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  August 23, 2012

“Nonsense Economics” and the Deepening Greek Crisis

Costas Lapavitsas: Greece is being destroyed as all the players prepare for next stage of austerity measures
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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. Costas is also a former parliamentarian for Syriza in Greece.


PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I'm Paul Jay in Baltimore.

And now joining us from London for an update on the situation in Greece is Costas Lapavitsas. He's a professor in economics at the School of Oriental and African Studies at the University of London, and he's also the author of the newly released book Crisis in the Eurozone. Thanks very much for joining us, Costas.


JAY: So Greece is sort of off the front pages, at least in North America, but the situation, I assume, is getting worse. So what's happening?

LAPAVITSAS: Well, the situation is definitely getting worse in real terms. What is happening is that the country is now forced to engage in a new bout of cuts, basically, a new bout of austerity. Basically, the country will have to reduce public spending by perhaps €13.5 billion up to 2014. This is a very large sum for the Greek economy, a large proportion of its GDP. So the country's being forced to do that. And to achieve this target, the government will now have to cut wages, pensions of public servants, and it will have to effectively fire a large number of civil servants, up to 150,000 people, to 2014.

Now, this is what the government has to do, it's being forced to do by the European Union. And I want to stress the complete absurdity of this in economic terms. This is a country that's in its fifth year of recession. This recession is probably the most severe recession in the history of Greece, and it's definitely—it's basically a depression. Income from the—national income from the beginning of the crisis has contracted by about 20 percent. The Greeks have seen their livelihood devastated. Everything is on a downward path, with the possible exception of exports, which are not doing terribly well, but they're not falling, at any rate.

Now, in the midst of this depression, the European Union is forcing the Greek government to implement vast cuts, additional cuts, in order to achieve a primary surplus by 2014. This is nonsense economics. It's absurd. It's absolutely absurd.

JAY: Now, I see in the news on Thursday that Hollande is meeting with—the French president is meeting with Merkel from Germany. And when Hollande was elected, he had all kinds of rhetoric against austerity and that there needs to be a different way of dealing with this. But then the statement today with Merkel seems to be they're on quite the same page, at least when it comes to Greece, that there's no point giving Greece more time and Greece has to implement the, quote-unquote, "reforms".

LAPAVITSAS: Yeah, I don't think there's any—there's no difference between France and Germany on this. The election of Hollande was trumpeted as a major step that would change the outlook of the European Union. No such thing was really in the offing, for those who understood what Mr. Hollande is all about, and that's how it's standing out. So there is no change of policy with regard to Greece.

Greece is now forced to apply enormous austerity on top of the austerity that is already applied, and in an economy that's in the midst of a depression. This is, as I say, absurd economics. This is the economics of the madhouse. What is going to happen now is that everything is going to get even worse. Unemployment will get even higher, will break the 25 percent mark in Greece. Unemployment among the youth will go to incredible figures. The country's being devastated, basically, and it will continue to be devastated if these measures are actually applied.

JAY: So what happens next? This can't just go on like this.

LAPAVITSAS: Well, that's it. That, in a way, is the $64,000 question, what will happen next.

Now, there are two levels on which one can approach this. There is the immediate political level, in the sense of who governs the country, which political parties govern the country. The country's being governed by an alliance of the three parties at the moment: the right-wing party, the PASOK social democrat party that basically ran policy until a couple months ago, and a splinter the left, the so-called Democratic Left. Now, these parties have got no tradition of working with each other. The only thing that unites them is readiness and willingness to stay within the Eurozone at all costs.

So it's a big if: will they accept? Will they pass these measures, particularly as the social democrats (PASOK Party) and the Democratic Left said explicitly in the elections that led to this government that they would not vote for any measures that would mean cuts in wages, cuts in pensions, and firing of civil servants? These measures proposed now aim to do exactly that. So it remains to be seen whether the cohesion of the alliance that currently is governing Greece will hold. It's a big unknown. It might well—there might well be political unrest that will lead to a breakup of the coalition. That's the first—.

JAY: By that you mean more mass protests.

LAPAVITSAS: Not necessarily that; just an inability of these parties to agree to the measures, because the MPs of the parties will simply—might not agree to these measures, will find it impossible to vote for them. And if the MPs of PASOK and, more so, the MPs of the Democratic Left vote against the measures, then there is no parliamentary majority. And a lot of these MPs will find it very hard to renege on explicit promises that they made a month and a half ago.

And let me just stress: these parties promised to the Greek people that they were going to renegotiate all the terms of the stabilization agreement—in other words, they would achieve better terms—and they would certainly not vote for any measures that would involve pension cuts, wage cuts, and firing of civil servants. And that's exactly what they're going—they're being asked to do now without renegotiating anything. In other words, the platform on which they were elected was shown to be a pack of lies, basically, or completely different from what they're doing at the moment. Their MPs, particularly the MPs of the Democratic Left, will find it very hard to live that down within their constituencies, and the parties PASOK and the Democratic Left will find it very hard to pass these measures and still survive as independent political bodies. It's a very tough decision to make. So we don't know for sure that these measures will pass through the Greek political process. That's the first thing.

The second thing we've got to factor in, of course, the second unknown, is what will happen at the level of society. Here we're now talking about devastation. For some sections of Greek society, these new measures are simply devastation. That's what it is. I mean, there are hundreds of thousands, millions of people whose livelihood is basically devastated.

And people often are misled when they go to Greece, because they don't see, often, open signs of poverty. But that's exactly it. The new poverty that has struck Greece and much of Europe is actually hidden poverty. People pretend that they are continuing to live in the usual way, but at home they don't. They don't eat, they don't dress in the same way, they don't do the normal things they did with their children, they have got no medical care, and so on. But the outward signs are still proper, if you see what I mean.

JAY: Now, Costas, Germany and France have to know fairly well where this is headed, that there's going to be enormous unrest in Greece, and that it's very likely that these concessions or new reforms are not going to be able to be implemented. And they must be making their own contingency plans, France and Germany. They don't seem to be willing to compromise. So what are the contingency plans of France and Germany?

LAPAVITSAS: France and Germany are playing a game of chicken with Greece at the moment, particularly Germany. The calculation—the way I read it, anyway, the calculation on the part of the German elite is that in the end of the day, the Greek elite will back down. In the end of the day, the Greek people will be terrorized and scared into accepting these new measures, because the alternative of getting out of the euro is just presented to them as too horrible, too awful to contemplate. That's the calculation they're making. And they're following a very harsh line on this. If the Greeks somehow rebel and don't accept it, the calculation seems to be they will—Germans and the French will live with Greek exit, they will cope with Greek exit. There seems to be some kind of calculation on the part of the core of the European Union that a Greek exit is probably manageable at the moment.

Now, it's a very difficult one, this, because there is no doubt that everything that has happened in the last two years has worked to make the position of Greece weaker and the position of the core of the Eurozone stronger. Had Greece stepped out two years ago, there would have been devastation in the Monetary Union. Clearly a lot of things have taken place since then, the most important thing being detachment of the Greek banking system from the European banking system and a gradual cutting off of links of Greece with much of Europe. So indeed if Greece was to step out today, the impact would be much less than it would have been two years ago. The position of Greece has been weakened and the position of Germany and France has been strengthened.

But there is miscalculation in these things, as I'm sure U.S. audiences well know. Allowing Lehman to collapse in 2008 seemed a sensible decision to some people one evening. It didn't seem so sensible the following morning. So France and Germany, particularly Germany, have obviously made some calculations. They think they can probably manage it. They think they can probably deal with the shock. But there are good reasons to think that very serious implications will follow that are unpredicted and unpredictable at the moment.

JAY: And what's happening inside Greece in terms of SYRIZA and its politics and popular support?

LAPAVITSAS: The situation within Greece as far as the opposition is concerned has gone a bit quiet at the moment. SYRIZA is reorganizing itself. SYRIZA is spreading its influence across the country. Other parts of the left are repositioning themselves with regard to SYRIZA. And SYRIZA appears to be making serious preparations for government, serious preparations for momentous events in the near future.

I want to make a point very clear. If SYRIZA was indeed to form a government in the near future in Greece, the situation it would inherent would be horrendous. It will inherit scorched earth. The people who have run Greece for the last two years, and the EU that is actually collaborating with these people and led these people to adopt these policies, have created an absolute disaster in Greece. Public finances are destroyed. The economy's prostrate. There's huge unemployment. Credit has been destroyed. SYRIZA will inherit a situation that has not—it is without precedent in peacetime conditions. Greece has been in worse positions than this before, but always as a result of war. There's been no war here other than the social war, of course, that the government has declared against its own people. But SYRIZA will have a terrible situation to deal with, and SYRIZA must start to make preparations now. It must allow for all contingencies. It must prepare itself for what would happen if the country was forced to leave the euro. It must have plans in place on how to boost demand and how to get people back to work and how to rescue banks and how to begin to change the structure of economic and social power in the country and how to put the country back on a growth path that would be in the interests of working people.

JAY: And those discussions are going on as we speak, I assume.

LAPAVITSAS: Most definitely. This is something that's going on even as we speak. Much of the left and much of the opposition has begun to realize that actually they will be called upon, probably, to run the country. This is no more a game of criticizing others and coming up with bright ideas; this is now becoming a game of preparing yourself to put in practice what you've preached. And that's a very different game to being critical, as you well appreciate. So these discussions are taking place even as we speak. In a sense, SYRIZA is maturing in leaps and bounds. It's beginning to realize what this is about. But it's got a long way to go still before it's ready to govern, in my judgment.

JAY: Thanks very much for joining us, Costas.

LAPAVITSAS: It's a pleasure, again.

JAY: And thank you for joining us. And don't forget there's a "Donate" button over here, 'cause if you would like to see more stories like this, we need you to do that so we can do this. Thanks for joining us on The Real News Network.


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