The Greek Trap

The Greek Trap

Costas Lapavitsas: Lower wages, austerity, high unemployment creating situation like 1930's with a dangerous rise of the right -   February 14, 2013
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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.


The Greek TrapPAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore. And welcome to The Lapavitsas Report on Economics with Costas Lapavitsas, who now joins us from London.

Costas is a professor in economics at the School of Oriental and African Studies at the University of London, he's a member of Research on Money and Finance, and he's a regular columnist for The Guardian.

Thanks for joining us.


JAY: So what is happening in Greece?

LAPAVITSAS: Three things really stand out the last week or so. The first is it's become quite clear that the membership of the Eurozone, the question of the membership of the Eurozone has actually gone onto the backburner. The immediate pressure of the crisis has subsided. Greece will not be exiting the Eurozone in the next few months. So that's the first thing.

The second thing that's become clear is that the fiscal deficit of the government is actually slowly coming under control. So it will come under control in the next few months.

The third thing that's also become clear—it's connected to the other two—is that the recession in the country's getting deeper and deeper. And this is now mutating into a major social and humanitarian crisis.

In a nutshell, this is what's happening in Greece.

The reason why fiscal accounts are getting under control and the recession is getting deeper is of course the same. The government has slashed public expenditure, destroyed public expenditure, including public investment, and it's imposed huge new taxes.

The tax intake is proving problematic. The government is failing to take in the taxes that it planned to take. Quite naturally, because the economy's in recession, people are actually either evading tax or cannot pay it.

But by slashing expenditure, the government is reducing its deficit. Two and two make four. If the government is slashing expenditure, it's destroying demand. And that's what's been happening in the economy—demand's been destroyed, consumption is declining, investment is at extremely low levels, exports are not doing anything very much. The country is trapped in a huge depression, basically, with unemployment going through the roof. This is now creating a gigantic social crisis.

JAY: When we talked, I don't know, a couple of months ago, the support for the left-of-center party, left-wing party SYRIZA seemed to be gaining. It was a question of whether this current government could sustain itself. And there was real talk about a possible SYRIZA government. Where's that at?

LAPAVITSAS: Well, that's taken a back seat, to a certain extent, because once the new raft of measures were introduced, the new, fresh austerity measures were introduced, the government then took a very strong authoritarian turn. And a certain despondency and disappointment has set in among the population. People increasingly feel that this is some kind of major disaster. It looks like a natural disaster, against which they can do not very much. Also, the labor market is extremely soft, with nearly 30 percent unemployment, and the ability and willingness of people to strike has obviously become much less.

So the combination of these factors has actually led to a certain retreat of struggle, a certain—the movement in a sense has taken a few steps back. But I stress this has gone together with a deepening of social discontent, of social crisis, of a sense of society falling apart, and of a sense of national humiliation. This is extremely dangerous politically, extremely dangerous politically, because this is the type of climate in which the extreme right can also thrive, as you can imagine.

Perhaps I can put it differently. Greece is caught in a trap, similar to many other countries across the world, but a trap made much worse because of membership of the Monetary Union. The powers that be are slashing wages, are imposing austerity, and they think that by doing that they are rejuvenating the economy, they are creating a lean and mean economy, and at the end of this, Greece is going to surge ahead.

Nothing like that's going to happen. Society is being trapped. And as that happens, we're seeing phenomena of the 1930s emerging, phenomena of social disruption, anger, and despondency, and extreme willingness to resolve to violence.

This is where we are, and the situation is hanging in the balance.

If government measures and government attempts to control, say, the fiscal deficit misfire in the coming months, the government will be forced to take extra measures. It will be forced to take extra measures because it has signed an agreement with the European Union to do so.

I wouldn't like to be in the shoes of the minister of finance or the prime minister that would have to do this in Greece in the coming months. I wouldn't like to do that. Even if there is despondency, even if there's disappointment in the country, any bout of new measures imposed on Greece right now will be playing with fire.

That's the situation. We'll have to see what's—comes out in the months to come.

JAY: Alright. Thanks for joining us, Costas.

LAPAVITSAS: Thank you, Paul.

JAY: And thank you for joining us on The Real News Network.


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