As Tensions Rise Between Greece and its Creditors, Is Grexit Back on the Table? (1/3)
By focusing on serving an unsustainable debt rather than addressing high unemployment, Syriza has set the stage for a right-wing victory in future elections, says former parliamentarian Costas Lapavitsas
DIMITRI LASCARIS: This is Dimitri Lascaris for The Real News.
The financial credit crisis in Greece is intensifying yet again. Greece’s debt remains at staggering levels, amounting to approximately 177% of its GDP, the highest in the EU. Greece is scheduled to make a 10.5 billion Euro payment on its debt next summer, but is expected to be unable to make that payment without the advancement of further funds from Greece’s most recent bailout of 86 billion Euros.
However, the Greek government appears to be at an impasse with its creditors, who insist that the conditions for the release of further bailout funds have not been satisfied. Despite the Syriza government’s imposition of extensive, and painful austerity measures on the Greek people. As a result of this impasse, concerns of a Greek default are increasing, and the yields on Greek government bonds are rising sharply.
Now with us to discuss these developments, is 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 for the left wing Syriza Party, and in that election Syriza won and formed a government for the first time.
In August 2015, following the decision of Greek Prime Minister, Alexis Tsipras, to disregard the result of a referendum in which the Greek people voted against austerity. Costas Lapavitsas defected from Syriza to the newly formed Popular Unity Party. Thanks for joining us today, Costas.
COSTAS LAPAVITSAS: Thank you for the invitation.
DIMITRI LASCARIS: Before we begin speaking about the current impasse, I’d like to discuss with you the economic conditions in Greece. In September 2015, approximately 18 months ago, Syriza was returned to power with a narrow majority in a snap election.
Broadly speaking, how has the Greek economy performed since then, and how would you describe the economic and social conditions in Greece today, following the imposition of these further austerity measures?
COSTAS LAPAVITSAS: In 2015, when Syriza was elected, Greece went into… during that year, went into a mild recession. Essentially the Greek economy had stopped contracting since 2014. In 2015, it went into a mild recession. In 2016, which is the year after the last bailout that you mentioned, the Greek economy has returned to a flat line, basically. It stopped contracting.
So, basically over the last three years, including the year since the last bailout, the Greek economy has been doing nothing. Greece is not contracting, but it’s not growing, either. It’s a situation of waiting for something important to happen that might kick-start the economy. Nothing important is going to happen to kick-start the economy, because Greece is in an iron cage of austerity, in recessionary pressures at the moment.
DIMITRI LASCARIS: Now, yesterday the International Monetary Fund announced the results of its annual review of Greece’s economic policies, and it said that most of its board of directors favor a Greek fiscal surplus target of 1.5% of GDP by 2018. But Eurozone countries continue to insist on a much more demanding target of 3.5%. The IMF is also warning that Greece’s debt could become, “explosive” by 2030, and that Greece requires massive debt relief.
In your view, is a fiscal surplus of 3.5% realistically achievable, and if so, broadly speaking, what would be required to achieve such an elevated fiscal surplus target?
COSTAS LAPAVITSAS: Any fiscal surplus demanded of Greece right now, is an absurdity in itself –- any size of fiscal surplus. In economies such as … Greece at the moment, after this enormous contraction, and under the constant recessionary pressures that it finds itself in, cannot make, and should not be required to make, a surplus. This is just madness. It’s against even first, or second year economics.
To be required to make 3.5%, which is what the last bailout has demanded of Greece, is just taking it to the bounds of absurdity. There is no way that Greece can make 3.5% of primary surplus in 2018, and every year after that, which is what the bailout stipulates. And there is no reason why it should do that. To do that, would be to continue down the path of suicide for the country now.
To achieve even the smallest surpluses that the country has managed to achieve in 2016, and hoping to achieve in 2017, the pressure on the population, and on businesses has been enormous. The government has made a surplus in 2016, and it’s done so by jacking up taxation incredibly.
People for instance, running small and medium businesses have got to pay up nearly 30% tax from the first Euro dollar of their profits. And then they have to pay a huge amount of money up front, for next year’s taxes. This is how the system works. Effectively, if you run a small, or medium business in Greece in 2016, or 2017, the state takes off up to 50% of your profits directly.
Now, how can you run a business that way? It’s impossible. The recessionary pressures are enormous. The tax pressures on pensioners and wage earners have also been enormous. So, this is the reality of making even the small surpluses.
Now, to make the 3.5% surpluses, you can imagine what will have to happen. This is madness, economic madness, and the social implications are obviously very, very severe, because the pressures on pensioners, on wage earners, on small and medium businesses, are just getting worse and worse by the day.
DIMITRI LASCARIS: And in terms of debt relief, what magnitude of debt relief, in your opinion, would be necessary to render Greece’s debt sustainable, and is there any real prospect of Greece achieving an agreement with its creditors for debt relief of that magnitude?
COSTAS LAPAVITSAS: Let’s put this in perspective. Everyone knows –- and has known for many years –- that the Greek debt is unsustainable. The country found itself in 2010 with an enormous debt of about 300 billion Euros at the time. Obviously it was much less, as proportion of GDP, because Greek GDP has contracted ferociously since then. But it was still very big at the time, and it was (inaudible) …was unsustained.
The country was not given debt relief for reasons of politics, and the IMF in its internal reviews, has explicitly said so. The IMF has acceded to an absurd bailout strategy without debt relief because of political pressures, basically to rescue Western European banks.
This has been the bane of Greece since 2010, an unsustainable debt weighing down the country, the implications of which are, basically, the need to secure extraordinary primary surpluses. The 3.5% surplus that I mentioned a few minutes ago derives from an absurd attempt to make the current levels of debt sustainable, which is impossible. The IMF knows that. And to its credit, its only credit in this business, has said so.
So, Greek debt must be written off, substantial relief must be given. The only real question is: what form will it take? In my judgment, the principle must be written off. How much of that? At least 50% right now. Now, this is not on the basis of debt sustainability, we’ve done that in the past, too. But from being involved in assessing economic policy in Greece, I would say at least 50% of the debt must be written off.
The most important thing though, isn’t just the writing off of the debt, is that fiscal policy must be detached from the obligation to make the debt sustainable. This is the real problem with the debt. Greece needs to detach its fiscal policy from servicing the debt, and it needs to focus its fiscal policy on reducing unemployment. The real problem of the debt is that. That it encourages a country, or it forces a country, the economy of which is effectively destroyed, to tax its population to pay an unsustainable debt.
That is just absurd. Greece must stop targeting its fiscal policy on its debt, and it must start targeting on its unemployed. Greece has got 23% unemployment in official terms. In reality, it’s higher, because a lot of people have left. That’s where fiscal policy should be looking at, that’s what they should be aiming for, not servicing an unmanageable debt.
DIMITRI LASCARIS: And, of course, there’s been a lot of talk about the need for debt relief for years now, and is there realistically any prospect of Greece’s creditors, and particularly the Eurozone countries agreeing to the type of debt relief that you’ve described, right down to the principle, to perhaps in excess of 50%?
COSTAS LAPAVITSAS: Yeah, I said at least 50%.
DIMITRI LASCARIS: Yeah.
COSTAS LAPAVITSAS: I see no realistic chance of that, of a writing off of the principle. This has been the problem, I repeat, from the very beginning. The creditors to Greece were basically its partners, presumably, in the Eurozone, and the European Union have refused to countenance that. Greece has received a kind of debt relief, but not effective, and not sufficient. But the lenders have made sure that the principle will not be written off, and there will be no losses for the big lenders to Greece.
The reason, of course, is first, politics; it will be very difficult for Germany, for instance, or for France, under the present conditions, to tell the electorates of those countries that money has gone the way of Greece. Which has been receiving a very bad press for year after year. And it will also be very difficult for the German government in particular, to tell that to the German population, which has been under wage pressure for a very long time.
So, politics is a very important reason for which, I don’t think, serious debt relief will be given to Greece, certainly no writing off of the principle. More fundamental than that though, is the logic of the Eurozone, and people don’t quite understand that. This is not a partnership of countries that share in each other’s fiscal, or other affairs. These are independent states. And one fundamental principle of how the Eurozone has been put together is that each state takes responsibility for its own finances, and no state assumes the responsibility for the debt of another, and for the finances of another.
This is a very, very powerful rule at the heart of the Eurozone. For Greece to receive debt relief, including the writing off of principle, it would mean that Germany, for instance, would take over some of the Greek debt. There’s no basis for that. No logical, or treaty basis, for that in the Eurozone. Greece will have to bear its own cross, that’s how the Eurozone works.
DIMITRI LASCARIS: Right. And since we’re on the subject of politics, a poll came out last month which showed, not surprisingly in light of the conditions in Greece, and the austerity program implemented by Syriza, that eight in ten Greeks were unhappy with the performance of the government, and that the right wing New Democracy Party was far ahead of Syriza in the polls.
One poll showed a 14-point lead, New Democracy up around 30%, far higher than it was in the last election. I think, you, myself, others, foresaw that Syriza would be punished at the polls for the implementation of austerity.
What is perhaps not so readily understandable, is the resurgence in the popularity of New Democracy because, of course, New Democracy, given its political orientation and its history, gives little reason to believe that you’re going to see an abandonment of austerity and the implementation of a progressive economic program, and one which meets the needs of the most vulnerable sectors of Greek society.
How do you explain, in light of New Democracy’s political orientation and its history, the resurgence in its popularity?
COSTAS LAPAVITSAS: Let’s get things again in perspective. The right has come back –- New Democracy, and it leads in the polls. All the polls show that. And I would guess, that if there were an election in Greece now, or soon, the right would win. Syriza, in other words, is paying the price, paying the price essentially of its… abandoning all its principles, in the summer of 2015.
But there is no real resurgence for the right. Let’s be clear about this. There is no popular… burgeoning popular support for the right. What there is is almost a sense of desperation with all politics. And that appears very clearly in the real winner in the polls, and that’s the question, that’s the section of the polls that says none of the above. When you ask Greeks, “Who would they vote for?” The winner, by a long shot is, “None of the above”, and that has kept increasing for years now.
So, really — really people in Greece don’t want any of the parties that are vying for government. That’s the real damage that Syriza has done to Greek politics. Because the population, the working class, the small and medium businesses, the self-employed, the peasantry and so on, such as it is, had hoped, had really believed that something might be different this time. That there is an opportunity to change things, that these are untried people, and therefore something new might happen.
It turned out that none of this was realistic. Syriza became just another party in Greece, another set of suits running a bailout program. And that has killed hope. It has killed hope, and that is a terrible thing to do to a people. And it is in this context that the right is topping the polls, not in any sense of right wing backlash, genuine support for the right.
People don’t want the bailouts, people don’t want these policies, but they don’t believe in politics anymore, and they don’t believe in political parties.
DIMITRI LASCARIS: Right. Well, that would certainly be suggested by the fact that eight in ten Greeks don’t approve of the way that the austerity oriented Syriza has governed the country.
In the next part of our interview, Costas, I’d like to talk to you about the road ahead. You talked about the loss of hope. I’d like to talk about ways in which the Greek people might find a path out of the current dilemma and crisis in the country, that has been going on for years. Thank you for joining us today.
COSTAS LAPAVITSAS: Thanks to you.
DIMITRI LASCARIS: And this is Dimitri Lascaris for The Real News.