What should Greece do? Part 1

What should Greece do? It is a complicated question with a complicated answer. The ruling party, Syriza, has been in power since January 2015 and the pressure is on to solve the problem of the enormous amount of debt that Greece owes, which is 320 billions Euros or 177% of Greece’s GDP (figures as of 10 July 2015, source).

Recently I went to see a film by Theopi Skarlatos and Paul Mason called #ThisIsACoup, which covers the period between Syriza’s first and second electoral victory. I highly recommend this film, made as events unfolded, as I felt much more informed about the Greek debt crisis after watching now it. Based on this film, a Q&A with its makers and my wider reading around the topic, I am going to see if I can answer the question of what Greece should do.

The simplest answer that has been put forward is that Greece should just pay off its national debt. This is the argument favoured by middle class British columnists, writing from the comfort of their cottages in Surrey. This is the argument favoured by people who believes that politics begins and ends with personal responsibility. This is the argument that assumes that the Greek debt is exactly the same as the credit card debt of a student who partied a bit too hard during freshers week. Cut back on the craft larger and pulled pork. Show some self-control.

As you can tell I do not have much for time argument, but I will give it a fair hearing. The argument for Greece paying its debts, is that Greece is spending too much on welfare, pensions, its military (which is massive) and propping up stated owned enterprises. The solution is for Greece to embrace austerity as well as reforming its economy to make to make it more competitive; the process that Britain went through during the 1980s. This will allow the Greek economy to reduce its debt and return to growth.

The main flaw with this argument is that it is clearly not what the Greek people want and democracy means that people get what they want, for better or worse. Greece's main creditors are other EU nations and the people of these countries do want Greece to pay the debt, which is a thorny issue. Whose democracy is more important, the debtor or the creditor? EU law does say that Greece should pay the debt. However, I find it strange that people in Britain argue that Greece should be subject to EU law no matter what its people want, but the cries the British people to be liberated from crushing yoke of EU technocrats must be answer.

Theopi Skarlatos and Paul Mason’s film makes the point that only 11% of Greek it went directly to the Greek people, i.e. for spending on Greece's apparently lavish welfare state and overstuffed state owned enterprises. The majority of the money went into propping up Greek banks hit by the global financial crisis, which certainly was not caused by Greece (or the Labour Party) spending too much on welfare or pensions or public health.

If the Greek government does embrace austerity, then the debt will be repaid over the next 50 years. Theopi Skarlatos and Paul Mason raise the question of whether the Euro, the EU or the current global financial system still be here in 50 years? The odds are stacked against it. The wider EU financial crisis and refugee crisis mean that it is very unlikely that the EU and the Euro in its current form will be around in 50 years. Perhaps a plan based on Euro longevity is a bad idea.

Austerity is not simply a case of make do with less; even when less is healthcare, support for the poorest in society and pensions. Austerity has other effects, as well as closing Sure Start Centres and raising child poverty. It creates Financial Melancholia, which is a sense that the future is only about paying for the past. This saps the creativity from the present because it is consumed by one thing: passing for decisions taken in the past.

Theopi Skarlatos and Paul Mason said that young people are leaving Greece in huge numbers because they believe there is no future. The youth unemployment rate is at 50%, which is encouraging them to leave. This will have long term economic consequences. Who will look after the old people? Who will do all the low level work? Who will start new businesses? Austerity does not create economic dynamism; it stifles it through Financial Melancholia.

The main problem with the Greece paying its debts is the question of how the economy returns to growth after going through an austerity regime that is more severe than anything else that has been seen in Europe. The debt repayment ideas requires that economic liberalisation also take place at the same time. Greece is different to most other European countries in that large global brands (McDonald's and Superdrug where the two examples that Paul Mason cited during the Q&A after the film) are not present in Greece. Greece is not a socialist utopia, they have their own large brands owned by ultra-wealthy oligarchs just like every other capitalist country, and these oligarchs have enormous political and social power. They also stand to lose the most if the Greek economy is opened up to international competition.

It is because of this that the liberalisation phase of the pay your debts plan will never happen. What will happen is heavy austerity (which punishes the poor for being poor) and the liberalisation will never actually occurs. This will continue until either the debt is repaid (which will not happen because growth will not return and tax revenue will not grow) or the Euro collapses for some other reason. This means that even if Greece tries to pay its debt, it will eventually be forced to take its other option: default and leave the Euro.

In my next post I will look at the problems with Greece leaving the Euro.