargaining in Brussels a week ago, they all insisted that the “pain” must precede the “gain.”
Why did the majority of Greeks vote “no” on the recent plebiscite, while polls consistently indicate majority support for keeping the euro? My interpretation is that the plebiscite was an exercise in traditional Greek nationalism, but a majority of Greeks do understand that their political institutions are rotten and there must be change. Will Greek politics change? Perhaps.
From: Henry Milner | July 21
Patrick, there is simply no way Greece can stay in the euro and have all its debts forgiven. It is time to live in the real world. The choice is Greece’s, not mine or yours.
From: Patrick Balena | July 22
In reply to John, I think that a comparison between Greece (and the other 1980s southern European entrants to the EU), and the recent EU entrants in eastern Europe would be intrinsically biased against the Greeks, Spanish and Portuguese.
First, the southern European countries joined the EU before the current global tide of trade liberalization and extreme capital mobility. By the time the liberalization wave arrived, Greece, Spain and Portugal had already become relatively high-cost countries and could not really compete on the same terms as the more recent EU entrants. This was a structural adjustment problem that the advocates of EU expansion never addressed.
Second, while countries such as Poland and Slovakia have enjoyed some impressive recent expansion in their industrial sectors, this is largely due to the concomitant expansion of German industrial exports which, as has already been pointed out on the listserv, itself can be seen as evidence of structural trade distortions within the EU. Poland and Slovakia in particular enjoy locational advantages in being relatively low-cost countries close to Germany. Industry in “New Europe” rides on Germany’s coattails. Is it surprising, then, that eastern European governments favour Germany’s point of view in monetary matters?
Third, the eastern European countries have exported labourers to elsewhere in the EU. Countries such as Latvia (which experienced a 15 per cent drop in population, almost all from the younger cohorts) are now heavily dependent on remittances. Absent virgin land, this sort of solution to structural adjustment does not scale well. If Greece and Spain embark on the mass export of labour, that would not steady the EU ship; it would capsize it.
Fourth, all of the eastern European countries have demographic trends pointing to a future of huge unfunded liabilities – and ultimately national extinction. This is true, of course, of the entire developed world, but in few places do the trends manifest to such an extreme as in “New Europe.” Poland has a total fertility rate of 1.32! Even the famed “herbivores” of today’s Japan are more likely to reproduce a future generation of human beings. At this rate, a nation such as Poland, which survived all of its infamous partitions, might well be destroyed by a short spell of integration.
So while I don’t blame eastern European EU members for taking some pride in their programs of reform, and for the success they have earned thereby, if I should personally hear any of them do so in my presence, I would simply tell them that they need to smarten up.
Political economy is not called the “dismal science” for nothing.
1 “The Radical Left Syriza in Power: Will It Change Greece – and Europe?”, pp. 82–89.
2 Far-right party that came third in the elections of both January 2015 and September 2015.
3 Brazil, Russia, India and China.
4 “Nikolas Bloudanis: « l’Etranger tient davantage à la Grèce que ses dirigeants »,” July 17, 2015, retrieved from http://bruxelles.blogs.liberation.fr/2015/07/13/nikolas-bloudanis-letranger-tient-davantage-la-grece-que-ses-dirigeants/
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