Three Myths Concerning the Greek Crisis – #glrsi

By Euclid Tsakalotos for Greek Left Review – #glrsi

In Greek Gods, Human Lives (Yale University Press, 2003), Mary Lefkovitz argues that the myths of ancient authors offered not only hope but also a means of understanding. Myths, like ideologies, are never wrong in any straightforward manner, and leftists have much to learn from understanding the role that various current myths play. Below I present three such overlapping myths about the Greek and the eurozone crisis.

The first has to do with Greek exceptionality. It is often argued, that whatever the case elsewhere, in Greece the root cause of the fiscal crisis can be found in a spendthrift and inefficient state, organized on clientelistic principles, and always willing to cave in to sectionalist demands, especially those emanating from powerful public sector unions.

But as Wolfgang Streeck reminds us in his article in the latest issue of the New Left Review (71, Sept/Oct 2011), capitalism since 1945 has in most economies of the western world sought various forms of compromise with democracy. One form, with many variations of course, was the social democratic consensus, with full employment, the welfare state and various deliberative institutions where working class aspirations could be placed on the agenda. Another, in the subsequent era of neo-liberalism, was the “privatized keynesianism” of the more liberal economies which relied on an easy access to credit, especially but not exclusively for housing, for middle and working class households. On the back of such credit, private consumption provided the aggregate demand that had once been the preserve of the keynesian state. The issue is not exclusively one of economics. For consumption was also a means of self realization, displacing up to a point, and not without pockets of resistance, other aspirations. Thomas Frank’s analysis of market populism (One Market Under God, Doubleday, 2000) suggests that this was part of a more general neo-liberal trend in the hollowing out of democracy – why participate in the public sphere when you can vote every day in the market?

Greece in the post-war period both failed to develop an advanced welfare state and, in the subsequent neo-liberal era, could rely only to a limited extent on the financial system to shore up demand and spread the goodies of capitalism to wider sections of the population. The Greek “equivalent” was the clientelistic state that provided public sector employment, turned a blind eye to tax evasion and much more besides. As in the case of market populism, the existence of such a state also influenced aspirations and modes of political participation: access to clientelistic networks tended to undercut more horizontal forms of political activism and the search for deliberative public spaces. So the fact that Greece came into the crisis with more public sector debt than private sector debt, while the reverse was the case in the more liberal economies, is a second order consideration. Moreover if the Greek approach has turned out to be unsustainable, the same can be said with respect to privatized keynesianism in the more liberal economies.

The myth of Greek exceptionalism has played a critical role within the nexus of ideas that make up the ruling ideology in Greece. The argument has been that Greeks need to knuckle under and accept the various austerity packages because they are largely responsible for the crisis through their adherence to populist politics. The only solution is to radically reform the clientelistic state, where reform entails privatization and a radical scaling down of activity. But apart from the obvious partisan bias of this approach, it ignores the fact that if the compromise between capitalism and democracy is not to be taken completely off the agenda, then a functional equivalent has to be found to privatized Keynesianism or clientelistic politics. At the time of writing it is difficult to contend that ruling elites are giving much attention to what form a new compromise might take.

A second myth contends that the problem in Greece is mainly one of deficits and debt. The premise of the dominant strategy within the eurozone is that the financial and economic architecture of monetary union is basically sound. The problem faced by Europe is that countries did not stick to the rules of that architecture, and the consequent fiscal profligacy has led to the turmoil we observe. So in the latest “final” solution to the debt crisis of the 26th October, a large section of the final statement revolves around measures to ensure future compliance with strict fiscal rules.

The problem is of course that the architecture is far from sound. The macroeconomic imbalances between the PI(I)GS and the Northern economies cannot be attenuated through devaluation in a monetary union and the architects of the union did see fit to set up any instruments/institutions as functional equivalents. Even if the whole debt of the Greek economy was removed, we would soon be in the same situation as Greece would struggle to compete, current account deficits would persist and new foreign debt would accumulate. The problem is thus not the euro as such but its “supporting” institutions: the Growth and Stability Pact, the lack of a sizeable federal budget, the remit of the ECB, etc. Nor is it only a matter of institutions. Germany’s policy of restraining German wages, thereby relying on export rather than domestic demand, makes it very difficult for Southern economies to compete. Moreover, as many analysts have pointed out, the German model is not universizable as not all economies can be in surplus at the same time. Germany continues to act as a small open economy, calibrating its demand management stance with respect to German rather than union-wide economic conditions. It is as if the US government’s stance was predicated only on demand conditions in the north-east of the country. The viability of the eurozone is simply not compatible with such a stance.

Nor is it compatible with most economies being pressured to promote austerity measures, as if the austerity of one economy does not exert a negative externality (with respect to demand) on its neighbours. The vicious circle of austerity leading to recession, requiring new austerity measures needs to be broken if the eurozone is to survive. But the myth of fiscal profligacy, and the need for European wide consolidation, persists. Why? Perhaps because the elites of Europe are now no closer, than they were in 2008, to responding to some of the major causes of the crisis. Thus attempts to re-regulate the banks have failed to convince even the Financial Times or the New York Times. At the same time, macroeconomic imbalances, as we have seen, persist, while the acute social inequalities that were characteristic of the neo-liberal era rather than being addressed are deepening as the result of austerity. Is it any wonder that the world economy is on the brink of a second episode of recession?

But from the perspective of the rich and the powerful, responding to these causes is fraught with dangers. After more than twenty years of neo-liberalism, the unions, and labour in general, have been on the defensive. An agenda of income redistribution, socialization of the banks, a federal budget providing some solidarity for those economies in trouble, and a new Marshal plan for investments would by necessity move marginalized popular social forces more to centre stage. And who is to say they would not be able, from such a position, to radicalize further the agenda?

The third, and final myth, concerns the national nature of the crisis. Strangely this has influenced many sections of the Left as well. Thus, in Greece, one section of the Left has responded to the imposition of austerity measures from the Troika as if this entailed a new form of foreign occupation. Often such a conception has been tied to some pretty crude analysis which has suggested that the main contradiction lies between “large” capital, and its foreign allies, versus the “people”. But starting from the principle of Ockham’s razor, when so many economies are concurrently in crisis, one needs to go beyond the nation state to understand what is going on, even if one returns to encompass national characteristics at a second level of analysis. For the fact is that the ruling parties in Greece, of both the centre-left and centre-right, represent very powerful social forces within Greece that have similar interests, and see the world in similar ways, to their counterparts in the rest of Europe. And most importantly they have benefitted from the neo-liberal economic model and do not want to see initiatives that bring those gains into question. The stagnation of the eurozone is a direct result of this reticence, tied to the non emergence of a strategy to respond to the issues raised by the 2008 crisis.

The Left needs to provide such a strategy and to respond to social inequalities, the power of financial markets and TNCs, the hollowing out of democracy, and production and consumption prototypes that systematically neglect central social needs. It seems unlikely that such an agenda will not require a strong dose of supra-national initiatives and proposals. Of course the nation state remains a powerful locus of class action and intermediate demands. But in the era of globalization, the Left needs to keep hold of the idea of shared sovereignty. Not, as in the present eurozone arrangements, to narrow the scope for democratic forces, but to enhance public spaces and to protect such spaces from financial markets and other expressions of capitalist class power. The old slogan of “think globally, act locally” remains a sound compass for what needs to be done.

Euclid Tsakalotos is a professor of economics at the University of Athens. His book on the crisis, written with Christos Laskos, has just been published in Greece: No Turning Back: Capitalist Crises, Social Needs, Socialism, KaPsiMi publications, 2011.