Tag Archives: eurozone

Greece – the mirror of Europe’s future?

Murray Smith looks at the crisis in Greece and what it means for Europe.

Solidarity with Greece

On February 21, the second Greek “bail-out” was agreed by the Troika (1). The draconian conditions attached to it included:

– the minimum wage to be reduced by 22 per cent, from 740 to 590 euros (470 net). For young workers under 25 the reduction will amount to 32 per cent;

– the sacking of 150,000 public sector workers (out of a total of 750,000) over the next three years; in addition four out of five workers who retire will not be replaced;

– all pensions to be cut by 15 per cent, those above 1000 euros by 20 per cent;

– cuts in health spending amounting to a billion euros;

– 1.5 billion dollars of cuts in the education budget; already in 2010-11 the number of teachers was reduced by 10 per cent and over 1,000 schools have been closed;

– demands for 15 billion euros of privatizations.

 

These conditions were accepted by the Greek parliament and concretized in a series of votes beginning on February 12. They come on top of the measures already agreed as a result of the 2010 bail-out.  In fact, this is the eighth austerity programme in little over two years. Unemployment is now 21 per cent, twice the euro zone average, and youth unemployment has just passed the 50 per cent mark (51.1 per cent) (2) In other words, more young people between 15 and 24 are unemployed than working. This is unprecedented in Greece, and probably in Europe since 1945.

Recession

As a result of these policies, the country is now in recession for the fifth year running and permanent austerity means it is likely to remain so. Apart from the human cost, the loss of state revenues means that the proclaimed objective, of reducing the debt, is virtually unattainable. Secondly we are witnessing something close to a collapse of the social or welfare state. This is not a mechanical result of “the crisis”, but the consequence of conscious political policies choices made over the last two years by the Troika and the governments of the EU and in particular the eurozone – with very little resistance from Greek governments. These policies can be defined in two stages, not consecutive but overlapping. First of all there is the policy of austerity, meant to reduce public debt by cutting public spending, which involves the kind of savage cuts listed above.

Secondly, there is the application of a series of thoroughgoing economic and social reforms, or rather counter-reforms.  The cutting edge of these reforms is aimed at cheapening the cost of labour. The kind of wage cuts involved in the austerity programmes help, but they have to be backed up by more structural reforms: in particular weakening of job security by making it easier to sack workers and instituting wage bargaining at workplace level in place of collective agreements by industry. The insistence on deregulating many professions, from fairly well-off doctors, lawyers and pharmacists to taxi and lorry drivers, which may seem odd to people in other countries, fits into the general schema. The aim is to open up these professions and trades to capitalist firms in order to reduce the number of self-employed workers and replace them by wage workers. This represents an important sector of society in Greece, as it does also, for example, in Italy, where Monti’s attempts at deregulation have met serious opposition

The German Model

Up to now the brunt of these policies has fallen on the countries of the so-called periphery – those who have already received bail-outs (Greece, Portugal, Ireland) and two heavily indebted major countries, Spain and Italy. But the policies of cheapening labour costs, cutting the size of the public sector, privatizations, reducing welfare benefits and pension reform are meant for everywhere, and indeed are applied to various degrees in other countries. In this respect it is worth mentioning Germany, which is generally considered to be prosperous and is held up as a model by other countries, notably by Nicolas Sarkozy in the campaign for the presidential election in France. But a model of what? Not of the Welfare State and high wages – that lies in the past. What Germany is for Sarkozy and his peers is a model of competitiveness. This is the result of a transformation of the labour market that took place essentially under the social-democratic/Green government of Gerhard Schroeder (1998-2005), in particularly the Agenda 2010 programme and the Hartz Laws, enacted from 2003 to 2005 to deregulate and flexibilise the labour market and reduce social benefits – especially for the unemployed, to encourage, indeed force them to work for a pittance. The results are far from the image of a happy, prosperous Germany. The purchasing power of 80 per cent of workers has fallen by an average of 2.5 per cent since 2000, and much more for precarious workers. There is no minimum wage: 12 million Germans live below the poverty line (15 per cent of the population, including 70 per cent of the unemployed) – 500,000 of them are in full-time work; 7 million people live on the equivalent of Income Support. There are many more such statistics, and they prove that Germany is no model for the working classes of other countries, and that there are no exceptions to the plans that Europe’s leaders have for the European working class.

False argument of Austerity

The backdrop to the present situation is that we are today in the fifth year of an international crisis, financial and economic, and no one knows how or when it will end. Fundamentally it is a crisis of a model of accumulation centred for 25 years on the dominance of finance capital and a model of growth increasingly based on debt – of households, banks, states,. This house of cards began to collapse with the subprime crisis in 2007 and the interpenetration of the financial system and the multiplication of opaque financial instruments led to the European banks being sharply affected in their turn, creating the credit crunch, pushing the economy into recession and leading to costly plans for saving the banks with public money.

The whole argumentation in favour of austerity rests on the idea that the sovereign debt crisis in Europe is a result of excessive public spending. It is nothing of the sort. This opinion is not confined to the anti-capitalist Left. You can find it frequently in the pages of the financial press, for example in the Financial Times of March 9, 2012. Writing about the new fiscal treaty (see below), Alan Beattie, the paper’s international economy editor, writes: “The mainstay of the new framework is a fiscal pact that enshrines a misdiagnosis – that the crisis was all to do with profligate governments, not reckless lending and credit bubbles”.

In fact the sovereign debt crisis is a direct result of the money spent in 2008-09 to bail out the banks and more generally to inject liquidity into the economy. We might add that this came on top of a long-term diminution of revenue due to lowering taxes on the wealthy and on companies, an integral part of the neoliberal model.

The figures confirm this. Between 2007 and 2010 sovereign debt in the euro zone increased by 26 per cent, from 66 to 83.6 per cent of the zone’s GDP. But in Spain it increased by 72.1 per cent (from 36.2 per cent to 62.3) and in Ireland it rose from 25 per cent to 79.7, an increase of 218.8 per cent. (Source: Eurostat). Those two countries had in 2007 the lowest public debt among the eleven major countries of the euro zone. So the explosion of their public debt was not a cause of the crisis but an effect.

Bail Out

The second element of the programme, the structural reforms, may well be very desirable from a capitalist point of view. But the so-called rigidities and entitlements that they are meant to correct have nothing to do with the sovereign debt crisis and will not act to combat it.

Nor, specifically in the case of Greece, but it applies to other countries, will the much-trumpeted bail-out. In the first place, the bail-out is not a gift, though it is generally presented as such. It is a loan, with interest, and not the ultra-low one per cent interest at which the BCE lends to banks. Much emphasis has been put on the losses that have been imposed on private creditors. In fact, they got quite a good deal (3). They got rid of fairly worthless bonds, and obtained new ones, issued under English law, not Greek, and thus much harder for the Greek government to default on. Plus a cash payment worth 15 per cent of their initial holding. The Greek state has indeed had 107 billion euros wiped off its debt – but it has just accepted a bail-out loan of 130 billion euros. The immediate effect of the whole operation will be to reduce Greek public debt from 161 per cent to 159 per cent of GDP. And of the 130 billion euros of the bail-out, 30 billion will go in cash payments to those creditors who have agreed to exchange their old bonds for new ones, 35 billion more to buy back another part of the debt, and 25 billion will go to recapitalize the Greek banks – a total of 94 billion euros. Not much left for anything else. Theoretically, the end result is meant to be a level of public debt of 120 per cent of GDP in 2020. This is, as they say, a political figure, not based on verifiable economic reality. The reality is that Greece is still in recession, shows no sign of coming out of it, and is still highly indebted, but now most of the debt is owed to public bodies like the ECB, the IMF and European governments. And make no mistake about it, those bodies, and the remaining private creditors are making sure that any money that Greece receives Greece will go in priority to paying the interest on it.

The Working Class Will Pay

If it is so easy, including for bourgeois commentators, to punch holes in Merkelogic, why are the European leaders doing what they are doing? Well, there may well be an element of stupidity and ideological blinkers. But there is also a purpose to what is happening.

At a very basic level, from the beginning, as the crisis exploded in 2008, as far as the ruling classes were concerned the question of who was going to pay for it was a no-brainer – the answer was working people, ordinary people, pensioners, young people. Whether by cuts in social spending, tax increases, especially VAT, attacks on the public sector (wage cuts, lay-offs) or cuts in pensions.

But beyond the simple fact of who pays for the crisis lay the much more important idea of how to use the crisis. Emma Marchegaglia, president of the Italian employers’ association Confindustria, known as Italy’s Iron Lady, put it very clearly in 2009 when she urged the then Italian government “not to waste a good crisis”. Since then the same point has been made many times. And it is what inspires the thinking of Europe’s leaders.

Of course, none of what they are doing is entirely new. For more than 25 years there have been constant attacks, coordinated already on a European level. It was a sign that the European social model was proving too costly for the ruling class. But it was a war of attrition, with advances and sometimes retreats under popular pressure. Now what is underway is a frontal assault. In the intentions of the ruling class, there will be no going back. Whereas governments fall over themselves to point out that the banks they had to nationalize in the heat of the crisis will be privatized re as soon as feasible, no such guarantees are given in relation to the attacks on the public sector. The cuts in personnel and budgets are meant to be permanent, to pave the way for privatization of sectors like health and education. Pension reform has little to do with the real problem of an ageing population, for which solutions could be found in other sources of revenue. The reforms are situated in a medium-term perspective of phasing out state pensions for all but the very poorest and developing private pension funds (4). As for the reforms concerning the labour market they are what it says on the tin – structural. The aim is to cheapen the cost of Labour so that European capital will be competitive on a world scale.

Euro Zone

The sovereign debt crisis does not only affect the euro zone, as Britain demonstrates. But there is a specific crisis of the euro zone. A structural crisis that was latent since the creation of the single currency, but was unleashed by the sovereign debt crisis. It is possible to form a monetary union comprising countries with different levels of economic development and productivity. But on condition that action is taken to reduce these inequalities, which implies harmonizing not only questions of budget and tax but also prices, wages and social benefits. Which is not what has been done, far from it. It is incoherent to loudly proclaim your determination to go towards a federal Europe, towards economic and political union while refusing to correct these inequalities of development. Not to mention the problem of a (European) Central Bank which isn’t one, since it is forbidden by the Lisbon Treaty to lend to member states. The ECB is in fact an agency in the service of the financial markets, which has in the last three months lent over a trillion euros to banks at a rate of one per cent. Some of the money at least is being used to buy government debt at much higher rates of return. So far not much of it has found its way to the productive economy.

In the absence of a policy based on solidarity, it has been a case of the weakest to the wall. When countries have fallen victim to bursting bubbles, banking crises or accumulated deficits, the markets have taken advantage of the crisis to extort astronomic rates of interest and have driven three – for the moment – countries into accepting bail-outs.

Greece

Whereas Ireland and Spain were hit by the collapse of the property market and banking crises, Greece (and Italy) already had large deficits in 2007. Greece has a particular history. From 1946 it went through a civil war, followed by lasting repression against the Left and the workers’ movement by an authoritarian parliamentary regime and finally the seven-year dictatorship of the colonels from 1967 to 1974. It was therefore only after that that Greece acquired a welfare state, established modestly by the centre-right government from 1974 and more energetically by PASOK in its long period in power after 1981. Greece thus acquired the basis of a social-democratic welfare state at a time when the model was under attack just about everywhere else. This of course increased public spending. But the real problem was that not only did the big bourgeoisie not pay taxes (the Greek Communist Party estimates that Greek capitalists have salted away 600 billion euros, nearly twice the state debt, in Swiss banks). The middle classes also lived pretty well tax free. This was not simply, as it is generally portrayed, “tax evasion”. It was the maintenance of a system, a social contract between successive Greek regimes and the upper and middle classes who constituted its social base. PASOK left this system untouched. Public debt increased as Greece borrowed money from, especially, French and German banks, and used much of the credit to buy arms. Between 2005 and 2009 Greece bought 25 Mirage-2000 jets from France and 26 F-15 fighters from the USA.  That represented 40 per cent of the country’s total imports in the period (5).

Greece negotiated its way into the euro zone by massaging the level of its public debt with the help of Goldman Sachs, who are reputed to have made 600 billion euros out of the operation – with the cooperation of Lucas Papademos, then governor of the Greek Central Bank, now the country’s technocratic Prime Minister. But public debt remained high and it exploded in 2008-09 when the Greek government, like those elsewhere, chose to bail out the banks, just as the flow of cheap credit the country had been living on dried up. Reliable figures published by Eurostat in 2010 showed that Greece’s deficit for the year 2009 was 15.4 per cent of GDP, while its public debt came to 127 per cent of GDP. The supposed limits for the eurozone are respectively 3 per cent and 60 per cent, though in the aftermath of 2008, and even before, they were widely breached.

EU Tramples Democracy

As well as serving as a guinea pig for extreme austerity and structural reforms, Greece, like Italy, has also exemplified the attacks on democracy that now mark the EU. The EU itself is in fact an extremely undemocratic hierarchical construction, governed by the European Commission and the European Council, neither of which is elected and neither controlled by the European Parliament, which is elected but has limited powers. However, up until now the member states have had governments that are responsible before elected parliaments, even though the powers of those parliaments have been gradually whittled away by European directives, European law taking precedence over national laws.

That is changing under the pressure of the crisis. The most striking examples are in Italy and Greece, where Berlusconi and Papandreou were driven from office under EU pressure. In Italy the Berlusconi government was replaced by a government headed by former European Commissioner Mario Monti and composed entirely of technocrats – non-party people – though supported by a majority in parliament. In Greece PASOK Prime Minister Papandreou was forced to resign last November for having committed the heinous crime of envisaging a referendum to see if the Greek people approved of his acceptance of EU diktats. Greece now has Papademos presiding over a coalition between the two main parties. In both cases a parliamentary rubber stamp cannot efface the fact that these governments have no popular mandate.

But the attacks on democracy go beyond that. It is now becoming systematic for the EU to ask for guarantees in advance of elections from all parties likely to be in government, promising to respect programmes of austerity and restructuring. And in fact when elections do take place, as in Portugal and Spain last year they are treated as an irritating intrusion, interfering with business as usual. There have even been suggestions (notably, and repeatedly, from German Finance Minister Wolfgang Schauble) that elections in Greece, for the moment scheduled for April, should just be postponed for a year or eighteen months.

Of course most intelligent bourgeois analysts understand that it is better in general to have elected governments, because they have more legitimacy to rule. But they are finding that sometimes there are exceptions. This is entirely logical. Historically, capitalism has not usually been democratic outside Europe and North America, and even there, not always. In fact the association of democracy with capitalism is an ideologically useful by-product of Stalinism. There is always a tension, and sometimes an open contradiction, between capitalism, a system that rests on the exploitation of the majority of the population, and popular sovereignty. That can be masked in periods of relative prosperity. It is likely to become sharper in the coming period.

Stability Treaty

Equally, the latest Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, signed by 25 of the 27 EU member states on March 1st -2nd , is a blatant attempt to impose austerity and German fiscal rules on the EU, riding roughshod over national parliaments. In fact most of the measures in this treaty were already contained in the”euro plus” pact in March 2011 and the so-called “six-pack” of measures in October, including a series of sanctions against those who infringe the rules set down. The purpose of the Treaty is political, to set these policies in stone and to make it very difficult for future governments to escape from them by demanding that they be inscribed in national legislation, preferably by amending the constitution.

In the policies imposed by the EU and on the question of democracy Greece is indeed the mirror of the future. Not in the sense that in the short term the whole of Europe will become like Greece, or that events will unfold in the same way everywhere. It is however quite possible that we will see something very similar in Portugal and perhaps above all in Spain, which although not in receipt of a bail-out is imposing under European pressure  policies of austerity and structural reforms, pushing the country into recession and provoking a powerful wave of opposition from the population. Which is why Prime Minister Mariano Rajoy announced, with the ink scarcely dry on his signature of the above-mentioned Treaty, that he would not respect this year the deficit level agreed with Europe, explicitly asserting Spain’s sovereignty, to the consternation of his European colleagues.

Elsewhere in Europe the pressure is less acute, but if we look at the situation country by country, the extent to which measures have been applied and the speed and the intensity of the attacks may differ according to the national situation, but the direction is the same everywhere. Even in tiny Luxembourg, one of the smallest but the richest member state by per capita GDP, a reform of pensions is underway and the government is slowly but quite surely sapping the bases of the social consensus with the unions by attacking the cornerstone of the so-called ‘Luxembourg  model’, the indexation of wages on inflation. In France, if Nicolas Sarkozy is re-elected he will launch a major offensive of austerity and structural reforms. If, as seems possible but not yet sure, Francois Hollande is elected he will come under considerable pressure to do likewise, the same sort of pressure that has already seen Socialist leaders buckle in Portugal, Greece and Spain.

Contagion

There was an audible sigh of relief in the financial world and in ruling class circles generally when Greece successfully negotiated the agreement with its private creditors, thus avoiding a disorderly default with unpredictable consequences for the international banking system. There were however few illusions that anything fundamental had been settled. It is just a matter of time until Greece needs a third bail-out. And a further write-down of debt is on the agenda. The titles of two articles in the Financial Times on March 13 summed up the prevailing sentiment: “Contagion from Greece still threatens single currency” and “Greek debt drama pauses for an interval”. Greece apart, it seems only a matter of time before Portugal needs a second bail-out, which would be financially feasible for the Troika. What really worries Europe’s leaders is the prospect of Italy or Spain requiring a bail-out, for which at present the financial resources, the so-called firewall, are not yet in place. And in spite of or because of German determination to steamroller the fiscal past through, more and more voices from within the ruling class are questioning the wisdom of such severe austerity, though not the structural reforms for which it prepares the way.

Resistance

The problem in Greece and elsewhere is that of an alternative to these policies. The argument reminiscent of Thatcher that “there is no alternative” (especially in the middle of a crisis, it is now added) may be overused. It nevertheless functions in the absence of a visible and credible alternative. There have been massive mobilizations – strikes, demonstrations, now occupations of workplaces – in Greece but also in Spain, Portugal, in France in 2010 and there will be more. This mass resistance is one part of the answer, a necessary starting point. But experience shows that though governments sometimes have to give way, or at least give ground, in the face of mass mobilizations, as long as they hang on to power they end up by regaining the initiative, or handing over to another government which will. No change of government in Europe in the last 30 years has produced a government ready to break with the neoliberal consensus.

On the level of policies it is not very complicated to produce a response to the immediate situation. Not just an end to austerity, but breaking the hold of finance over the economy by nationalizing the banks; an audit of public debt and refusal to pay debts contracted at extortionate rates or in order to buy arms, for example; a reorientation of the economy towards production of goods and services that serve social needs, including taking key sectors into public ownership. And while the Left should aim to provide an alternative on a European level, it might well be necessary for a country implementing such policies to abandon the euro. This is now a widely held view on the Greek Left.

United Front

The problem is that in Europe, the forces capable of carrying out such policies have the support of at best 10-15 per cent of the population, and in some countries much less. Most of the working class still supports left parties that are part of the problem rather than part of the answer. At the moment the exception is Greece, which seems to demonstrate that in a situation of severe crisis there can be a dramatic realignment of political forces. At present in opinion polls, PASOK, which won 44 per cent of the vote in the 2010 general election, is running on 9-11 per cent. The centre-right New Democracy is on 27-28 per cent. And for some time now the three main forces of the radical Left, the Greek Communist Party (KKE) the Syriza coalition whose main component is Synaspismos and the Democratic Left, a split to the right from Synaspismos, are credited between them with over 40 per cent. A couple of newly-created small parties resulting from left splits from PASOK might also get the 3 per cent necessary to get into parliament.

The problem is that the Greek Left is extremely divided. The KKE in particular is undoubtedly the most sectarian and Stalinist of major European communist parties. So it easier to argue for left unity than to realize it. But attempts are being made, and any kind of a Left Front would be a step forward not only in parliamentary terms but on a mass level. The alternative, which at present seems most likely, is that a divided Left would collectively have enough representation in Parliament to make the life of a PASOK-New Democracy government very difficult, and even to block certain measures, but not be capable of appearing as an alternative. That could rebound against the Left as a whole. A united front of even part of the Left would be better.

Murray Smith is a Scottish socialist currently living in Luxembourg and is a member of the editorial board of International Viewpoint.

13/03/12

Notes

1) Term commonly used to denote the European Union, the European Central Bank and the International Monetary Fund.)

2) Athens News March 2012, quoting official Greek statistics.

3) See Nouriel Roubini, “Greece’s private creditors are the lucky ones”, Financial Times, March 7, 2012.

4) See “Pension reform fuels hopes of savings boom”, Financial Times February 26, 2012.

5) See Stathis Kouvelakis, “The Greek Cauldron”, New Left Review, November-December 2011.