The inability of Greece, Portugal and other “peripheral” European countries that use the euro to devalue their currencies has meant that all “devaluation” required by the global capitalist economy has to come in the form of wage and pension reductions, cuts to social welfare programs such as health care, and other internal austerity measures.
International lending institutions controlled by advanced capitalist countries, led by the World Bank and the International Monetary Fund, have long imposed harsh austerity on the countries of the South as the price to be paid for loans; such loans were necessitated by one-sided trade terms and the massive extraction of capital from them by the multi-national corporations of the North.
What is new is that countries of the North are now having similar austerity imposed on them. As with the stronger countries that also run deficits, the countries so targeted borrow from the rich and domestic corporations instead of taxing them, thereby running budget deficits; the lenders then complain that the deficit is too large and demand budget cuts or they will refuse to buy any more debt or will buy debt only at much higher interest rates. Demands that governments sell off assets at fire-sale prices are always a part of these scenarios, and that is no accident — privatization means big profits for the buying corporations at the public’s expense.
In part 1 of this discussion, posted on April 4, I presented arguments in favor of radical economic transformation but with Greece remaining in the eurozone. In this post, I will present arguments, although also in favor of radical economic transformation, for Greece dropping the euro and re-instituting its former national currency, the drachma.
A ‘progressive exit’ from the euro
In the conclusion of an interesting paper, “Eurozone Crisis: Beggar Thyself and Thy Neighbor” by eight authors led by economist Costas Lapavitsas, the authors argue for an “exit conditional on radical restructuring of economy and society,” or what they call a “progressive exit.” Such an exit, they wrote, “cannot be national autarky” and would have to “confront the deeper problem of attaining national development in a globalized economy.”
Within Europe, the costs of austerity have been disproportionally shifted on to the “peripheral” countries such as Greece, Portugal and Ireland, but without investment and without addressing the underlying causes of the economic crisis. “Competitiveness” can’t be raised when wages are already lower than they are in Germany. Because there is no single European state, there is no prospect of a unified fiscal policy; therefore, any reforms to the eurozone won’t alter the dynamics of stagnation and inequality.
The authors note that competing plans they define as “good euro reforms” propose more national independence, democratic accountability of the European Central Bank and European Union-wide social programs. But those plans’ underlying goal of maintaining the euro as a “world currency” — as a currency that competes with the United States dollar — with highly divergent national deficits and policies would be impossible, the authors wrote. The logic of a single currency, they argue, requires a “European budget run by a unitary state with a sufficiently integrated presence across the eurozone to support a common currency.”
Leaving the euro under present conditions, with the current capitalist dynamics untouched, would also be a bad solution, the authors wrote, because the onus would be on local capitalists to restructure production and expand investments, and they see capitalists in countries like Greece and Portugal as incapable of meeting such a challenge. Under such a scenario, such countries would be undercut by the lower wages in the global South, leading to stagnation, successive devaluations and the slow erosion of labor income.
The “progressive exit” from the euro that the authors advocate would come with pain, they acknowledge:
There would be devaluation, which would release some of the pressure of adjustment by improving the balance of trade, but would also make it impossible to service external debt. Cessation of payments and restructuring of debt would be necessary. Access to international capital markets would become extremely difficult. Banks would come under heavy pressure, facing bankruptcy. The point is, however, that these problems do not have to be confronted in the standard conservative way.
Sustainable growth could be ensured, they argue, “provided there was drastic economic and social transformation” built on the mobilization of “broader social forces capable of taking economic measures that would shift the balance of power in favour of labor.” Among the measures to be taken in this scenario would be to nationalize banks, guarantee deposits, orient banking toward socially beneficial lending and imposing capital controls. Public banking in itself, however, would not be sufficient, the authors write:
The combination of public banking and controls over the capital account would immediately pose the question of public ownership over other areas of the economy. The underlying weaknesses of productivity and competitiveness already threaten the viability of entire areas of economic activity in peripheral countries. Public ownership would be necessary to prevent collapse. The specific sectors taken under public ownership, and even the form of public ownership itself, would depend on the characteristics of each country. But public utilities, transport, energy, and telecommunications would be prime candidates, at the very least in order to support the rest of economic activity.
Investment would be re-oriented toward housing, urban planning, transportation and research and development. The tax base would be broadened through taxes on income, wealth and capital while reducing indirect taxes.
Progressive exit for peripheral countries would be predicated on genuine structural reform of economy and society. Such change has nothing to do with the tired shibboleths of liberalisation. If productivity is to be set on an upward path, peripheral economies have to be weaned away from consumption, low savings, individual borrowing, low investment, and speculative bubbles. Structural change requires public mechanisms that could mobilise available resources for investment. It also requires transforming education by committing additional resources and expanding its reach to the poorest. Improving education would, in time, produce gains in labour skills, thus also benefiting productivity.
The authors note that the political and social alliances to bring about such a change are not yet in existence, but wrote that working people in the “core” countries would be natural allies of those in the “peripheral” countries. Such comprehensive cross-border alliances would be necessary.
It would be necessary for peripheral countries to maintain access to international trade, particularly within the EU. It would also be necessary to seek technology transfer and capital from abroad. There are no guarantees that such flows would be forthcoming, particularly as the established order in Europe would be hostile to radical change. But progressive exit also offers the prospect of different development for workers in the core countries, who have come under heavy pressure during the last two decades. Labour in core countries would be a natural ally of peripheral countries attempting a radical transformation of economy. And if the eurozone came apart in the periphery, it could also unravel at the core, allowing for genuinely cooperative relations among European countries.
Exiting the euro while forming new regional alliances
Noting that Greece has ceded its independence to “experts” who will oversee its budget and that the latest round of bonds issued to pay speculators are governed by English law rather than Greek law, international affairs professor Vassilis Fouskas also proposes a radical restructuring of the economy and an exit from the eurozone.
Writing in openDemocracy, Professor Fouskas argues that the “only solution for Greece remains a debtor-led default and exit from the euro-zone under the leadership of a radical democrat political movement.” Furthermore,
The disintegration of the productive base of the country over the last two decades due to the competition it faced from the countries of the European core and, above all, Germany, make any futurologist betting on a substantial Greek recovery within the euro-zone sound ridiculous.
Because taxpayers can’t be bled dry forever, nor can ruling elites deliver economic growth, Professor Fouskas argues for a “radical political program” backed by a “united front of the radical left in Greece.” He advocates an immediate exit from the eurozone and denomination of new debt in drachmas; nationalization of banks and capital controls to prevent the systematic buying of Greek assets with foreign money but encouraging foreign direct investment in productive sectors of the economy; boosting wages to offset devaluation; and taxing large estates and “Greek shipping capital.”
Although this program is more nationalistic than any of the others presented in this and my April 4 post, Professor Fouskas does also argue for “drastic cuts” in Greece’s defense budget, re-orientation of foreign policy toward Balkan countries, Turkey, the Arab world and Asia. His goal would be “the development of regional organisations and NGOs promoting the fraternity and solidarity of all peoples of the former Ottoman and Soviet spaces.”
A criticism of this program would likely be — and I would agree — that it insufficiently acknowledges the need for solidarity with Europe. Such a program couldn’t accomplish its goals without simultaneous movements across the European Union moving toward radical structural changes. Nonetheless, Professor Fouskas is correct in writing that Greece has no prospect for anything other than being bled dry within the current structure of the eurozone.
Exiting the euro as part of a multi-national uprising
Dropping the euro as its currency in itself is far from sufficient, the commentators on all sides of this debate have agreed. At the Left Forum in New York City last month, there seemed to be a consensus that Greece should leave the eurozone and default on its debt. Doing so would not be without considerable pain, but the current situation can’t continue — no people can be bled indefinitely.
“The point isn’t that neoliberals are crazy,” David McNally, a political science professor in Canada, told a Left Forum audience. “They are, but are expressing the pathology of capital.” Linking the austerity being imposed on Greece with the larger struggles beginning to take form across the world, Professor McNally said, “Anti-austerity politics can only be an anti-capitalist struggle,” arguing that “Greece should default and leave the euro. You then have to issue a manifesto to the working class of the world and internationalize the struggle.”
Adding to those thoughts, on his blog, Professor McNally wrote, “For the only hope today of reclaiming democracy in Greece (and elsewhere) resides in the prospect of a mass uprising against modern debt-bondage that extends the rule of the people into the economic sphere.”
The commonality with all the viewpoints presented in this discussion is that an uprising across the advanced capitalist countries, refusing to further accept savage cuts in a system that has ceased delivering adequate standards of living, is the route of the impasse. No single country, certainly not one as small as Greece, can become an island of plenty in a world of austerity.
Divisions within the Greek Left
A question that naturally arises is: Can the Left parties of Greece put the country on a different path? Three parties of the Left — the Communist Party, Syriza and the Democratic Left — have consistently polled a combined 30 to 40 percent. It is possible for the Left to be elevated to power, but it seems unlikely it would be in any alignment other than a coalition with one another. But they are deeply divided.
The Communist Party of Greece, or KKE in its Greek abbreviation, is something of a throwback, continuing to adhere to a sectarian and orthodox Communist line 20 years after the dissolution of the Soviet bloc. The KKE favors Greece leaving the eurozone, the European Union and Nato and refuses cooperation with any other party, while advocating the socialization of production. But the party has been content to wait until objective conditions swing in their favor — this is a traditional orthodox Communist line that combines strong rhetoric with postponing action until the hazy, undefined future.
Writing in the November-December 2011 edition of New Left Review, Stathis Kouvelakis summed up this paradox:
“[The KKE] has been cautious on this subject since the start of the debt crisis, stressing that none of the problems the country confronts can be resolved until the ‘power of the capitalist monopolies’ has been overturned and ‘popular power’ established (under the party’s direction, naturally). This ‘leftist’ rhetoric in fact serves to justify a quietist practice when it comes to mobilizations, concerned above all to avoid joining any unified actions of the left, and to portray Syriza … as ‘opportunist forces’ that are ‘playing the game of the bourgeoisie and of the EU.’ “
Syriza – the Coalition of the Radical Left — contains 16 groups within it, advocating a variety of Left positions other than that of the KKE. Syriza seeks to work with other Left parties, and while it contains differing opinions on retaining the euro and definitively advocates remaining within the E.U., it calls for a thorough restructuring of the E.U. Syriza demands a suspension in debt payments until the economy recovers, followed by a “selective” default; redistribution of wealth; and a re-orientation of priorities toward growth-inducing investment.
Syriza leader Alexis Tsipras, in an interview published in Athens News, advocated a Left coalition based on common grounds:
The common framework exists. It has been shaped in city squares, workplaces, neighbourhoods and social solidarity networks. It is about ridding ourselves of the bailout memorandum. It is about the imperative need to put a stop to the voracious appetite of usurers. It is about public regulation of the banking system and about taxing wealth. It is about turning to a development model based on stable and permanent employment, expanding social goods and bolstering the welfare state. That’s the only way to get out of the crisis. … It is obvious that Europe will either change or break apart. There is no Greek solution, only a European one. … [C]hange cannot come from the EU directorate or from banks. It will begin at grassroots level, within societies, and will be imposed, because there is no other way. The dilemma is between a Europe of capital or a Europe of solidarity and democracy.
The third component of the rising Greek Left is the Democratic Left, a party only recently come into existence and composed of splits from other Greek Left parties and PASOK, the Greek “socialist” party now disgraced after agreeing to the full implementation of the bankers’ austerity. The party says it would only enter a coalition government after the elections if there is some convergence with the other parties on the policies that need to be adopted to lift Greece out of recession, according to Athens News.
The Democratic Left promotes itself as a moderate alternative to the KKE and Syriza. The party firmly advocates continued membership in the E.U. and the eurozone, but would seek to renegotiate Greece’s loan terms. The party said it would loosen deficit-reduction targets; implement policies to fight corruption and tax evasion; and promote growth through measures such as reversing recent edicts that slashed the minimum wage. At least in public, the party has suggested it could consider entering a government coalition only if KKE and Syriza moderate their positions.
Greece, and the rest of the advanced capitalist world, will be living in interesting times.