No sports, no celebrities, no paid stories, no agendas. Pure integrity. - Steve Dustcircle
Log in and tell us why you support TRNN
Costas Lapavitsas is a professor in economics at the University of London School of Oriental and African Studies. He teaches the political economy of finance, and he's a regular columnist for The Guardian.
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington.If you are between a rock and a hard place, what do you do? Well, if you do nothing, you're likely to just get pulverized. So you do have to make a choice. And that's what's facing the Greek people now.Joining us to discuss what choices there are is Costas Lapavitsas. He is a professor in economics at the University of London School of Oriental and African Studies, he teaches the political economy of finance, and he's a regular columnist for The Guardian. Thanks for joining us again, Costas.COSTAS LAPAVITSAS, ECONOMICS PROF., UNIV. OF LONDON: It's a pleasure.JAY: So the choice about does Greece leave the eurozone, does Greece default, does Greece go on its own is a very, very torturous, difficult choice to make, one would think. Not only is it unknown territory, but the dire warnings one hears from especially the financial experts of Europeâ. What do you make of that choice?LAPAVITSAS: I don't think it is accidental that the worst warnings are coming from banks and from financial experts, in other words, precisely from the people whose assessment and diagnosis of the situation, and then pressure on policies, have brought us to this pass, because indeed if Greece pulled out of the euro, all sorts of difficult things would follow, but the banks and the financial systems of many parts of Europe would come under a lot of pressure, and they do not wish to contemplate that. But for the Greek people and for the Greek economy, I'm afraid that there aren't any realistic options left, any options that would put the country back on its feet and that would create jobs and that would create prosperity and growing income and protect employment.JAY: Well, a lot of times when the default option is talked about, Argentina is given as an example. But the counterargument we hear about Argentina is that the world economy was in a different situation, that, you know, the economy was startingâit was growing versus being on the verge of a global depression. There's also talk that a Greek pulling out of the eurozone, the ripple effect of that would even push the global economy even further into recession. And in those situations, going on your own, as bad as staying in is, actually could be worse. How do you answer that?LAPAVITSAS: Let me first of all remind you of what the situation looked like in the early 2000s. Argentina went out of the system it had of convertibility of one-to-one with the dollar in December 2001. This wasn't exactly a period ofâa boom for the world economy. The stock market bubble in the United States had just burst, and it was a highly unstable situation for the world economy, and Argentina was forced out of the monetary arrangements because they were absurd. Now, things turned out quite differently in the first half of the 2000s, but Argentina did not know that this was going to be the case. Argentina took a path that was the only path left to it. And I think this is the way that Greece is heading, because the situation is untenable for it.Now, what would follow? Well, we know that in the short term, things are going to be difficult, no question at all about it. And they're going to be difficult partly because what Greece has in front of it is intrinsically difficult. But they're also going to be difficult because Greece has been exposed to the most absurd and destructive policies for the last two years. The Greek economy is on its knees. Had the country done what it has in front of it, had it done it two years ago, things would have been much better. The country would have been in recovery, most probably, now. But the economy at the moment is destroyed, and the country still has this mountain to climb in front of it, and it is going to be difficult.Now, the short-term difficulties, which [incompr.] should not distract us from the plain conclusion that economics allows us to draw, which is that in the medium term and in the long term this is the logical thing for Greece to do. It must break out of this trap, this monetary trap in which it has found itself if it wishes to restore growth, if it wishes to restore production and to protect employment. So it's short-term pain for medium-term and long-term benefit in the case of Greece, no question at all about it.JAY: Now, the achievement, or what wouldâthe objective of pulling out would be that if Greece goes back to the drachma, it can be devalued and make Greek goods more competitive and stimulate more domestic production, I guess. But is that enough? Does it not have to include some more fundamental structural changes than just a currency devaluation?LAPAVITSAS: Without question. I and several others, when we proposed that Greece should get out of the eurozone, never thought and never said that the simple act of getting out of the system is sufficient to rescue the economy. On the contrary, many, many other steps needed to be taken.The first step that has to be taken at the same time is, of course, that the country must default properly and fully on its debtâon its debts in a sovereign and democratic way. Without that, not a lot will change for the better in Greece. So default and exit must go together. But the combination of default and exit simply opened the door or created the opportunities for rescuing the economy and society.What Greece needs once it does these two things is to adopt a broad and deep program of profound restructuring of economy and society. Greece needs an entirely different economic and social configuration if it is to put its economy in order. And I can be more precise. Greece needs to bring about profound changes in the tax system. It needs redistribution urgently. Without redistribution, things are not going to be easy in Greece. It needs capital controls, of course, extensive capital controls to protect itself. It also needs industrial policy. It needs its best people to sit down. It needs to involve workers organizations and civil society in devising a path for the country in working out where it would belong in the world economy in the future. That will take industrial policy. That will take direction. It won't happen by itself, and it won't happen because the market will make it happen.Greece also needs, of course, to restructure the state. It needs to cleanse the state from the bottom up if it is to do all these things, if it is to put its economy and society on a different path. That's what the country has in front of it at the moment.JAY: Now, in terms of the objectives of the European financial and political elite towards Greece, what do they get out of driving Greece into such despair? I mean, it's clear, you know, lower wagesâand people have talked about the Greek experiment or the Greek guinea pig, that, you know, if you can do this to Greece, you can do this to the rest of Europe, in terms of what they call disciplining the labor force and privatization. But all that being said, it's also going to drive Europe into this years, one would think, of recession, depression. And how do the elites benefit from that?LAPAVITSAS: I think one point to make very clearly at the outset is that this crisis has shown that the European Union and the European Monetary Union in particular are not what people imagined them to be. This isn't some kind of Keynesian social democratic welfarist experiment, which is what people have thought for many, many years. No, not at all. This is a neoliberal, very conservative configuration of states and economic forces. That's what it is. And it is actually dominated by very conservative economics and very selfish, as it were, perceptions of what the economy is about.There is no solidarity in the European Union. That's become very clear. It's a hierarchical system driven by narrow sectoral interests. And the secular interests here, the primary sectoral interests here are basically the industrial and financial conflicts that runs Germany at the moment. Germany is run by export business, huge export businesses, in conjunction with very large banks that operate in international markets. This configuration of economic forces has got no room for Greece and it has got no room for alternative policies. It gives the Greek ruling class a chance of putting its house in order within narrow limits. If it doesn't succeed, then it will squeeze it out, it will make it impossible for it to remain within, because any other option would be unthinkable ideologically for this configuration of forces.To be specific, the only other option for Greece would be a large-scale cancellation of debt effected by the European Union and a Marshall plan. That's the only other option, really, for Greece to remain within the European Monetary Union. That's unthinkable. It's unthinkable for the banks and the export businesses of Germany to do that. And therefore they're pursuing the only option that they think makes sense from their own perspective, and that is driving Greece to despair and that is driving Greece out of the Monetary Union. And it looks as if Germany and other core countries are prepared to contemplate that now.JAY: And is it not just about Greece? I mean, are they also just envisioning the future, the 21st-century future of Europe, a financial industrial elite in Europe but with a very big pool of cheap labor, which then you make your money more selling into the emerging marketsâChina, India, you know, Brazilâand, you know, you're not as dependent? Or do you care that much about how good the peripheral European market is? It's better just to have cheap labor there.LAPAVITSAS: There's an element of this. But let me spell a couple of things out about what I think is the situation in Germany, and therefore by extension across much of the European Monetary Union. Germany has created a system in the Monetary Union through which, basically, it dominates the union, it dominates the Monetary Union, the economy, and increasingly the polity of the Monetary Union, fundamentally by treating the Monetary Union as a domestic market. It has transformed the Monetary Union into a domestic market, and it has done that through the rigidity of the euro, in addition to fixed and frozen real wage, nominal wages in Germany. That's what gives it its advantage. So it has created this system whereby it keeps nominal wages in Germany not risingâfrozen, effectively; and because of the euro, it dominates all the other economies within the Monetary Union; and therefore it secures for itself current account surpluses. That's the source of German superiority and domination in the Monetary Union.Now, there's talk from the press and elsewhere that Germany might expand this and pursue an export strategy elsewhere, possibly in Asia, in other parts of the world. I don't believe it for a moment. I don't think that it can be done to remotely the same degree of success as it has been done for the eurozone. The source of power for Germany as an economic presence at the moment is very much the eurozone. The trouble is, by pursuing this policy, by freezing wages of German workers and by developing vast surpluses, which come primarily from the eurozone, Germany's bankrupting anyone else within the eurozone. It has created a system which allows it to dominate the eurozone, but it cannot sustain this system, even in the medium term.Germany faces a very serious predicament at the moment, and I don't think that its rulers understand it. They believe that if everybody else did what they have done, then things would be okay. But that cannot be. Everybody else cannot do what Germany has done. Only one power, or at most two or three, could do that thing in the Monetary Union. By definition it's impossible, probably, to do it. But they don't understand it. They don'tâ.JAY: Explain that further. Why? Why is that?LAPAVITSAS: Because notâif everyone froze nominal wages, which is what the Germans have [been] pushing the periphery to do, crush, reduce nominal wages and keep them frozen or keep them falling for a period of time, they would still not gain competitiveness relative to Germany, because Germany is keeping its nominal wages frozen. It's just not possible to do that. If the Greeks can destroy nominal wages and real wagesâ'cause that's what they're being forced to do, right, add another reduction of 22 percent immediately. But it still would not solve that problem, because Germany is keeping its own nominal wages rising very, very slowly. Therefore, Greece will not substantially gain upon Germany. It will not begin to catch up with it. It will stay in a permanently inferior position. That's the situation that's been created. Greece can never recover within the Monetary Union if it pursues this strategy. But Germany would not would not see it, because the alternative is, as I said to you previously, cancellation of debt and a Marshall plan. But that goes right against the very logic of the Monetary Union, right against the logic of creating the euro as a world currency.JAY: So the situation spires intoâover an abyss. Thanks very much for joining us, Costas.LAPAVITSAS: It's a pleasure.JAY: And thank you for joining us on The Real News Network.
DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.
Our automatic spam filter blocks comments with multiple links and multiple users using the same IP address.
Please make thoughtful comments with minimal links using only one user name.
If you think your comment has been mistakenly removed please email us at firstname.lastname@example.org