In the week following the Greek legislative elections on January 25th 2015, Syriza’s victory was hailed across Europe as marking the end of economic austerity and a new beginning for the country. Indeed, it is undeniable that the recent negotiations between Greece and the Eurozone were an outstanding Greek victory on the linguistic front: bailout extensions will henceforth be termed “conditions” in an effort to dissociate Syriza’s policies from that of the previous government, while the hated “Troïka” was re-baptised “the institutions.” However not only is the latter ever so slightly reminiscent of the kind of vocabulary one would expect to find in a dystopian novel (think 1984 and its ministries), but Tsipras is once again proving himself to be disconnected with reality if he thinks that it will be enough to satisfy his electorate. One month after winning the elections, and already Syriza’s electoral pledges are being stripped bare and exposed to the Greek population for what they truly were: the idealist dream of a political party that derived its strength from the anger and despair of a population failing to make the ends meet in a country overburdened by debt and austerity measures. With little power to push forward its economic agenda, Greece was relegated to the status of a bratty, irresponsible child by the Eurogroup, and proved little better, hitting their main opponent where it hurts most by giving the German government a formal demand for World War II reparations amounting to no less than 162 billion euros. How convenient that the amount is a little over half of Greece’s current government debt… Only slightly less convenient is the fact that, historically speaking, the legitimacy of the demand is going to be difficult to prove.
But perhaps Tsipras’ government was trying to make a bigger point here. Just like when it repeatedly referred to the cancellation of Germany’s debt in 1953 during the election campaign. More significant than the validity of such arguments is perhaps the very fact that Greece has felt it appropriate, and necessary, to advance such claims while negotiating the economic future of its country. When a government begins to consider linguistic tricks a negotiating victory, when a member of the Eurozone substantiates economic talks with “personal” attacks on other countries that would be more appropriate for children in a school playground, either that country’s political leadership is incompetent, or something is seriously wrong in the negotiations.
From idealism to reality
Let’s be realistic: Syriza’s electoral pledges were an idealist dream. From an economic perspective, Greece is not playing in the same category as Germany, or even France, and that’s saying something. Its government debt is as high as 175% of GDP, which you could argue would not be so much of a problem if Greece had the money to service it, only it doesn’t, especially not if it wants to continue paying pensions and unemployment benefits to the 25% of its workforce currently without work. “Grexit” might have sounded like a threat back in 2012 before debt restructuring, but it has since then been proven that fears of such a move had been overestimated: in 2012, private lenders faced losses of between 50% and 70% of the nominal values their bonds, and yet, the restructuring had little to no visible effect on the economy. With the European Union, IMF, European Mechanism for Stability and ECB now owning 254 billion euros of the debt, compared to 44 billion for the private sector, and while “Grexit” would prove costly, these organisms cannot, by definition, go bankrupt. Similarly, if Greece chose to default on its debt in order to concentrate on rebuilding its economy, the ECB would be able to quickly place an embargo on the Greek banking system, triggering illiquidity and forcing the country to recreate a national central bank and adopt the drachma. So when Syriza vowed to spend 1.8 billion euros on social help, provide subsidies for food and medical care for the unemployed, increase the minimum taxable income from 5,000 to 12,000 euros and raise the minimum salary to 751 euros a month, a programme estimated to cost 12 billion euros in total, one can only hope that the 36% of the Greek population that voted for the party did so in a gesture of protest, and were not actually expecting those reforms to be put in place. Because if they were, the last month must have been a serious emotional roller-coaster. A deal has been struck, and as hard as Greece has tried to make it sound good on paper, nothing much has changed since the last government obtained a new bailout.
It’s all very well to say that Greece will now have more of a say in the reforms it is to implement to achieve a budgetary surplus, but there’s only so much you can do when the end-result will have to remain unchanged, i.e. a surplus of 4.5% of GDP without counting debt servicing. On February 25th, Syriza was able to celebrate its first month in power over a contract in which they committed the Greek authorities to “ensure the appropriate primary fiscal surpluses or financing proceeds required to guarantee debt sustainability in line with the November 2012 Eurogroup statement”. Not only that, but the obtention of the 7 billion euros of relief it will need to service its debt in July and August are not included in the programme, meaning that the next round of negotiations will be carried out by a Greek government in imminent danger of bankruptcy while, at the same time, Greek banks are now no longer able to present bonds that have been issued or guaranteed by the Greek government as collateral for borrowing from the ECB. I doubt Mr Tsipras will have cracked open the champagne, despite the optimism he displays in public. Sure, the government did restate its desire to subsidise access to food, shelter and medical care, but the programme is subject to the condition that it will not have a negative budgetary impact. And once again, Tsipras has proven that he is better at promises and word-play than securing viable economic advantages. That, or he really doesn’t understand the distinction between theory and practice.
A democratic deficit?
So why the obsession with words? Given the conditions in which the negotiations took place, as outlined above, surely the government’s mitigated success (for the most optimistic – others prefer to see it as an abject failure) is not simply the result of incompetence. In this case, the linguistic turn of the debate and emphasis on the role played by the infamous “Troïka” is perhaps an indication that the issues at stake were political more than they were economic. 36% of Greek voters decided to support Syriza. 36% of Greek voters in effect choose to end austerity, and, in a democratic country, it is now the government’s role to pursue policies to that end. The problem is, ending austerity involves governments and populations beyond Greece, and 36% of Greek voters cannot bind their foreign counterparts. As Jean-Claude Juncker made clear to the Commission on January 29th, “we [the Eurogroup] respect the universal suffrage in Greece, but Greece also needs to respect… the public opinions… of the rest of Europe.”
What we are witnessing is therefore the subordination of Greek democracy to the broader notion of democracy embodied in the European Union and Eurozone. And if negotiations over the economy of the Eurozone call into question the very legitimacy of democracy within a member-state, then the Troïka has reasons to be hated, for, through its policies, it is in effect enacting a form of economic colonialism sapping the legitimacy of Greek sovereignty. And it doesn’t have to be that way.
The Greek nation, though it may have little power in negotiations today, can certainly boast a certain experience when it comes to bankruptcy. In 1830, the newly independence Greek nation emerged from a war of independence with severely damaged finances, only to be bailed out by France, Russia and the United Kingdom. Several attempts at reforms and modernisation led to bankruptcies in 1843-4, and again in 1893, at which point an “International Financial Control Commission” was put in place to oversee the nation’s budget. Dissolved as late as 1936, the body, comprising representatives from Germany, the United Kingdom, France, Italy, Austria and Russia, supervised large shares of the country’s tax base and monetary policy, forcing the state to surrender the receipt of state monopolies and trade tariffs to repay its debt. So far, it pretty much sounds like history has taken a dislike to Greece, and is repeating itself. Except that the situation was very different in the 1890s. Not only did the Commission allow Greece to retain its links with the international capital market, it did not effectively bypass the Greek government, nor oppose the democratic prerogative of one group of citizens to that of another. By contrast, in the past few weeks, newspapers and politicians have repeatedly argued that German citizens have as much the right not to pay for Greece than Greek citizens have the right to end austerity. Only in principle Europe was not meant to make the exercise of democracy in its different member-states oppositional or irreconcilable.
As well as formalising the existing economic interdependence of multiple European nations, the European project was at least partly born out of a desire to foster stability in Europe by deterring aggression between France and Germany. The 1950 Schuman Plan, through the creation of a coal and steel community as the first step towards economic partnership, effectively forced both France and Germany to surrender the key instruments of a war-time economy. Some historians have even argued that members of the European Union pushed Germany to adopt the euro in part out of fear of a strong united Reich after 1989. Well if the Euro was designed to restrict the potential for German aggression by anchoring it in a strong Europe, Germany has proven in the past weeks that it doesn’t need its own currency to act like a bully. Worse, the very structure of the Eurozone and institutions such as the Troïka give it a justification to resist change on the basis of “democracy” when its resistance in fact appears to be motivated less by an unwillingness or inability to pay, and more about defending a particular vision of monetary orthodoxy.
That is not to say that it is wrong to incentivise the Greek government to adopt reforms. Greece clearly suffers from institutional inefficiencies that need to be remedied, and membership of the Eurozone and European Union does not entitle it to “free” help. However, it seems pretty clear that austerity is not working. 25.5% unemployment, 30% of the Greek population living under the poverty line, a 20 to 25% fall in GDP since 2010, any of these figures on their own should be enough to call into question the austerity programme. For the more sceptical, the IMF itself admitted to having underestimated the negative impacts of the austerity programme on the Greek economy by calculating its investment multiplier to be 0.5, when it was in fact of 1.5, meaning that, schematically, a one euro cut in public spending would result in a proportionately larger fall in output. Not only that, but the implicit creation of a hierarchy of countries within the monetary union has negative impacts on economic policies implemented in the Eurozone as a whole: unwillingness to share risks with countries such as Greece led the ECB to implement a quantitative easing programme in which 80% of the bonds bought will sit in national central banks’ balance sheets, thereby undermining the attractiveness of the project and effectively admitting that the euro does not function as a risk-sharing mechanism as it currently stands.
The Eurogroup would perhaps do well to stop viewing the Greek government as an irresponsible, inefficient body that needs to be incentivised through punishment if it is to pursue reforms. The Greek Finance Minister, Yanis Varoufakis has in fact put forward new solutions to the Greek debt problem. Amongst his suggestions, the two main ones include replacing bonds held by European partners by bonds pegged to economic growth, and replacing those held by the ECB by “perpetual” bonds that are never paid back and written off, but continue to yield interest indefinitely and can even be used as currency for investors looking for long-term placements. While the economic soundness of such methods is up for debate, they clearly show that Greece is willing to stand up to its responsibilities, and that other solutions are possible.
The February negotiations revealed the extent to which the debate over the Greek debt crisis has become embroiled in political discourse. While the problem is expressed as one relating to the exercise of democracy, it is rather one of sovereignty: unless the Troïka and other European institutions evolve and the European Union as an economic structure realigns with the European Union as a political structure, such institutions will remain tools for economic neo-colonialism in a system that allows countries such as Germany to impose their will and justify it through appeals to democracy.
The good news is that the need for reforms has been recognised. In 2014, Jean-Claude Juncker himself expressed the desire to see the Troïka evolve into a “structure more legitimately democratic and accountable… with a reinforced parliamentary control, both at the European level and at the national level”. On February 25th 2015, Mario Draghi addressed the European Parliament with a similar demand, arguing that the future of the European Union would depend on its ability to create more Pan-European government institutions, moving away “from a system of rule and guidelines for national economic policy making, to a system of further sovereignty sharing within common institutions”.
The bad news is that, for now, it’s all about playing with words.