What should Greece do? Part 2

In my last post I looked at political problems of Greece’s national debt and the argument against Greece paying the debt. Now I will address the implications of Greece leaving the Euro.

From the interviews with many Syriza supporters in Theopi Skarlatos and Paul Mason’s film #ThisIsACoup, I got the impression that this is what Syriza’s supporters want them to do. They feel that Greece has been humiliated by its creditors and they want Syriza to stand up for Greece. Whenever Syriza make a deal to with Greece’s creditors, Syriza supporters say they feel betrayed by the party they voted for.

The reason why Greece cannot default on its debt is because its economy would collapse. As has been said before, the majority of the Greek national debt is propping up Greek banks. If Greece defaults on its debt it would have to leave the Euro, and if it left the Euro then the EU would stop lending to Greek banks. This will cause them to collapse. In today’s finance based neo-liberal economy no country can survive the collapse of its banking sector, people would lose all their savings and their homes. So defaulting on its debts would mean economic armageddon for the Greek people. Understandably this is something Syriza want to avoid.

One of the points that Theopi Skarlatos and Paul Mason’s film makes is that Syriza’s mistake was playing for time. They argue for an extension on Greece’s debt while they renegotiate their position. During this time Greek banks have become more dependent on EU lending. Syriza could have got out of the debt if they had defaulted earlier, perhaps as soon as they had taken power, but by the time the negotiations were concluded it was clear that defaulting on Greece’s debt was not an option.

Another reason for Greece to not default on its debt is that it would take around 12 months for Greece to set up a new national currency to replace the Euro. If Greece started to lay plans to leave the Euro in 12 months time, it would be discovered and would mean announcing that Greece planned to default on its debts. This would create a panic, all assets would be removed from Greece by investors and creditors and the economy would collapse sooner. Leaving the Euro and/or defaulting on its debt would ruin the Greek economy and is not an option.

If paying the debt, or defaulting, are not options then a compromise will have to be reached. A compromise where Greece pays some of its debt but not all of it. After watching the film I think this is the solution that Syriza want and is the most sensible.

The only problem with this approach is that the EU does not want to compromise. Throughout the film the EU refuse to allow any amount of Greece’s crippling debt to be written off. After Syriza’s first debt extension, the EU demands that Greece pass a law saying the EU could veto any future Greek laws, which only increases their power over Greece. Later Syriza wanted to give free food to the poor and the old, but the EU used their power veto this. Clearly the EU were only interested in putting as much pressure onto Greece as possible so that they would pay the debt back. However, as discussed above this debt was illegal and practically cannot be paid back.

In the absence of a compromise, and faced with two impossible options, the negotiations between Syriza and Greece’s creditors do not lead to a resolution. The film shows Greek Prime Minister and Syriza leader Alexis Tsipras looking increasingly tired as he tries to find a way out of this impossible bind, even resorting to calling a referendum and a snap election to give the Greek people as much say as possible in the future of their country.

The film ends after the second general election victory for Syriza in September 2015. Since then there has been no clear solution to the problem of Greece’s debt. The film ends with the gloomy implication that if Syriza fail to resolve the problem in a way that is satisfactory to the Greek people then we do not know where the anger that drove Syriza to power will go next. If it becomes support for neo-Nazi party Golden Dawn, then the implications for the whole of Europe are terrifying.

From watching this film I initially thought that Greece should default on its debt because it was crippling its economy and the EU had no interest in compromising. After thinking about issues and listening to the Q&A with Theopi Skarlatos and Paul Mason, I realised that this was not possible. A compromise between the EU and Syriza is the only viable resolution to this situation, which has grown worse with the arrival of hundreds of thousands of migrants and the possibility of a Nazi takeover in Greece. Surely the EU does not want to see a Nazi government in control of so many vulnerable immigrants, so they will have to compromise with Syriza. The Greek national debt is still a live issue and we need to remember the possibility of a fascist regime with a million non-White immigrants is a real possibility and should be avoided at all costs.

Syriza are up against forces much more powerful than themselves and they are hampered by the fact that their own supporters are not always in favour of what they do - although so far their electoral support remains strong. I have a lot of respect for Alexis Tsipras and the other leaders of Syriza who are faced with such a mammoth task. I believe they do have the best interests of the Greek people at heart and are trying to work towards a realistic and workable compromise. Hopefully they can succeed, because I am very frightened of the implications if they fail.

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.