The Economic Foundations of the Greek Crisis

by Spyros Sakellaropoulos *

*Paper given at the conference on the Greek crisis at the University of Salford, May 4 2010

This intervention is an attempt to explain the mechanism on the basis of which the economic crisis was brought into existence in present-day Greece. I propose to demonstrate: that there is no question either of excessive wage increases or of an exports crisis. On the contrary, today’s situation is the product of an interaction between three different factors and the endeavour to solve the problem is being carried out on the basis of decisions that are first and foremost political. The three factors are a) the fact that the mode of incorporation of Greek capitalism into the international division of labour has run up against its limits, b) the crisis of the euro and the consequences of this for the Greek economy, c) the attempt that is being made by the forces of capital internationally to impose a new model of accumulation.

Let us take the issues one by one: A first myth is that over the last 15 years or so in Greece there have been excessive wage rises and this is why we find ourselves in our present condition. It is true that in this period there has been a rise in real terms in the average wage. But this is of no significance in itself. The reason for saying this is that: a) such a finding does not take into account the difference between the average rate of inflation and the rate of price rises for basic necessities, b) the increase in the average wage includes the very large increases awarded to company executives, c) the increases include pay for overtime.

In contrast, there is a range of other indicators that are more revealing of what is happening in reality. Thus the convergence of wage levels towards the EU15 average is slighter than that for labour productivity: 14% as against 19%. Moreover there is a long-term declining tendency in the proportion of GNP accounted for by wages: 56% in 1995 as against 54% in 2008. The deterioration in Greek living standards shows from the fact that the proportion of income being set aside as household savings fell from 14.% in 1996 to 8.9% in 2004. Similarly, the proportion of the population living under the poverty line rose to 21%. As for taxation, in 2004 wage earners and pensioners paid 44% of all income tax. By 2006 this had risen to 50.1%. By contrast while companies in 2004 were paying 43% of all income tax, by 2006 this had fallen to 36.3%.

Τhe most general finding to be drawn from the abovementioned overall is that Greece is characterized by economic inequality insofar as the income of the 20% of Greeks that are most affluent take 40.4% of overall national income, around six times as much as the 20% of Greeks who are least affluent and take 7% of national income. By contrast, in the EU15 countries, this difference over the last decade has not been higher than 4.8 times.

First conclusion: Over the last fifteen years social inequalities in Greece have increased because the wealth produced has been distributed very unequally. Therefore, today’s economic problems in Greece cannot be attributed to any (supposed) increase in workers’ income.

A second myth is that the (supposed) increase in wages led to a rapid fall in the level of exports. But we have seen that there has been no real increase in wages. Nor has there been a rapid fall in the level of exports. Between 1960 and 1989 Greek exports fluctuated between 33% and 40% of the corresponding level of imports. This clear preponderance of imports reflects lack of competitiveness but there can be no question of it having led the country to bankruptcy or some other equivalent economic ruin. In the period between 2000 and 2009 a slight downturn is to be observed in the export/import ratio, which fluctuates at level of around 33%. This development is linked to the tension surrounding the Greek social formation’s mode of insertion into the international division of labour and in particular with the pressures exerted on the Greek economy from national formations with higher productivity as a result of Greece’s entry into the eurozone.

Second conclusion: in any case this decade does not appear to be characterized by any drastic reduction in exports of such dimensions as to justify the implementation of such large-scale measures.

Having said all this, one remains faced with the question: what is the real problem? In my opinion the real problem has to do with the model for entry into the international division of labour that was adopted by the Greek bourgeoisie in the post-war period. The emphasis was placed primarily on shipping, and Greek indeed remains persistently first in the world in this particular sector. It also has a significant presence in the construction industry and in tourism, but only secondarily and in a subsidiary capacity in industry, particularly industry for export. Subsequently, with the country’s entry into the EEC/EU this whole orientation was reinforce through Community funding.

In the 90s the still greater opening of international markets that was brought by the global victory of neo-liberalism intensified the pressures on the Greek economy. The solution that was opted for as a way of dealing with the new realities was not some kind of technological transformation or a radical reshaping of the mode of organization of work, above and beyond the implementation of certain forms of labour flexibility. On the contrary, support was given to a continuation of the same model, with simultaneous intensification of the rate of exploitation of the popular strata and utilization of cheap immigrant labour. It is characteristic that in a period of pronounced internationalization of capital Greece is a country with very little in the way of direct foreign investment, and such as there is exclusively going to the former “socialist” countries of the Balkans.

Entry into the Economic and Monetary Union, the carrying out of large-scale construction projects, the organization of the Olympic Games in 2004, did not introduce differentiation into this strategy but rather reinforced it. At the same time there was a continuation of various parallel forms of reinforcement of the power bloc and its underpinnings such as toleration of the illegal economy, coalescence of monopoly fractions and the state machine, resulting in over-pricing of public works, etc.

Τhe problems began when European funding began to contract, there was a fall in revenue from tourism, an increase in borrowing to cover the costs engendered by privileged treatment of tenders for public works contracts from certain monopoly groups, persistently high levels of military expenditure, chiefly because of broader geopolitical strategies and obligations, over-pricing of public works and abandonment of the Register of Shipping by Greek shipowners. At the same time entry into the EU of former “socialist” countries with their low-cost labour exacerbated the problem of economic competitiveness for Greece.

All this very much left its mark on business efficiency. According to the data we have at our disposal the marginal efficiency of fixed capital rose steadily until 2004. After that every additional unit of fixed capital invested generated a smaller increase in manufactured product.

Τhe overall result of this process is that, with the assistance of the global recession, from 2005 onwards the Greek economy starts to undergo a severe contraction. Gross domestic product in fixed prices was on a rising trajectory between 1996 and 2004 but then peaked and subsequently went into a steep decline. According to predictions gross national product in fixed prices will fall by about 2% in 2010.

All the above has implications for the national debt. From 2006 onwards there is an increase in expenses for the servicing of the debt and in 2009 a significant expansion of the debt itself. Therefore dept represents a serious problem for the Greek bourgeoisie, highlighting the crisis of the model of capitalist development that had been implemented throughout the preceding (very extended) period, to say nothing of the many overdue loans that will have to be paid between 2011 – 2013, with the average time for loan repayment falling from ten to seven years.

Our basic position is that if concrete developments did not represent a distillation of more general tendencies they would not be particularly difficult for the Greek bourgeois state to manage. Things have reached this pass because the real problem on the one hand had to do with the strategic crisis of Greek capital and on the other set in train wider processes. We should not forget that Greece is a country in the Eurozone and the present crisis, which is occurring in the context of a global recession, cannot have merely local effects. Specifically, the Greek ruling class’s incapacity to forge an alternative bourgeois strategy was assessed unfavourably by the international money markets, initiating a withdrawal of confidence from Greek capitalism on the part of finance houses. In other words the real problem has not been mainly the deficit or the debt but two different questions.

On the one hand the assessment has gained ground that Greek capitalism is likely in the coming period to undergo progressive downgrading in the international division of labour so that investment in Greece is a hazardous proposition, which is why Greece is now obliged to take out loans at such high interest rates.

On the other hand what is involved is the euro and interimperialist antagonisms. The attempt being made by a number of European countries to establish a strong currency which will gradually come to function as the international reserve currency is meeting with increased resistance from the rival formations, the more so because the euro since its creation has been revalued very many times against the dollar and the pound. The crisis in Greece serves not only as a lever for extracting extortionate profits through high-interest lending but also as a bridgehead for transforming the crisis in Greece into a crisis of the euro. Inside the eurozone this was registered in the form of genuine conflict between Germany and France. Perceiving the emerging danger France sought to help Greece, not out of the kindness of its heart of course but because it was concerned that the crisis might spread to Portugal and Spain, triggering a collapse of the common currency. Germany for its part had judged that its particular interests were best served through the existing situation whereby as the country with the highest productivity it had succeeded in dominating the export market within the eurozone. Any assistance to Greece, in its view, because of its potentially inhibiting influence on differences in productivity, could have the effect of limiting the profits to German businesses. To put it somewhat differently, German capitalism agreed to be part of the euro on the calculation that the other formations, losing the weapon of devaluations, would not be able to compete with its own high level of productivity. When the consequences of this policy started to become evident it was judged preferable for the Greek economy to be put under pressure rather than for there to be some questioning of the framework as a whole that was bringing such great profits to Germany. The final agreement on joint lending to Greece by European countries and the IMF, at high interest, represents a compromise between the two tendencies.

There is of course a third, additional dimension which has not yet become clearly delineated but our prediction is that in the near future it will begin to preoccupy the radical milieu as a whole. Starting from Greece, which by the way has always represented something unorthodox in Western Europe on account of its progressive political traditions, it seems to be venturing transition to a new phase for the developed capitalist formations. Today’s crisis indicates that the falling tendency in the rate of profit is not giving rise to counter-tendencies either through changes in the organization of production or through technological innovation. It is therefore necessary for new ways to be found of reversing the tendency and what appears to be predominating is the option of altering the balance between absolute and relative surplus value. This does not mean an end to the dominance of relative surplus value but it means there will be a great contraction of labour’s share in the wealth produced and a corresponding extension of working hours. Therefore in Greece too the measures to be taken are not to be confined to a new period of austerity but express the tendency to abolish the social conquests of decades, with the advent of the crisis as an excuse.

Overall conclusion: the recent governmental measures do not comprise just a response, of economic character, to the crisis but a clear political strategy expressing specific class interests. The Greek ruling class is caught up in a vortex that is the outcome of a whole range of different aspects of the class struggle: the impossibility of continuation of a specific mode of insertion of the Greek social formation in the international division of labour, the contradictions generated by use of the euro in the context of global crisis, the requirement that all national formations should fall in with the priorities of the powerful European bourgeoisies, the attempts at the global level to work out a new model for accumulation. Within this framework we judge that the coming years will be characterized by efforts on the part of the national bourgeoisies to pass on the costs of the crisis to the forces of labour. Also within this framework the organized forms of representation of popular interests will be called upon to forge effective strategies for turning back the offensive by capital. The future, if nothing else, seems destined to be interesting.

Spyros Sakellaropoulos, Assistant Professor of Sociology, Panteion University of Athens

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