YouTube video

Former SYRIZA MP Costas Lapavitsas responds to the argument that the costs of transitioning from the Euro to a drachma would outweigh the benefits

Story Transcript

DIMITRI LASCARIS This is Dimitri Lascaris for The Real News. This is the third part of an interview regarding the Greek debt crisis, with Costas Lapavitsas. Costas is a Professor of Economics at the University of London. In January of 2015, he was elected as a member of the Greek Parliament for the left-wing Syriza Party. In that election, Syriza won, and formed a government for the first time. But in August 2015, following the decision of Greece’s Prime Minister, Alexis Tsipras, to ignore the results of anti-austerity referendum, Costas Lapavitsas defected from Syriza to the newly formed Popular Unity Party. Thank you for joining us, Costas. COSTAS LAPAVITSAS Thank you for the invitation. DIMITRI LASCARIS … I know you’re aware of it, is the left-leaning and widely-respected financial blog, Naked Capitalism, which has been very, very critical of the austerity program. And overall its editorial posture is sympathetic to the plight of the Greek people. But Yves Smith, of Naked Capitalism, has argued repeatedly that the costs of the transition would exceed the benefits, both short and long term, and in particular she’s pointed to the IT challenges involved of transitioning from the euro to the drachma. She’s pointed out that the transition from the drachma to the euro was itself a multi-year process that happened with intensive planning. And that this return to, or transition to another currency, would be happening in circumstances which are much more difficult than the transition to the euro occurred. And she questions, quite assertively, about whether the Greek government has the capacity to manage that transition in the manner that you suggest. How do you respond to that critique? COSTAS LAPAVITSAS I have followed Naked Capitalism –- not systematically –- but I have read material from that blog, which I have generally found very useful and informative. Unfortunately, in the Eurozone, and in particular in the Greek case, this is not so. To put it bluntly, Naked Capitalism doesn’t get the Eurozone crisis, and certainly doesn’t get what needs doing in the case of Greece. It doesn’t get the Eurozone crisis, because it systematically underplays the importance of competitiveness, and the averages of competitiveness for the Eurozone crisis. It’s a very confused take on why Germany has emerged as the dominant trading partner, something to do apparently, with German productivity and efficiency. It’s got nothing to do with that. There is no evidence that German productivity grows, has been strong. In fact, it’s been weaker than most other countries in the Eurozone, or several other countries in the Eurozone –- certainly weaker than Greek productivity growth. And there is no evidence that German ascendancy in the Eurozone has to do with the capabilities and capacities of German industry, substantial as these might be. The reason why Germany has emerged, as a tremendous exporter across the world is very simple — wage suppression. Wage suppression for years, a wage freeze effectively in Germany for more than a decade in the 2000s. Which has given it a tremendous competitive advantage in the Eurozone, and second, after that, the low euro. The weakness of the euro since 2010 has compounded the effect on German competitiveness. Germany has emerged, essentially, as the most successful exporter in the world fundamentally. It’s a new mercantilism that has obtained in Germany. The domestic economy remains weak. Despite recent developments, it remains weak. Germany has emerged as a huge exporter across the world. It sucks in demand from across the world. It has tremendous services, up to 8% of GDP. China has not a patch on Germany, in this regard. And that, I repeat, has to do with wage suppression in the first instance, and then the weak euro subsequently. This is it. If you go to Germany, you will see it immediately. This is not a country that is going forward because it’s investing in new technologies and so on. Investing in what? You go to Berlin; there isn’t a decent airport, when you land in it, in the city. Now, Naked Capitalism has got a very peculiar take on that. And if you start with this, if you start by thinking that competitiveness is a bad idea, and competitiveness accounts for low wages is a bad idea, then you go wrong when it comes to proposing policies to deal with the problem. And the policies proposed, as far as I understand them, or at least advocated, bending the line of a… let’s say in, but somehow not apply austerity. It’s impossible. This was tried. This was the lesson of the Syriza government. This was the lesson of the Varoufakis period, which was a completely chaotic period. People didn’t know which way… I mean, didn’t know what was happening during that period. This was a failed experiment. That’s the lesson the left must draw immediately. You cannot stay in the Eurozone and apply different policies. This is impossible, and you can’t do it for a very simple reason — Liquidity, at the end of the day, is controlled by Mario Draghi, who is the man who runs the European Central Bank. Mario Draghi will asphyxiate any country that attempts to follow a path that is not consistent with what the European Monetary Union wants the country to do. It’s as simple as that. That’s what did it for Syriza. Therefore, in that context, if you want left-wing policies, if you want the kind of policies that I outlined just before, for growth and so on, you must consider existing. The short-term costs must be managed in the best possible way, to minimize the transition difficulties. They’re not as severe as people make out. I agree with the view that says that the payment systems in the banks, which rely on IT and so on, are a difficult problem. They are a difficult problem, and they will take time to sort out. To disentangle the computer systems of the domestic banks from the European system, in which they’ve integrated themselves, and disentangle it from that, because they will be using a different … accounts, a new currency. It won’t be easy. I know that. But creating bank notes and so on, that’s straightforward. Let’s not exaggerate, however, the transition costs, because the many instances in which countries have changed money, even recently, and the transition costs were nonexistent or very, very small, certainly the political step. India is a good example here. If you allow me -– the Indian government, as you know, recently withdrew unilaterally, all large denomination bank notes from circulation. It was a mad thing to do. They did it, presumably to attack tax avoidance, but it was a mad thing to do. It was done without any planning and without any serious preparation. They did this. They did it, and they presented it as a serious attack on corruption in India. I don’t want to go into that, and I don’t want to discuss the ins and outs of it. It’s a disaster, as I say, in terms of… a bad thing to do in terms of economics. What struck me, though, more than anything in this case, is that the Indian people took it in their stride. This is the remarkable thing. They took it in their stride. They took the shoe leather costs -– because that’s what it is effectively -– of changing money, of having this money withdrawn from circulation, in their stride. Nothing happened. No riots. Nothing. And, in fact, it seems as if the government politically, and electorally, might benefit from it. What does this tell you? It tells you that the short-term costs of exiting the Eurozone -– if they are done by a government that has got political support –- can be handled without political losses, or at least without serious political losses. All that talk about Greece descending into anarchy, people fighting in the streets, war breaking out, and all this, is wildly exaggerated. What it takes, and what it would take, would be a determined government, with genuine popular support in an open debate with its people. If the people understand what’s at issue, they will support it, and Greece can go down a different path. And that will be a lesson for the rest of the Eurozone. DIMITRI LASCARIS Well, I hope that that debate does occur. It does appear that it’s going to unfold, and I’m sure you’ll be an important part of it. And as it unfolds I hope we can have you back, Costas, to talk about the road ahead for Greece and whether that would include an exit from the Eurozone. Thank you very much for joining us. COSTAS LAPAVITSAS I thank you. DIMITRI LASCARIS And this is Dimitri Lascaris for The Real News. ————————- END

Creative Commons License

Republish our articles for free, online or in print, under a Creative Commons license.

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