John Buell

A Modern Greek Tragedy

The Greek financial crisis offers us many lessons, but perhaps the most significant is the extent to which European elites will go in order to impose their neoliberal vision of economic order. In 2010, when default appeared likely, the Troika constructed a bailout package that imposed severe fiscal restraints (austerity). The carrot behind the stick was the promise that if Greece only followed the rules, prosperity would soon emerge. Greece did so, only to see unemployment reach a level equal to that of the United States in the Great Depression. Nor has this policy been successful even in its own terms. Though debt has shrunk, debt as a percentage of Net National Product has increased. In simple terms, this means that Greek taxpayers must devote an ever larger portion of their production to the burdens of interest and principal on the debt.

When once again the threat of default appeared imminent, the Troika responded with a demand for more of the same medicine from the Greeks. Another bailout was promised, but on harsher conditions. The primary surplus was to be increased along with demands for more rapid and wide-ranging “structural reforms.”

That Greece has a tax collection problem is beyond dispute, but that problem is most heavily concentrated among the rich. Nonetheless, the Troika has intensified its focus on the poor and working class. Requirements that Greece broaden the base of its Value Added Tax and increase its rate make the country’s tax structure more regressive (harmful to the poor) and also hurt one of Greece’s few viable industries, tourism.

The Troika’s coercive agenda has gone beyond the harsh conditionality terms for its loans. When the Left wing Syriza party finally said enough is enough and refused the terms of the bailout offer, the European Central Bank, the Troika’s key player, reacted in a shocking way. It restricted further short-term loans for Greek banks even though their financial standing was no worse than under earlier governments. Even well run and fully solvent banks can run short of funds if they face more than ordinary demands from depositors. A competent central bank that automatically provides funds to meet short-term needs is essential if runs on all banks are to be avoided. The ECB thus exposed one of the deepest fallacies of the current financial crisis, the political independence of central banks.

Credit is the lifeblood of a modern economy. Throughout this crisis Greek businesses, even profitable ones, have had trouble getting loans. The ECB’s harsh action, though now reversed, has inflicted further damage on an already deeply depressed economy.

The sum total of these actions cannot possibly help Greece repay its creditors. The Troika’s defenders also argue that Greece has been too slow in implementing the privatization requirements. Yet as Nomura Securities senior economist Richard Koo points out, forced privatization leads to very low returns on one’s assets. And any benefits from other so called structural reforms, such as prohibition of collective bargaining by unions, yield benefits only over long periods. (I would argue they only depress aggregate demand and thereby make the problems worse.) Paying off creditors may not, however, be their real agenda. The creditors, including Italian and German banks, are allowed to carry toxic Greek bonds at face value. Looting what is left of the Greek public sector and punishing any form of resistance to the Troika’s agenda may be the real agenda here.

As for what Greece should do next, the choice seems to be stark. Stefano Saffina, former Italian deputy finance minister has argued: “The road of continuity is the explicit option of the “grand” conservative-led coalitions and “socialist” executives (in France and Italy for instance). The road of discontinuity may be the only one for attempting to save the European Union, revitalize the middle-class democracies and reverse the trend of the devaluation of labour. For a managed disintegration of the single currency, we must build a broad alliance of national liberation fronts, starting from the eurozone’s Mediterranean “periphery”, made up of progressive forces open to the cooperation of the democratic right wing sovranist parties. The time available is increasingly short.”

Either the slow bleed of these new requirements in exchange for some temporary relief or a return to the drachma or another new currency. The latter choice may seem desirable, but poses fiendish logistical problems for banks, ATM machines as well as legal problems for how to treat debts and contracts denominated in euros. Perhaps transnational and domestic efforts have to grow together. Writing in the London Telegraph, Ambrose Evans-Pritchard comments: “All Souls economist Kevin O'Rourke says the next Left-wing party that rises to challenge the EMU will not be as ‘feckless’ as Mr Tsipras, and will not bargain from a position of such abject weakness.

“The lesson that they will draw from this debacle is: negotiating with Germany is a waste of time; be willing to act unilaterally, be willing to default unilaterally, have a plan for achieving a primary surplus if you haven’t already achieved it, have a hard default and euro exit option in your back pocket, and be willing to use it at the first sign of hassle from the ECB,” he said.

Unfortunately, Greece now has few options. Neither remaining in the Eurozone nor exiting offers great room for hope. This is a modern Greek tragedy. Policy agendas may not reflect the gods or the fates. Nonetheless, all spring from flawed parents. What is especially repellant in this case is the Troika’s unwillingness to acknowledge past failures and its determination to prevent even discussion of current injustices.

John Buell lives in Southwest Harbor, Maine and writes on labor and environmental issues. His books include Politics, Religion, and Culture in an Anxious Age Email Jbuell@acadia.net.

From The Progressive Populist, September 1, 2015

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