Michael Roberts reports
BY THE TIME YOU READ THIS, Greece will probably have either defaulted on loans owed to the IMF or the left wing Syriza government will have reached a “humiliating” [according to Greek Prime Minister Tsipras] agreement with the Troika (the Euro credit institutions, the IMF and the European Central Bank) to carry through a new round of austerity measures in return for the release of funds to meet their obligations. Even if they ‘kick the can further down the road’ for now, a crunch is coming. The cruel irony in this tortuous saga is that any ‘bailout’ funds released would not be used to meet the wages of public sector workers, state pensions and health and education services, but instead would just repay the IMF and the ECB for previous loans! None of this money will benefit the Greek people. All it will mean is that Greece is not in default.
The Greek economy is deeply depressed. Unemployment stands at 25%. Youth unemployment is at 50%. Greece’s GDP has shrunk by 25% since the start of the crisis in 2009.
The Syriza government was elected by a handsome margin to cancel this “odious” debt burden (now at 180% of GDP) and reverse the austerity measures, imposed on Greeks by the Troika. During the negotiations since February, in the four month extension of the existing ‘bailout agreement’, the Syriza government has conceded much to the Troika. In desperation it has stopped paying health service and school suppliers, so that medicines have disappeared from the hospital shelves, and books from the schools. Bills have not been paid so that public sector workers get their wages and pensioners get their meagre pensions.
Yet the only concession that the Troika has made is to lower the target for the budget surplus by the government. More austerity will only mean a deeper depression so that, as GDP falls further, the debt to GDP ratio will rise, not fall. The last straw was when the Troika said this surplus must be achieved by raising VAT by 10% on electricity for people’s homes and by cutting the pensions of the poorest retirees. Pension payments per pensioner are actually below the Eurozone average.
Syriza now says enough is enough. They say they are not going to make any further repayments to the IMF unless these Troika demands are dropped and the Troika agrees to a debt restructuring that would reduce the burden of payments over the next decade. Even the IMF recognises that this debt can never be repaid and there needs to be some form of write-off or relaxation of the terms.
At present the Eurogroup refuses to withdraw its demands and Syriza refuses to accede to them. The consequence is that the Greek government would have to default. There could still be a desperate deal at ‘ten minutes past midnight’; or failing that, the ECB could withdraw its credit to the Greek banks, which are losing deposits by the billions and have 40% of their loans to Greek businesses not being serviced. They would be bust.
The government would have to introduce capital controls to stop money being withdrawn (especially abroad). If this situation continued, eventually the government would not be able to pay its workers or the pensions and would have to issue IOUs for euros, which would quickly lose their face value. In effect, Greece would have been driven out of the euro credit system. Then the question would be whether the Euro leaders would formally ‘exit’ Greece from the Eurozone institutions, forcing them to introduce a new drachma or face a massive euro credit meltdown.
Syriza must now act in the interests of its own people. It must refuse to pay any more of the odious debt. But it won’t be enough just to introduce a new currency and hope that Greek capitalism can then compete. No, Syriza must break the grip of the Greek oligarchs who run Greek industry and banking, and control the media and capitalist politicians. The banks must be brought into public ownership and the privatisations must be reversed. The major companies should be controlled by the unions and government as part of a national plan for jobs and investment. Use the money saved from paying back the Troika for state investment.
Greece cannot do this on its own. Syriza, in conjunction with other like-minded governments and the wider labour movement, should begin a pan-European campaign for jobs, investment and growth. This would get a huge response and put pressure on the Euro leaders to end their pro-capitalist policies or be removed.
» Michael Roberts blogs at: thenextrecession.