Ending austerity in Greece: time for plan B?

originally published at ROAR.magazine
By Jerome Roos On February 26, 2015

Post image for Ending austerity in Greece: time for plan B?
Syriza’s “head-long retreat” in the standoff with its creditors hails the failure of Tsipras’ pro-euro strategy. It’s time to start preparing for Grexit.
Photo by Angelos Tzortzinis.

When the Eurogroup accepted Greece’s reform proposals on Tuesday, investors and EU leaders let out a collective sigh of relief: it appears that the bombshell of a disorderly Greek exit from the Eurozone has been diffused, at least until the start of the summer. In return for a significant roll-back of its campaign pledges, Greece’s freshly inaugurated government secured a four-month extension of its current bailout program and thereby managed to avert a potentially catastrophic bank run that would likely have resulted in Grexit.

But while Greece’s creditors seemed content, the agreement immediately unleashed a bitter debate within the governing leftist party Syriza. Prime Minister Tsipras may have declared a tentative victory for his anti-austerity coalition, but some influential party members strongly criticized what they perceived to be an unacceptable climbdown. Costas Lapavitsas, the SOAS economist and Syriza MP, wrote a scathing letter expressing his serious concerns about the government’s ability to stick to its promises, while Stathis Kouvelakis of Syriza’s central committee dubbed the agreement a “head-long retreat.”

Manolis Glezos, the 94-year-old war hero and Syriza MEP, even went so far as to apologize to the Greek people for having participated in “this illusion,” while the legendary composer Mikis Theodorakis urged the government to resist the “fatal embrace” of its creditors. Paul Mason reports that “there is a sea change going on within Syriza. In the past 48 hours I’ve heard people who were staunch believers in the ‘good euro’ — a euro that can accommodate by negotiation a radical left government — say, effectively, they were wrong.”

How are we to respond to all this? The first thing to observe is Spinoza’s dictum: non ridere, non lugere, neque detestari, sed intelligere — not to ridicule, lament or condemn, but to understand. If we really want to understand Syriza’s rapid retreat over the past week and engage in constructive criticism to end austerity, we’ll have to start, first of all, with the strategy chosen by its party leadership, particularly in relation to the euro; and secondly with the way in which the single currency serves as an amplifier of structural power relations between creditors and debtors — core and periphery — in the European political economy.

On the first point, it is clear that the so-called “good euro” strategy proposed by the party leadership and Finance Minister Yanis Varoufakis, whose “modest proposal” for resolving the crisis fundamentally revolves around a wholesale restructuring of the Eurozone along Keynesian lines, has run headlong into the opposition of virtually everyone else involved. In the negotiations, Greece found itself isolated not only by the 18 other Eurozone finance ministers (including the center-left French and Italians and the other heavily indebted countries), but also by the ECB and the European Commission.

Moreover, going into the negotiations, Greece suffered from two structural weaknesses: the near-total depletion of its public finances and the extremely parlous state of its domestic banking system. With its reserves running on empty, the government would have run out of financing by February 24 and would have been forced to default on its IMF obligations by March. At the same time, increasing uncertainty about Greece’s place in the Eurozone produced sustained deposit flight, bringing the Greek banks to the brink of collapse.

Strategically speaking, the government could have wielded these weaknesses as a bargaining chip. Had it been willing to put its euro membership on the line, Greece might have been able to extract greater concessions from its risk-averse “partners” by threatening unilateral action if the creditors refused to give in. But default and Grexit were ruled out a priori by Syriza’s moderate leadership, which repeatedly declared its unwavering commitment to the single currency. Knowing this, Germany and its allies pushed for total surrender: with Greece weak and dependent on external loans, the Eurozone could enforce strict conditions in return for continued membership.

This first observation is connected to the second point: the highly asymmetric power relations at the heart of the monetary union. In previous columns, I have repeatedly argued that Germany — as the dominant force inside the Eurozone — would never accept a restructuring of the Greek debt, that the Eurozone would never accommodate a social democratic alternative in its midst, and that as a result Greece’s leftist government would find it impossible to pursue a socially progressive alternative (let alone a radical program) inside the fundamentally regressive, anti-social and anti-democratic straitjacket of the Eurozone.

These predictions — which are very similar to those made by Costas Lapavitsas and others inside Syriza’s Left Platform — have now been proven correct. Continued Eurozone membership keeps Greece stuck within a web of structural constraints from which it cannot escape without its creditors’ approval. And since these creditors are loathe to set a precedent of successful debtor defiance, they will do anything to prevent Greece from upending the neoliberal austerity doctrine. There can be only one conclusion from this: to truly end austerity, Greece will have to leave the euro.

To be sure, Grexit is not a panacea. Readjustment will be extremely painful in the short term, and even in the long-run it is clear that restoring fiscal and monetary policy autonomy will never be enough to overcome the structural dependence of the Greek economy on foreign investment or to insulate the Greek state from the systemic pressures of global finance. The point of Grexit, however, is not to fetishize national sovereignty but simply to reclaim the essential monetary and fiscal policy tools that the government now lacks — and without which it is materially impossible to determine socioeconomic priorities and pursue a progressive economic program.

The most important challenge, in this respect, will not necessarily be economic in nature but rather social, political and psychological. Before Greece can ever be liberated from its state of debt servitude and its plight of permanent austerity, its government will first need to be in a position to default on its European creditors and “print” its own currency. This will in turn require three things:

First, mass mobilization from below will be essential, both to put pressure on Syriza’s leadership and to empower the pro-Grexit faction inside the party, which is now steadily growing in the wake of last week’s dramatic retreat. Second, voters will have to abandon their aversion towards Grexit and public opinion will have to sway behind a much more confrontational approach. To get there, the left and the movements will have to embark on a concerted campaign of “popular education” to inform the Greek public of the only real options available to their country: progressive exit or endless austerity.

Finally, and most importantly, the government would have to be meticulously prepared to manage the extremely difficult transition period, in which the price of imported goods will skyrocket following a sharp devaluation; key commodities like food, petroleum and medicine will have to be rationed to deal with sudden scarcity; capital controls and border controls will have to be reintroduced to prevent catastrophic capital flight; deposits and loan contracts will need to be re-denominated into drachma; and the banks will have to be nationalized to prevent a complete collapse of the financial system.

All of this will require a degree of radicalization and preparation that currently seems both utterly irresponsible and completely unrealistic. Yet this is precisely where the brutally anti-democratic methods of the Eurozone are pushing Greece today. For five years, Greeks have been living in total despair. Desperate times call for desperate measures — and the time for unilateral default and Grexit may be approaching faster than most people are willing or able to recognize. If the left truly cares about ending austerity, it should start preparing for Plan B.

Jerome Roos is a PhD researcher in International Political Economy at the European University Institute and founding editor of ROAR Magazine. Follow him on Twitter @JeromeRoos. This article was written for TeleSUR English.

One response to “Ending austerity in Greece: time for plan B?

  1. …total depletion of its public finances and the extremely parlous state of its domestic banking system…

    The EU was the irresponsible lender.

    Papandreou should have kept his mouth shut.

    Depletion of public finances, is because of the biggest emigration since the 1950s leaving Greece and the destruction of capitalism, including the biggest employment of small to medium independent retailers in Greece, not by Austerity, but by total and complete taxation, with the tax all flowing out of Greece.

    The domestic banking system has not been emptied by a bank run.

    But by a nil basic tax allowance and layer upon layer of tax imposed by the EU, that actually brought less and less tax from an increasingly cashless society, and is a form of capital flight, leaving both the state and economy without money flowing within it, that makes capitalism possible.

    Who am I. Part Greek with a lifetime of summers, talking to relatives a few hours a year.

    If I can see this, why not the IMF and the EU and the German politicians headed by Merkel that are acting with the same effect as a former German politician that occupied Greece for many years?

    Grexit is not an option, it seems.

    But I lived through a lifetime of the Drachma, where goods and prices were equally balanced. We could eat well. The shops were full. People had money to spend.

    Imported goods from China will be still as cheap with a Drachma or the Euro. The 1 Euro stores and street stalls abound now.

    The Euro was hyper inflation like in the war. The first day say a 50 Lepta (half a Drachma) bottle of water, go to 50 cents (half a Euro). A Drachma was worth then about 300 Drachma. Can you see the inflation rate?

    Nationalising the banks is what has happened with bank bail-outs here in England, where the taxpayer has kept banks going.

    If Greece defaults, than the whole of southern and eastern Europe will do so.

    Ukraine is not even in the EU but is already in debt and will go down the same debt and austerity that will just leave them to starve just as much.

    If Putin underwrites the Drachma, then the Greeks can do their ancient skill, thousands of years old, of merchantmen around the world with nations not in recession.

    Greeks are polyglot and have a historical trading that is world renowned.

    After 400 years of Turkish rule, wars, occupation by the Gestapo and then a brutal civil war, I was born.

    From the 1950s, the Greeks went from absolutely nothing, to a modern nation, prosperous and people had social medicine affordable to all and employment rights, and so much else besides. My mother, a woman, had the right to vote and could attend university to study law alongside the men in Athens, long before available to English women.

    Once the Greeks are freed from the unsustainable and ever increasing debt, by each bail-out just making it worse, the Greeks will bounce back. But only if the EU does not keep on asking the Greeks to die, so that the irresponsible EU banks can remain rich.

    The EU has been a disaster and is just a pillaging empire just as the European colonial past around the world, that is still having an effect.

    The EU was just meant to be a free trade zone and maybe could be just that again.

    But the EU now is the source of the same austerity that is killing people from early death and suicide that is happening in the UK from our political class, that the UK people will not vote for, leaving the UK without a true democracy, by more people not registered to vote in 2015 than the ever fewer in 2010, and even fewer coming out to vote.

    We need a SYRIZA in the UK. We are not bound by the EU nor in debt thrall to the EU.

    UK’s poor could bring a landslide by a group of parties being voted into power, and have the biggest influence in UK history to end austerity.

    The poor in the UK now outnumber all other voters.

    But the public are not being told about our SYRIZA type UK parties.

    The media will not say one word about them in the UK.

    Nor tell people that voting small parties is not a wasted vote,
    as a single party government will never again happen in the UK.

    UK Blogs will not inform the UK victims of welfare and pension reform of the UK parties of the poor of the left, with worse to come whichever of the big UK-wide parties stay in power (with vastly reduced and insufficient votes to rule except as a tiny minority government).

    Grexit or Brexit is not the issue. What we need is a Germanexit or Krautexit or Deutschraus.

    As Gandhi observed, people’s politics are their daily bread.

    Nowhere in the world, throughout history, has an elite survived when the poor are left to starve.

    Greece or the UK. Our rulers seem content to be just Marie Antoinette.

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