Costas Lapavitsas: The Greek people face a decade of depression in the Eurozone, it’s better to leave and make major reforms.


Story Transcript

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington. In Europe, the eurozone continues to unravel. And, of course, the country that is feeling it perhaps hardest is Greece, where the euro banks and euro leaders are demanding severe austerity measures. Papandreou, the prime minister, is out; the new one is in, Papademos. What’s next for Greece? Now joining us to discuss all of this is Costas Lapavitsas. He’s a professor of economics at the University of London, and he’s also a regular columnist for the Guardian newspaper. Thanks for joining us again, Costas.

COSTAS LAPAVITSAS, ECONOMICS PROF., UNIVERSITY OF LONDON: Thanks very much for the invite.

JAY: So where are we at with the Greek people’s struggle against austerity measures? And it seems the new prime minister is a–they’re calling him a technocrat. He’s part of the European banking world. Where does all this lead?

LAPAVITSAS: The first thing I’d like to point out is that this has been an outrageous development, as far as the democratic process is concerned. The European Union and the European Monetary Union are supposed to be mechanisms to secure democracy and secure the free expression of popular will through elections and otherwise. When we’ve witnessed in the last couple of weeks in Greece, and even more severely in Italy, which is a bigger country, is, of course, a complete negation of this. We’ve seen the appointment of entire governments, and certainly of prime ministers, on the basis of choices and decisions and pressures made by bond markets and by large financial institutions. If this is democracy, then we’re not doing very well at all. This is a very worrying development, and it doesn’t augur very well at all for the future of the political and democratic process in Europe. It’s very, very important for people in Europe to be alert and to defend their rights. That’s the first thing I want to say about this. As far as policy is concerned in particular now, the thing to say is that, yes, one prime minister–elected prime minister has gone out in Greece, and a non-elected prime minister has come in at the behest of banks and other institutions, but the policies have remained exactly the same. The policies are exactly the same. If anything, the new prime minister has made it clear that he will try and apply the same policies of austerity and of what they call internal depreciation–in other words, bringing wages and prices down–he will try and apply these policies with more vigor and more determination than the previous one. And given that the previous one essentially failed because of these policies, I don’t think the current one, the new prime minister, has a very long shelf life, because in the end of the day, it wasn’t the personal weaknesses of the Papandreou–of Mr. Papandreou but his policies that led to his downfall.

JAY: So the Greek people are faced with more austerity, and also privatization, which doesn’t get talked about, probably, enough, ’cause it seems to me privatization’s a very big piece of this in terms of what not just bondholders and European banks and others are–want out of all this, but what are the choices for the Greek people. What can they demand? I mean, I guess it comes down to: should the Greek people get out of the eurozone?

LAPAVITSAS: Right. The Greek people have got very tough choices in front of them. That’s the first thing to say. There are no easy choices for Greece, and, I would argue, no easy choices for the whole of the periphery of the eurozone, because, you know, the truth is Spain is in a not much better position, Italy is actually pretty bad, and Ireland is not very good at all. And where do you stop? So–but to come back to Greece, the Greek people have got very tough choices in front of them. To judge where they should go and what they should do, we must have a benchmark. We must always be clear about what we’re judging it against. And that benchmark is not 2005, 2006, when credit was easy, when consumption was high, when it seemed that things could continue, some kind of prosperity prevailed, on the basis of cheap credit, basically. That is not coming back. That’s not the benchmark. The benchmark really is: what will the country look like, and what is the country like, given the current policies? That’s the benchmark. And Greece is in the midst of what can only be described now as a great depression. GDP contraction this year will probably be about 7 percent. It’s an unbelievable number. Unemployment is pushing towards–it’s exceeded 18 percent, and among the youth it’s heading for 45 percent. Once the contraction finishes, probably after next year, because after next year there will still be contraction, once the contraction finishes, Greece will enter, in all probability, a very long period of stagnation, of low growth, high unemployment. Basically, the country will become an insignificant, stagnant, and aging corner of the European Union, because the youth will go. The youth are already emigrating. That’s really what the benchmark is. So that’s what Greeks have got to decide what to do; bearing that in mind, they’ve got to decide what to do. What should they do, then? In my view, there are two things that Greeks should do, and I’ve argued that time and again in articles and in a series of research reports with my colleagues here at Research on Money and Finance in London. The first thing that Greece should do is default. It must default on its debt. No one likes default. It’s not an easy thing to do. But the truth is, those who run the country put it in a system whereby it has developed debts that it will never be able to repay. That’s the truth of it. That is the very simple–it’s a very simple fact of life. And it’s actually acknowledged by the EU itself, because they have accepted that there has to be default. However, the default that the EU tries to implement for Greece is default in the interests of the lenders. That’s why it’s not going to be effective. I’m suggesting that Greece must default in the interests of the debtor, in the interests of itself and of its people.

JAY: And what would that look like?

LAPAVITSAS: That would look–that would be sovereign and democratic, sovereign in the sense that Greece must use sovereign power to apply terms coercively on the lenders. It’s–you know, it’s long overdue that in the world of international finance it is acknowledged that lenders also have a responsibility of due diligence. It’s clear that European and other banks have not been doing due diligence when they lend so heavily to the periphery. And it’s not fair that they should not take any hit at all and all the costs of dealing with this debt should be passed on to the borrower. So Greece must use sovereign power to apply terms coercively on the debtor–I beg your pardon–on the creditor and to rid itself of a significant part of its debt which it cannot carry. The debt is crushing the Greek economy, crushing Greek society. It’s strangling the country.

JAY: So what’s point two?

LAPAVITSAS: One more thing on this. It should also be democratic. This should not be done simply by some kind of government, even if it is elected properly. This should involve broad layers of people. The process of writing off debt, of defaulting on debt must involve broad layers of people. It must–we must hear the democratic voice of people, civil society, of organized labor. They’ve got a right to know what the debt is about. They’ve got a right to decide themselves what should we pay, how should we pay it, and so forth. That’s the first thing. The second step I would argue very strongly is that Greece should get out of the Monetary Union. It was a terrible mistake, entering the Monetary Union. The country lost competitiveness as a result of the system of the Monetary Union. It’s developed huge external deficits. The debts that has piled up are because of its external deficits, in good measure. As long as it remains within the highly constraining framework of the Monetary Union, as long as it is subjected to austerity, privatization, and liberalization, which is what the European Union imposes on it, its future will be like I said to you before: long-term stagnation, long-term decline. The country must get out. It must break free of the trap of the common currency. It must get out of this. It must have its own national currency. It must acquire command of monetary and fiscal policy. And then it should engage in a long and difficult struggle of restructuring its economy in the interests of working people, in the interests of the many, and in this way enter a path of growth. I believe that it can happen, but it will take a difficult and detailed program, essentially, of social and national regeneration in Greece.

JAY: It’s not that, like, Greece is without wealth. The Greek elite has done not so badly over this period. How much is that also part of what needs to be done?

LAPAVITSAS: It’s at the heart of things. It’s at the heart of things in a variety of ways. The Greek elite has made this decision to take the country into the core of the Monetary Union. It was a terrible decision. It’s a decision that has not worked out. And now they’re asking the Greek people to pay a huge price in order to continue with this choice, or in order to get out of this choice without the elites carrying any of the costs of it. So if Greece gets out and it gets out in the way in which I’m suggesting, it will have to put in place a program of deep social restructuring. One fundamental element of this would be redistribution. Greece needs income and wealth redistribution more than–more, almost, than any other country in the Monetary Union. Greece is a very unequal country. The rich and the not-so-rich, even the well-off middle class, simply don’t pay tax. That’s an enormous advantage, income and wealth advantage they have over the majority of the population. That must stop. It must be reversed. And it cannot be reversed within current social arrangements. So exit from the euro. If it’s done with popular will and popular mobilization, there’s a good chance of reversing this and of bringing in much-needed redistribution, much greater equality, which is fundamental to growth, I believe. It’s necessary for growth. So it’s in this way that the rich must be or the elite in Greece must be brought to heel. The other thing that Greece needs, as far as the elite is concerned, in order to regenerate itself is, of course, public ownership and public control over banks. Greek banks are essentially bankrupt. They own a lot of Greek paper, Greek government paper, which–they will have to have losses on this. Essentially, the equity value of Greek banks at the moment is zero. If they were actually freely bought and sold, they would be–the equity value would be zero. They must be nationalized without compensation. They should be brought under public control. And then they should be restored and restructured and redirected to the domestic economy to support small and medium businesses, to support production, and to defend employment, because the biggest tragedy in Greece at the moment is the destruction of employment. Hundreds of thousands of people in Greece now, families in Greece now, have got no one in employment.

JAY: So, Costas, this sounds like a program for a political movement. Is there such a movement with such a program?

LAPAVITSAS: There is no single movement that has adopted this program. And that is part of the tragedy of the political developments so far. However, it’s a program that’s very widely discussed. People are aware of it, and various parts of it are already adopted by several political parties. What is a sticking point, what is very difficult for political parties to accept in Greece, is the idea of getting out of the euro. That is a very difficult thing. And it is–the difficulty is in part–the real difficulty of getting out, because it’s a shock–you know, no one is saying it’s going to be easy–.

JAY: Well, it’s a step into the unknown.

LAPAVITSAS: Yes. It’s–well, partly into the unknown, but it’s a difficult thing. But there is also an ideological side to it, you see, because money is always like that. People identify with money. It becomes part of their identity. And it’s very difficult to accept that using the euro as your own national money was a failure. You must now go back to a weaker and narrower form of money. It’s a very difficult thing for people to accept. They are fighting it. Or some people are. So the combination of these two things, the dangers of it, and the ideological implications are keeping–are making political parties hold back. The other element that’s also very important is of course the geopolitical implications, because what we’re discussing here clearly has very serious geopolitical implications, as is always the case with money. When you decide to join the Monetary Union and you fail, then getting out of it has geopolitical implications, and many parties in Greece are very scared of those. They are not prepared to contemplate those directly and to make–to put across decisive suggestions to Greek people.

JAY: And those implications are what? Being so marginalized? Or what?

LAPAVITSAS: Yes, there’s a fear of becoming marginalized, of becoming cut off from Europe. There’s a fear of increased tension with neighboring countries. There’s a fear of Greece being a small country and how will it manage to make its way in the world. All these things are also cultivated by the government and by those who wish to remain within the euro. The euro is still presented as a safe haven in Greece. It’s ridiculous, because the euro has caused the biggest economic crisis in the history of the country. But it still is being presented as a safe haven, and that has some kind of resonance–not much, but it has some kind of resonance. And until and unless political parties, a political party, or an alliance answers these questions satisfactorily, until it reassures people that they can rely on their own strength, that they will not disappear down a dark abyss, that they can rejuvenate the country using their own capabilities and skills, until something like that happens, people will dither and the situation will be unsettled.

JAY: Thanks very much for joining us, Costas.

LAPAVITSAS: I think you.

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

End of Transcript

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Costas Lapavitsas

Costas Lapavitsas is a professor of economics at the School of Oriental and African Studies, University of London