As Tensions Rise Between Greece and its Creditors, Is Grexit Back on the Table? (2/3)
Former SYRIZA MP Costas Lapavitsas explains that, so long as Greece remains in the Eurozone, it will not be able to reverse austerity and direct its fiscal policy towards unemployment.
DIMITRI LASCARIS This is Dimitri Lascaris for The Real News.
This is the second 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 2015, he was elected as a member of the Greek Parliament with the left-wing Syriza Party. In that election, Syriza won, and formed the government for the first time.
In August 2015, following the decision of Greek Prime Minister, Alexis Tsipras, to disregard the result of an anti-austerity referendum. Costas defected from Syriza, to the newly formed Popular Unity Party.
Thank you again for joining us, Costas.
COSTAS LAPAVITSAS: It’s a pleasure.
DIMITRI LASCARIS In the first part of our interview, we discussed current economic and political conditions in Greece, and the performance of the Syriza government since its election in January 2014, to 2015. I’d like to discuss with you now, or focus, on the road ahead for the country.
Since Syriza came to power, there’s been a lot of debate in and outside of Greece, about whether the country would be better off outside of the Eurozone, and polls have consistently indicated that most Greeks do not want to abandon the euro.
But, for the first time since the debt crisis erupted, in a recent poll, 53% of those asked said they believed the euro was wrong for their country, and a third called for a return to the drachma.
While these numbers suggest an upsurge in support for a Greek exit from the Eurozone, or a Grexit, this poll indicates that a large proportion of Greeks nonetheless continue to be wedded to the euro, despite all that Greece has suffered since joining the Monetary Union.
How do you account for the persistent level of elevated support for the euro, in light of the history of the euro in Greece?
COSTAS LAPAVITSAS: This, in many ways, is the most difficult issue when one looks at the Greek case. There’s the political economy. The political economy of the Greek crisis is actually quite straightforward. Greece, and other Eurozone countries in 2010, had what is called a sudden stop crisis. Effectively it was that. It was a crisis such as the developing countries, in many parts of the world had in the 1990s, and the 2000s.
It’s a kind of crisis in which the falling capital flows into a country, are suddenly reversed. The country finds itself short of funding to support its current accounts. And then the crisis emerges whereby the exchange rate falls, interest rates usually go up, and then depending on other factors, a recession might emerge, and so on. We’ve seen many, many of those crises… of contemporary capitalism, in the developing world, in the 1990s and 2000s.
This was essentially what happened to Greece, and to other European Eurozone countries. Greece has tremendous current account deficits. In the 2000s, it relied on private, external capital flows. These dried up after the great financial crisis in the U.S. and elsewhere. Whilst this happens, Greeks went into a tremendous… an actual crisis itself in 2010. The difference, of course, was that Greece was in the Monetary Union.
That’s what made all the difference. Greece was in the monetary… in the European Monetary Union. Greece did not have its own currency. And Greece did not have access to any of the normal instruments of economic policy. Which would have been available to most other countries, were available to Thailand, to Malaysia, to Turkey, to all other countries that were hit by crises like this, in the ’90s and 2000s.
Above all, Greece was not able to devalue. Devaluation in these situations is the way of releasing pressure from the domestic economy, and align countries to get over its sudden stop crisis with fewer costs, fewer costs for the domestic economy. Greece did not have this option. Greece was in the Monetary Union, no exchange rate to devalue. The result: the domestic economy was devalued. All the pressure went internally. The economy was ruined. People’s incomes were destroyed, and so on.
In other words, irrespective of where the crisis originated, once it had broken out, membership of the euro, and therefore inability to use the normal means of confronting these crises was disastrous for Greece. What made it even worse was the fallout. In typical sudden stop crises, what happens when capital flows from abroad, dry up, is that the banking system of the country in crisis, finds itself under pressure. Because, of course, it cannot maintain its normal payments, capital doesn’t come in from abroad, people are worried, they begin to withdraw their money from the banks, and you get a banking crisis.
Greece never had a banking crisis to start with. And the reason was, of course, membership of the Eurozone. What happened was the ECB, the European Central Bank, continued to supply Greek banks with liquidity as the sudden stop crisis unfolded.
So, Greece found itself in a very peculiar situation. It’s banking system could chug along, because the ECB was providing it with liquidity. It’s economy was being destroyed at the same time. What appeared to be a good thing for the country, in the sense that it didn’t have any immediate banking crisis, turned out to be a disastrous thing because, as its economy shrunk, and its banks were kept alive by some inventions of liquidity from the European Central Bank, became a disaster in the end because, of course, its banks are now finished because they are not healthy banks, when the economy is ruined.
So, membership of the Eurozone for Greece made the sudden stop crisis, the Greek crisis, so the Greeks have the stop crisis much, much worse.
There are two issues here, as that unfolded, because it’s now seven years. Why have the Greeks put up with it? And why have the Parliament, what we might call in Gramscian terms, the historical block that runs the country, why have they acceded to this? The political economy is not enough for that. Why must move beyond political economy on this?
There are, of course, clear interests, that have wanted to keep the country in the situation, clear economic interests. The banks. Manifestly, the banks wanted to continue along those lines because any other option would have meant nationalizing the banks. So, the banks wanted to keep down the … path, and they exercised enormous political power to make that happen.
But that’s not enough. That’s not enough. That’s not enough, because as the Greek crisis became worse and worse, Greek big business, the core of the capitalist accumulation in the country, received a tremendous blow. A lot of capacity was lost. Why did these people accept it? Why did they accept these policies? Why didn’t they go for something else?
Because here, they’re wanting to move beyond economics or political economy, it’s not enough. And we need even to move into the sphere of social psychology to understand what happened. And the tremendous power that money exercises over people’s minds, and the general functioning of the country.
There are two elements that are very important here. The first is fear, pure, naked fear. Fear that emerged from the bloc… the historical bloc running the country was very scared of any other option. The option of exiting the Eurozone would have been highly unstable for them and it would have put the question of power, who runs the country, right in the forefront. They were not prepared to countenance that. They did not want to countenance that. They preferred any other option but that, because they fear the instability.
This fear, that characterizes the Greek historical bloc, was calculated and cultivated from the top, and came to permeate the population. It assumed incredible forms over the last seven years, with the most extraordinary stories being told from the press of what would happen if Greece changed its currency. It apparently would have been the worst disaster since disasters were invented.
So, that has created the climate of fear in the country, which is very, very difficult to reverse. You’ve got to go to Greece to experience it. It’s like a constant bombardment of the people coming from the top, that any option but that, and certainly any option of changing the currency, would be very dangerous.
The second factor, which is very important, is, of course, identity. Identity has been very important in this crisis for the Greeks, because you see, money is always identity. It isn’t just an economic agent. Money is also identity. It’s an identity in any country, and we’ve known that for a long time in the political economy… In the case of Greece, the fact that the euro has become the national currency of the country has meant that Greece has become properly European.
Greece has joined the advanced, developed, powerful countries of Western Europe. And you’ve got to appreciate how important this is in the mentality of the small country, on the fringes of Europe, which has always looked at Western Europe as the fountainhead of progress. It’s a very, very important element, that.
And to Greeks, possessing the euro meant that they had an identity, a visible and physical identity as Europeans. Going back to the drachma, losing the euro, meant in their own minds, of a lot of people, regressing from that. Going to a state of being… which would have been less advanced, less forward-looking, more backward, the Greece of the past. They didn’t want that. Lots of people didn’t want that.
So, so the combination of fear and identity, has been very, very important in maintaining support…
DIMITRI LASCARIS And the hardship is indicated… the hardship, that the Greeks have endured for some seven years now, seems to be breaking down those two elements you described, and a discussion about –- a real discussion –- about the prospects for the country outside of the Eurozone, appears to be unfolding in the country, or at least we’re at the beginning of that discussion.
This is something that you have advocated for, quite passionately, for a long time. And in fact, I understand that you have recently completed a study sponsored by the Rosa Luxemburg Institute, in which, you examine amongst other things, the means by which Greece could exit the Eurozone, and what that would signify for the country’s future, economically and politically and so forth.
And I just… if you could help us to understand, why you think that is the proper course of action for Greece, and broadly speaking, how would an exit from the Eurozone be orchestrated?
COSTAS LAPAVITSAS: It is true that the attitude of people has begun slowly to shift. Especially among the plebeian layers, the working class and the poorer layers, because of course in the end, the issue of the currency and money is a class issue. And I mentioned fear, and identity, which can be found across society. But it holds more strongly the higher up you go the social hierarchy, apart from everything else, because the poorer layers haven’t got very many euros anymore, because they’ve become so poor.
It is true that among the working class and the poor, things are different now, have become different. And the reason is persistent poverty, persistent inability to restart the economy, lack of prospects, lack of future. People are beginning to listen. That’s where we’ve got to start, you see, and that’s where any alternative strategy by the left, or someone who wants to take the country elsewhere, head, should start.
People have to understand that the current policies apply, to keep the country in the Eurozone, policies of austerity and liberalization, are a complete dead end. It is true that the Greek economy has been stabilized. Stabilized in the sense that it doesn’t have the deficits which it had in 2010.
In other words, the sudden stop crisis has been dealt with in this regard. The economy has shrunk. If economies shrink, then imports shrink, then the current accounts go back into balance. The state doesn’t spend. It taxes. Fiscal accounts go into balance. In that sense, Greece has been stabilized: it’s the stabilization of poverty, the stabilization of a cemetery.
This is basically what happened. Because, of course, the IMF now tells you, and the European Union now tells you, if we now continue to liberalize, if we now continue to drive wages down, then capitalist accumulation will be ignited. There will be investment, there’ll be growth, jobs will be created. Greece will become prosperous again.
There’s no such prospect at all. That’s not how countries’ economies work. It might work like that in the heads of IMF technocrats, or in some of the textbooks that they read, but that’s not how they work in practice. Greece is looking ahead at an indeterminate period, an indefinite period of low and unstable growth, high unemployment, poverty, inequality, and so on. That’s where we’ve got to start. People have got to understand that what they’re going through now, is not a temporary period. This is it.
If they grasp that, then they will look for other options. And that’s where the alternative proposal again should start. Not with changing the currency. Changing the currency is a means. It’s not the objective. What Greece needs, and we’ve shown this in this new study we’ve produced, which I think will prove important in the Greek and European context, is that Greece needs, first of all, a boost given to agreed demand. That’s what the Greek economy needs immediately.
It needs a boost to agreed demand. That must come from the fiscal side, in other words, abandoning austerity. And fiscal policy must be targeted towards unemployment. We have shown, that in the context of the badly developed Greek economy, this means targeting fiscal policy towards services.
It’s unfortunate for development purposes, that for reasons that I will explain, but it is unavoidable to reduce unemployment quickly. If Greece is to reduce unemployment quickly, it must have an expansion of fiscal… fiscal expansion targeted at services. It’s the only way to put Greeks back into work. And I want to stress that this is the most important thing the country can do. If people don’t work, the economy declines.
The first thing you must do in economic terms is to put people back into work. That’s the way to do it, and we’ve shown it. Once that is done, then Greece can think of a combined industrial/agricultural strategy. It desperately needs one of those. We have shown that its secondary sector leaks value abroad. It’s like a sieve. It’s terrible development, the last 30 years.
The Greek secondary sector has shrunk, and if an economy doesn’t possess a strong and growing secondary sector and, of course, the United States can take some lessons from that, its productivity doesn’t grow fast. Productivity growth comes from the secondary sector. Greece then needs…
DIMITRI LASCARIS Just… just for the benefit of our non-economically literate viewers, secondary sector refers to what, exactly?
COSTAS LAPAVITSAS: Secondary sector is basically — industry, construction. It’s the part of the economy that makes things. Right? And primary sectors, of course, agriculture. So, Greece needs a policy, an industrial policy, that will put its secondary sector, and say, manufacturing, industry and so on, back on its feet and it needs it desperately.
We have worked out the branches of industry that are particularly suitable for that, and we’re proposing policies that will come with state support, credit support and trade intervention to put the country back on its feet. We have shown that now. We then ask, is this possible within the Monetary Union? It is enough to put the question, becoming immediately obvious. It is not possible. The only possible — within the… policy within the Monetary Union — is the policy that Greece is already applying. That’s it. It’s the policy of no-growth essentially, or very weak growth.
That is why Greece must leave the Monetary Union. That is why Greece must abandon this straightjacket, this madhouse. Go back to its national currency, acquire the capacity to create liquidity, and get command over instruments of economic policy, to begin to implement some of the policies, the strategy that we’ve outlined, to put its economy back on its feet.
I don’t think that there will be any sane economists who would possibly disagree with this. It’s so elementary in many ways; it astounds me that we’re even discussing it.
The question then is: how do you manage the transition? If you put it in those terms, however, it becomes very clear — that we have to manage the transition, and you must not allow the cost of the transition, to stop you from going down a path that is self-evidently better for the country in the medium and the long term.
Managing the cost of transition is a difficult task, but it is a task that must happen, if the country is to get out of this trap. Now, what which are the steps? We’ve proposed steps. The minute you begin to think about it, you realize that much of the talk of the last few years are how disastrous this would be — Armageddon, the end of the world. Much of this focus actually comes from outside Greece, too.
DIMITRI LASCARIS We’re going to continue our discussion in part 3, where we’re going to look at the critique of the Grexit argument, and what the obstacles are to a possible removal of Greece from the Eurozone.
This is Dimitri Lascaris for The Real News.