The Power of ‘Oxi’

Yesterday a decisive 61.3% of Greek voters chose to reject the draconian terms offered to their government after fraught negotiations over bailout funds. They had been asked by Eurozone leaders to meekly accept further raids on their pensions, the only income keeping many households going after the destruction of the welfare system. They had been asked to to accept further erosion of protections for those lucky enough to stay in a job. They were told that failure to do so would lead to their expulsion from the Eurozone and the stability that the currency union is supposed to offer.

In another country, any other European country, there would have been a ‘Yes’ vote. (I expected Greece to vote yes.) Or more likely, the people would have never been offered a referendum at all. The Syriza-led government should not be criticised for consulting its people about its economic future. Greece has tried technocratic government and for obvious reasons decided that accountability was too important to suspend in times of financial difficulty.

Some in positions of power were no doubt hoping the past week would scare the Greeks of a ‘No’ vote. The country became insolvent. Capital controls were imposed, with withdrawal limits of just €60 a day from bank accounts. At the moment in Greece, you cannot buy music on iTunes because purchases count as money leaving the country. The message from ‘Yes’ supporters was clear: this is just the beginning. That message would have cut through anywhere else, but not in Greece.

As alarming as the past week has been, and the threat of effective expulsion from the Eurozone is, five years of the emaciation of Greek society has created more than enough people with nothing left to lose, particularly the young. They couldn’t be blackmailed. Voting ‘No’ offered them hopes of a better deal or at the least the prospect of economic recovery after conversion to a devalued New Drachma- a long shot at a brighter future, but at least some chance. And of course a chance to damage those who have inflicted austerity on them. Voting ‘Yes’ offered them more pain and an assurance that the Eurogroup would maybe think about relieving the country of some of its crushing €300 billion debt burden. But probably by too little and conditional on even more cuts. Who can blame them for voting no?

The resignation of the controversial Greek finance minister should be seen as a chance to reopen talks between Greece and its creditors. I hope the latter, especially the German government, will act reasonably. They know that Greece’s banks need a cash injection urgently, and they might try to demand capitulation on pain of allowing Greece’s financial system to crash. But the government now has a watertight mandate, and such a strategy will backfire as its people will not bear any cost to remain in the Eurozone. Such a Grexit would cause another financial wobble throughout the European economy and might well bring down the German government.

The best course of action is to negotiate a new bailout deal for Greece that works with the country to grow its economy and brings its debt down to a manageable level. The Greek people need to see that there is hope and a future for them within the Eurozone.

Advertisements

Give Greece A Chance

One week ago, Greece’s left-wing Syriza swept away the ‘pro-austerity’ establishment, riding a surge in popularity to office. Greece, Europe and the wider world are still trying to comprehend the implications of Syriza’s transition from a fringe party to a (radical) party of government. It fell just one seat short of an overall majority (parliamentary majorities have long since become a thing of the past). The new prime mininister, Alexis Tsipras (pictured) built a coalition not with the hardline Communist Party, which refuses to co-operate with any capitalist government; not with the so-called ‘centre left’ establishment of PASOK or its more successful splinter party, The River; but with the Independent Greeks. They can be best described as a party of the populist right, not dissimilar from UKIP. The new coalition could hardly be described as a natural marriage, but it seems that Syriza gets a free reign in domestic policy in exchange for handing the defence ministry to their junior partners. Appointing a redneck to run the military is not the most reassuring of moves.

Within days of taking office, Syriza has reversed savaged cuts in the minimum wage, reinstated numerous sacked public sector workers, cancelled IMF-imposed privatisations, abolished fees for prescriptions and hospital visits and restored pensions. It has also made powerful symbolic gestures, sweeping away the ministerial cars and barricades that separated the Greek people from their government. Syriza feels that if a government needs protection from the public, it is doing something badly wrong.

And as if talk of nationalisation (such as of banks and hospitals); a 75% marginal income tax band; corporate tax hikes and an emergency expansion of the welfare system were not enough, Syriza is demanding reflief on Greece’s national debt, now an eye-watering 175% of GDP. (See Syriza’s 40-point manifesto here)

The markets are having a fit.

The European Union is having a fit.

The Greek public are, for once, hopeful about the future.

Angela Merkel and the cabal of neo-liberal governments who have provided, through the ‘troika’- European Union, the European Central Bank and the International Monetary Fund, bailouts totaling hundreds of billions of euros, have categorically ruled out any renegotiation of the terms of the loans. They are, rightly, fearful than any let up in the harsh terms imposed on Greece would lead to demands from other victims debt-burdened countries. On the other hand, Greece is aware that Europe’s big threat to Greece- that the country could be forced out of the Eurozone- would be almost impossible to implement and would destabilise Europe’s (and by extension the world’s) banking system. Similarly, if the troika cancels the latest installment of loans to Greece, and the country is forced to default, the troika is hurt as much as Greece. The situation is akin to a Cold-war style pose of mutually assured destruction.

Any disruption to the convention of debt-stricken countries being asset stripped by international bankers and the costs being passed on to the weakest through the wholesale dismantling of public services and welfare systems is going to be fiercely resisted. On the other hand, Greece simply cannot pay its debts. There will be a renegotiation of sorts. Greece’s first bailout was agreed amid talk of setting interest rates to ‘punish the Greeks’. The obscenity of such talk is clear to see now, when every basis point added to the interest rate of Greek debt is a thousand homeless pensioners. It was not long before the interest rate was reduced to 3.5%.

It is a pity that the troika cannot see that intelligently designed debt relief would get the weaker EU economies back on their feet so much faster and cost lenders much less in the long run.When the internal politics of the European bloc are concerned, concepts like ‘logic’ and ‘reality’ become much harder to pin down. The EU would not survive if two countries with directly opposing interests could not both emerge from negotiations brandishing a compromise that they describe as a resounding victory for their side. This is has been called  ‘Eurofudge’ , and its made the EU into what it is today.

The talks that Greece’s new government has opened now will result in an epic Eurofudge. I think another extension of the repayment period on its loans and a reduction in the interest rate to, say 2% would be the minimum concession needed. That’s what Greece will get, provided its creditors can leave talks saying that it will still repay every penny of the bailout loan.

Syriza is not waiting for a debt deal to begin rebuilding Greece. In a week, Syriza has achieved a lot more than a left government would be proud to accomplish in a year. However, only the financial certainty that a deal will allow will give Greece the space it needs to grow.

A Case for SYRIZA?

March 25 - Greece Independence Day

The Greek coalition government was shaken yesterday by the withdrawal of the Democratic Left from its ranks, leaving a centre-right alliance of PASOK and New Democracy clinging on to power with a majority of three seats out of 300 in the beleaguered nation’s parliament. Democratic Left took the move in response to the Prime Minister, Antonis Samaras, failing to consult his coalition partners before shutting down the national public service broadcaster, ERT, in an attempt to save public money. The immediate shutdown of ERT and firing of its 2,700 employees two weeks ago has triggered the greatest public outcry of any austerity measure yet, and has resulted in journalists occupying the broadcaster’s studios to run a TV station online. Now the state has to implement a court ruling that ERT must be re-established, but public fury remains.

With the government facing such a severe public backlash, it is questionable whether its tiny parliamentary majority can be retained for long enough to prevent a general election before the end of the year- the third general election in just two years. Such a prospect is likely to worry Greece’s creditors, who are aware that the fascist Golden Dawn party is likely to make further gains, and the hard left SYRIZA coalition may well win the largest number of seats (possibly able to build a coalition with the Communists and Democratic Left). Should these gains render pro-austerity parties to be in a minority, there will be little scope to continue the IMF/EU designed programme of spending cuts that are intended to secure returns for international investors.

The problems that we are witnessing should concern us all: this is what happens when both political and economic freedoms are curtailed: the painful decline of a developed nation to middle-income status, and the rise of crime, prejudice and generalised discord to the point where it becomes virtually ungovernable. Indeed, at a time in which foreign powers hold greater sway over a nation’s government than the citizenry does, it is difficult to think of an action so toxic for the democratic process than closing the only explicitly impartial news outlet. No wonder that it is considered unacceptable: from the Greek perspective, one could view it as further digression from the functions of a liberal and democratic society.

The current government should ask itself if its austerity programme- which is in essence the movement of resources from the general public to bankers who made a bad investment- is still politically tenable. Their country has almost reached where something has to give: austerity, the economy, or democracy. For if SYRIZA doesn’t make it into office, desperation and poverty is such that Golden Dawn will. Perhaps there is an economic case to be made for defaulting on all foreign debt and exiting the Eurozone. For it looks like these huge sacrifices made in the name of continued Eurozone membership are no better than the pain that conversion to a devalued new currency would cause. The differences are that the former is a way of maintaining the illusion that Greece is an upper-tier economy, and the latter would allow the country to get back on its feet sooner after an explicit admission of ‘failure’.

The fact is, there are some things which cannot be cut or privatised. It seems that New Democracy and PASOK, the two parties who are responsible for the debt crisis in the first place, do not realise this. That is why many consider the end of their reign to be a change that is just a matter of months away. And to be honest, that might be the best chance for Greece.