What has happened to Greece?
08
de Juliol
de
2015
Act.
18
de Setembre
de
2015
The electoral mandate given to Syriza in the Greek parliamentary elections on 25 January 2015 was clear: voters said an unequivocal NO to catastrophic austerity measures that plunged the Greek economy into an unprecedented peace-time recession. In that sense, the referendum was not institutionally necessary. However, the new Greek government was dragged into inconclusive negotiations with its creditors, during which it was forced to make consecutive concessions that went against its recent electoral mandate. These concessions could have led to a perfectly acceptable (by the creditors) agreement.
However, at the last minute the Troika chose to present the Greek government with a take-it-or-leave-it proposal that would have never passed parliamentary vote. It was essentially an extension of the same catastrophic 'adjustment programme' with new anti-social and recessionary measures that would deepen the humanitarian crisis in Greece, further dismantle the productive tissue of its economy and worsen its macroeconomic position, including its debt-to-GDP ratio. That made obvious that the intention of the Troika was not to reach an agreement with the Greek side, but to subvert, destabilise and silently overthrow a democratically elected government, whose leftist political positions go against the dominant neoliberal discourse in the European Union. This way they would discourage the rise of similar socio-political movements in other parts of Europe, like Podemos in Spain.
In this context, calling for a referendum was a desperate and risky decision of last resort taken by the Greek government with its back against the wall. This was followed by a fierce campaign of terror propaganda inside Greece orchestrated by opposition-controlled media, and international bullying, which included the unprecedented decision by the ECB to maintain very low levels of liquidity in the Greek banking system while international media were predicting (and hence encouraging) a bank run, which eventually led to the 'corralito' of last week. In this atmosphere of fear, panic and chaos, Greek citizens, against all odds, gave a resounding vindication to Syriza's political positions by voting NO.
This inevitably reinforced the negotiating position of the Syriza-led government. Let's consider the counterfactual situation in which the Greek electorate would have voted YES: That would have destabilised the Syriza government, probably leading to its resignation, and a new round of elections that would have lasted at least two months in the midst of financial chaos and political instability. In the new elections, Syriza would have probably won again the majority of vote. What would have come next in that case? An EU-supported coup d'etat? An illegitimate government of 'technocrats' appointed by Brussels and Berlin?
In a way, the result of the Greek referendum has averted the worst-case scenarios. It definitely reinforced the negotiating position of the Greek government, but for better or for worse, it did not pose the question whether Greece should leave the Eurozone, and it did not give a clear answer as to what would constitute an acceptable agreement for the Greek people – it merely signalled that the Troika ultimatum was rejected by the Greek people. There are no institutional provisions in the European treaties for voluntary or involuntary exit of a member-state from the Eurozone, but there are no explicit restrictions either. No EU institution can unilaterally decide to kick out of the Eurozone a member-state. In that sense, GRexit threats are void and purely sensationalist.
What, however, the ECB could and has indeed already done to a certain extent, is to drain liquidity in the Greek banking system, thus leading to its collapse. That could force Greece to adopt its own (parallel) currency and hence to de facto but not de jure leave the Eurozone. It is doubtful, however, whether the ECB would go as far as to destabilise the entire EU, and by extension the global banking system by causing the collapse of the banking system of one of its member-states. The only fair and sustainable solution, which essentially Tsipras's government asks for, is to link debt repayment to the growth rate of the Greek economy.
This entails the adoption of substantial pro-growth measures that take into consideration the particularities of the Greek economy and the characteristics of its industrial structure. It may also, however, require extensive debt restructuring, including a grace period for debt repayment and debt write-off. All well-known macroeconomists agree that Greek debt dynamics are unsustainable. Among others, Paul Krugman (Austerity arithmetic) shows that, in the case of the Greek economy, rising the primary surplus by 1 percentage point would require austerity measures that would reduce GDP by 3 pp, and raise the debt ratio annually by more than 1 pp, which means that further austerity cuts in government spending would raise the ratio of debt- to-GDP indefinitely.
Unexpectedly, the last IMF draft report on debt sustainability analysis clearly confirms this position, i.e. that the Greek sovereign debt, given the current state of the economy, cannot be repaid. The IMF sees as a minimal solution the extension of the maturities of European loans and, if structural reforms weaken further, a debt haircut. A similar solution was followed in 1953 in the case of West Germany when the WWII Allies (including Greece) forgave a large part of its accumulated debt, at a time when its economy was already exhibiting signs of recovery and trade surpluses. That gave birth to the German economic miracle of the 60s by allowing West Germany to borrow on international money markets, to further expand its trade surpluses, to reinforce its industrial structure, and finally to repay (part of) its debts.
The resignation of Greek finance minister Yanis Varoufakis, following pressures by the Eurogroup, is a strategic mistake of the Greek government, which comes in the aftermath of its triumphant victory in the referendum. That sends a totally wrong signal to the creditors, as it could be interpreted as an indication that the Greek government is willing to capitulate to Troika's demands.
On the other hand, it is also an indication that the Greek government is willing to resume negotiations with its creditors on a new basis.
However, at the last minute the Troika chose to present the Greek government with a take-it-or-leave-it proposal that would have never passed parliamentary vote. It was essentially an extension of the same catastrophic 'adjustment programme' with new anti-social and recessionary measures that would deepen the humanitarian crisis in Greece, further dismantle the productive tissue of its economy and worsen its macroeconomic position, including its debt-to-GDP ratio. That made obvious that the intention of the Troika was not to reach an agreement with the Greek side, but to subvert, destabilise and silently overthrow a democratically elected government, whose leftist political positions go against the dominant neoliberal discourse in the European Union. This way they would discourage the rise of similar socio-political movements in other parts of Europe, like Podemos in Spain.
In this context, calling for a referendum was a desperate and risky decision of last resort taken by the Greek government with its back against the wall. This was followed by a fierce campaign of terror propaganda inside Greece orchestrated by opposition-controlled media, and international bullying, which included the unprecedented decision by the ECB to maintain very low levels of liquidity in the Greek banking system while international media were predicting (and hence encouraging) a bank run, which eventually led to the 'corralito' of last week. In this atmosphere of fear, panic and chaos, Greek citizens, against all odds, gave a resounding vindication to Syriza's political positions by voting NO.
This inevitably reinforced the negotiating position of the Syriza-led government. Let's consider the counterfactual situation in which the Greek electorate would have voted YES: That would have destabilised the Syriza government, probably leading to its resignation, and a new round of elections that would have lasted at least two months in the midst of financial chaos and political instability. In the new elections, Syriza would have probably won again the majority of vote. What would have come next in that case? An EU-supported coup d'etat? An illegitimate government of 'technocrats' appointed by Brussels and Berlin?
In a way, the result of the Greek referendum has averted the worst-case scenarios. It definitely reinforced the negotiating position of the Greek government, but for better or for worse, it did not pose the question whether Greece should leave the Eurozone, and it did not give a clear answer as to what would constitute an acceptable agreement for the Greek people – it merely signalled that the Troika ultimatum was rejected by the Greek people. There are no institutional provisions in the European treaties for voluntary or involuntary exit of a member-state from the Eurozone, but there are no explicit restrictions either. No EU institution can unilaterally decide to kick out of the Eurozone a member-state. In that sense, GRexit threats are void and purely sensationalist.
What, however, the ECB could and has indeed already done to a certain extent, is to drain liquidity in the Greek banking system, thus leading to its collapse. That could force Greece to adopt its own (parallel) currency and hence to de facto but not de jure leave the Eurozone. It is doubtful, however, whether the ECB would go as far as to destabilise the entire EU, and by extension the global banking system by causing the collapse of the banking system of one of its member-states. The only fair and sustainable solution, which essentially Tsipras's government asks for, is to link debt repayment to the growth rate of the Greek economy.
This entails the adoption of substantial pro-growth measures that take into consideration the particularities of the Greek economy and the characteristics of its industrial structure. It may also, however, require extensive debt restructuring, including a grace period for debt repayment and debt write-off. All well-known macroeconomists agree that Greek debt dynamics are unsustainable. Among others, Paul Krugman (Austerity arithmetic) shows that, in the case of the Greek economy, rising the primary surplus by 1 percentage point would require austerity measures that would reduce GDP by 3 pp, and raise the debt ratio annually by more than 1 pp, which means that further austerity cuts in government spending would raise the ratio of debt- to-GDP indefinitely.
Unexpectedly, the last IMF draft report on debt sustainability analysis clearly confirms this position, i.e. that the Greek sovereign debt, given the current state of the economy, cannot be repaid. The IMF sees as a minimal solution the extension of the maturities of European loans and, if structural reforms weaken further, a debt haircut. A similar solution was followed in 1953 in the case of West Germany when the WWII Allies (including Greece) forgave a large part of its accumulated debt, at a time when its economy was already exhibiting signs of recovery and trade surpluses. That gave birth to the German economic miracle of the 60s by allowing West Germany to borrow on international money markets, to further expand its trade surpluses, to reinforce its industrial structure, and finally to repay (part of) its debts.
The resignation of Greek finance minister Yanis Varoufakis, following pressures by the Eurogroup, is a strategic mistake of the Greek government, which comes in the aftermath of its triumphant victory in the referendum. That sends a totally wrong signal to the creditors, as it could be interpreted as an indication that the Greek government is willing to capitulate to Troika's demands.
On the other hand, it is also an indication that the Greek government is willing to resume negotiations with its creditors on a new basis.