YouTube video

Costas Lapavitsas: Merkel’s visit to Greece shows Eurozone leadership
don’t want to push Greece out, but situation is explosive as people are
furious at austerity measures

Story Transcript

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

In Greece, society continues to deteriorate as the recession deepens.

Now joining us from London 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 a member of Research on Money and Finance. And he’s a regular columnist for The Guardian, and now a regular contributor to The Real News Network. And his recent book is Crisis in the Eurozone. Thanks for joining us again, Costas.


JAY: So you’ve been visiting Greece back and forth every few weeks. What’s the current situation? We know Merkel was just there recently.

LAPAVITSAS: The visit by Chancellor Merkel was the big news this week, obviously. It signified three things, in my view, this visit. It was an unexpected visit, incidentally—suddenly took place. And it signifies three things.

The first thing it shows is that the core countries of the Eurozone, Germany above all, will not push Greece out. And I say this because for a long period of time, the last few months, there were arguments that the core of the Eurozone is about to kick Greece out. Well, the visit signified that that’s not going to happen. The Eurozone core will not kick Greece out, provided that Greece continues to comply with the terms of the bailout agreement, even if Greece is a bit tardy, it’s a bit slow, we might have to compromise in some minor respects, but Germany will not kick it out. And it will not kick Greece out, because the cost of kicking Greece out of the euro right now is potentially enormous. The euro itself will suffer tremendously. It might even collapse. And the global financial system will also suffer tremendously if Greece was kicked out. So that’s the first thing that we learned.

The second thing we learned from the visit by Chancellor Merkel is that the Greek elite, those who make policy—and I mean not only political parties but bureaucrats and others who make decisions in Greece—have got absolutely no other strategy in place other than to continue within the Eurozone. They’ve got no strategic view at all other than that. They will do whatever it takes to keep the country in the Eurozone, whatever the cost of that might be.

The third thing that became very clear during the visit is that Greek society at the moment is stunned, really. It’s in a terrible state. People are despondent. They’ve got no hope. They’ve got no trust [incompr.] They’ve got a lot of anger. And they just wish that someone would deliver them from this terrible predicament. Society is falling apart, in other words. It’s being destroyed on a daily basis.

Now, the combination of these three factors is explosive, completely unstable. And that’s going to be the predicament of Greece for the coming period. In other words, expect major instability, both economic and political, in the coming period in Greece.

JAY: I—one—in an interview I once did with Noam Chomsky a couple of years ago, he made a point which I thought was interesting, which—just how quickly German society accepted a Hitler and how quickly you go from kind of an avant-garde, libertarian Berlin to a fascist Berlin. I mean, what’s the danger of that in Greece?

LAPAVITSAS: Oh, the danger is very real. The danger is very real. I mean, the center of politics, the political organizations that have run Greece for four decades, have been hollowed out.

You see, people misunderstand. They think that the Greek state has always been very weak, inefficient, the Greek politicians are incapable, and so on. That is nonsense. The Greek state has been a very capable state and it has been able to deliver all kinds of things. You know, it’s a middle-income country. Its political system has been uniquely stable in Europe. Two parties have alternated in power and nothing has been changing for three to four decades.

Now that’s finished. That’s come to an end. These two parties are completely discredited. The center is hollowed out. And what has happened is that parties on the left and parties on the extreme right have been strengthened.

And that’s a reflection of what I mentioned to you before of the confusion, the despondency, and the anger among ordinary people. They do not look at the center any longer for solutions; they look at both ends of the political spectrum. Now, the dominant side there is the left. People look towards the left. They expect the solution from the left, from SYRIZA.

However, an increasing number of people, people who used to be to [incompr.] to the main part of the right now are looking to the extreme right. And it’s a logical thing. It’s a logical thing. If the center-right has made itself discredited, then a lot of people will look to the extreme right, which promises clean hands, efficiency, dealing with foreigners the way in which they understand that, and so on. That can be very quick. That can be very fast.

JAY: So where are things now in terms of the process? The last time we talked, you were—you know, the question was how long will this government last, the people are completely fed up with these austerity measures, and that there was some real possibility of if there’s another election, SYRIZA could win, SYRIZA being this alliance of left-wing forces that’s running electorally. What are the chances of another election and a SYRIZA victory?

LAPAVITSAS: I think we should start with the economy first and society, and then I will tell you about politics.

Now, what’s been happening in the economy is a continuation of the disaster that has been taking place the last two years, about which we just talked last time. Every single indicator has been getting worse. And the latest, which I don’t think we talked about last time, is exports.

The only thing that was actually a bit positive since late 2010 in Greece was exports. Greek business was completely constrained domestically, and it made a turn towards markets abroad, and it was being more successful than it had been for a while. Well, that’s gone. Exports to the EU have been declining for a while. And now exports outside the EU have started to decline, probably because of shortage of export credits.

So what you’ve got is all elements of demand in complete retreat. It’s an unprecedented situation. Unemployment as a result is just going through ever new records. The latest came out yesterday. It’s 25.1 percent aggregate unemployment. For the youth, it’s 55 percent or near enough. So the real economy is collapsing. Basically, Greece is retreating, it’s contracting from a middle-income economy to a low-income economy. That’s what’s happening.

Now, in this context of decline, fiscal stabilization is proving incredibly difficult, as you can well imagine. If GDP is contracting, then it becomes much, much more difficult for the government to make its books balance. And the government keeps cutting, it keeps imposing new taxes. This happens on every declining economy, an ever-declining base, and therefore it becomes ever more precarious. Yeah, the deficit is becoming smaller, but there is no stability to it. So at every moment, the account of the government can easily be really thrown out of kilter. So fiscal stabilization is proving incredibly difficult.

The last thing that’s been happening (and it’s connected to that) is, of course, the debt. The national debt is becoming completely unmanageable. Greece had a cancellation of debt, a debt write-off back in March, debt that was privately held. This was a terrible way of doing this cancellation, what happened in March, because it basically was organized by the banks themselves. So the foreign banks pulled out, got the best possible terms for themselves, and the pressure of cancellation was imposed on domestic Greek banks and on domestic pension funds and so on, who got hammered. The impact on the aggregate amount of debt has been minimal. The mediating banks that manage this process have made big profits. So at the end of this process, the lightening of Greek debt has been negligible. Add to it continuing borrowing by the state and declining GDP, and the pressure of debt is bigger than ever. Debt is out of control.

And the difference now is that Greece has got a huge amount of debt which is now owed to official lenders. When this crisis started three years ago, Greece had a very large foreign debt, external debt. But this debt was owed to private lenders, and it was under Greek law. The governing law was Greek law. So Greece could have restructured that debt fairly easily. Debt restructuring is never an easy thing, of course, but the conditions were favorable to Greece. After three years [incompr.] managing and helping and rescuing Greece, Greece has got a greater burden of debt, but its debt is now owed to official lenders and it’s under British law. And restructuring this kind of debt cannot happen unilaterally by Greece now, and it will be much, much more difficult to effect.

So the combination of all these factors—economic decline, government finances being completely precarious, and debt out of control—tell you that the program has failed or is failing dramatically.

JAY: And what’s happening in terms of the selling off, privatization of public assets?

LAPAVITSAS: That’s the other part of the program, which is the so-called development side, because I call IMF programs—this has a stabilization side and it has a development side. The stabilization side I’ve just discussed, and it’s been a failure. The development side has presumably been organized and driven by the standard philosophy of the IMF and the EU, which involves privatization, deregulation, lowering wages, and making the state more efficient, streamlining the state. Now, privatization has been not really very successful, because, obviously, apart from everything else, this is probably the worst possible time in history to sell public assets in Greece, because prices have collapsed. I mean, this is a fire sale if there ever was one. So privatization hasn’t been very successful so far, although—.

JAY: Well, it hasn’t been successful for the Greek public and the state; it’s quite successful for people who are buying stuff.

LAPAVITSAS: If they’re going to buy, because at the moment it’s difficult to organize and difficult to find, even, buyers, because there aren’t that many assets that have got a clear property status and that they could quickly be turned into profitable propositions for potential buyers. There aren’t that many. Some are there, and they’re planning to sell them, but it isn’t as big and as promising as people imagine. So privatization is one element, and that hasn’t been going terribly well. There is also deregulation and so on.

Now, deregulation effectively has meant deregulating the labor market. There things have taken place that are just unbelievable. Wages have been crushed, collective bargaining has been abolished, the conditions of the labor market, especially in the private sector in Greece right now, are unbelievable. I mean, it really is the wild west. The levels of exploitation of people are just unthinkable. That has taken place.

However, the combination of this kind of deregulation and privatization that has taken place hasn’t been enough to cause growth, to induce growth, and of course it wouldn’t be. There is no theory that says that you can countermand, counterbalance the recessionary pressures of stabilization with growth that comes out of these measures. That’s only in the imagination of neoliberals. These measures will have very debatable growth effects, and even if they do have them and they’re positive, it’ll take many years. So that’s what’s been happening on the growth front.

The other thing that’s been happening is the state, of course, streamlining the state. This means weakening the state. The Greek state has been tremendously weakened during the last three years in just about every respect, from the tax office to the delivery of basic welfare services to the security forces, including the army. Pronounced cuts and repeated attacks on the public sector have weakened the state in an unprecedented way. The Greek state today, short of a period of occupation, is at its weakest, the weakest it’s been ever, I should imagine.

Now, the outcome of this is, of course, that parastates—parastatal sort of sideways mechanisms are emerging which are replacing the state, and these mechanisms are not very nice. You’re talking about mechanisms that have got an element of the mafia. We still haven’t got full mafia emerging, but it’s not far off. And that’s a risk and a danger that could well become real in the coming period as the state becomes weaker.

JAY: Okay. In the next—part two of this interview, let’s talk about how the Greek left is responding to all this. So please join us for the next segment of our interview with Costas Lapavitsas.


DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.

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