03.04.2015
German Intransigence Raises Spectre for ‘Grexit’
Greece’s
newly elected government, led by the leftist Syriza coalition that
swept into power in January on an anti-austerity platform, finds itself
in a highly unenviable position. Athens is burdened by colossal debt,
imminent liquidity problems and a looming banking collapse. What is at
stake for Greece now is its very ability to survive economically within
the euro-zone.
The
Syriza coalition emerged from various offshoots of the Greek radical
left, which set itself apart from the political mainstream by taking an
anti-capitalist position emphasizing wealth redistribution and class
struggle, while allying itself with alter-globalization movements and
trade unions. The ascension of Syriza represents the most leftward shift
in European politics in decades.
Once
a negligible force at the ballot box, Syriza has gradually succeeded in
commanding support among the wage-earning class and the urban
unemployed, who view the coalition as the only political force capable
of pulling the country off the trajectory of austerity, imposed by
Greece’s creditors – primarily Germany.
The
new government of Prime Minister Alexis Tsipras has captured the broad
popular support of Greek society as the country faces an asymmetric
struggle to negotiate a restructuring of Athens’ debts and a reversal of
austerity policies attached to a previous €240 billion bailout
agreement, which Germany and the European Central Bank (ECB) remain
inflexibly opposed to.
Austerity Assault
Greece’s
debt crisis reflects the contradictions of the European monetary union,
which has benefited the economies within the euro-zone’s core at the
expense of those of the periphery. German banks, flushed with cash from
Germany’s sizable trade surpluses between other euro-zone members,
played a primary role spurring on the Greek insolvency dilemma.
Berlin,
benefiting from lower exchange rates than it would have under its own
currency regime, recycled capital from euro-zone export markets back
into periphery economies in search of higher returns, fueling asset
bubbles, predatory lending and severe deflation in debtor economies.
Greece’s
public debt, the majority of it held by German banks, became
unserviceable in 2010. In exchange for a €240 billion bailout agreement
used to recapitalize the Greek banking sector, Athens was obliged to
accept rigid austerity measures that mandated mass privatizations,
drastic cuts in public expenditures, the selling-off of public assets
and across-the-board deregulation.
Greece’s
wage earners and pensioners have shouldered the burden of
German-imposed austerity at great human cost. Since 2010, the Greek
economy has contracted by 26 percent, while wages have declined at least
33 percent. Unemployment has risen from
8 to 26 percent, whereas youth employment has hovered at 60 percent.
Spending cuts and tax increases have amounted to more than 45 per cent
of household disposable income.
Homelessness
increased by 25 percent from 2009 to 2011, imperiling members of the
middle-class with medium or higher educational backgrounds. Access to
healthcare has eroded, while incidents of suicide have reached record
levels, increasing by 65 percent from 2009 to 2011. Greece is now cut
off from markets, having endured thousands of job losses and the massive
scaling-back of social protections.
Syriza’s Objectives
Syriza
is committed to ending austerity in the belief that Athens’ ability to
service its debt is conditional to growth-stimulating policies. The
current gridlock between Germany and Greece can be explained as the
latter seeking a window of financial stability to implement
growth-inducing reforms and humanitarian policies, while the former has
frozen the remainder of bailout financing until Syriza consents to
continued austerity.
Yanis Varoufakis, the Syriza government’s finance minister, explained this position in his column in the New York Times: “The
great difference between this government and previous Greek governments
is twofold: We are determined to clash with mighty vested interests in
order to reboot Greece and gain our partners’ trust. We are also
determined not to be treated as a debt colony that should suffer what it
must.”
The
latest round of negotiations between the Greek government and its
creditors in late February has been a major subject of contention within
the Syriza coalition and the international left more generally. Some
have characterized the Greek government’s negotiating strategy as
capitulating to the Eurogroup, while others have argued that Syriza has
opted for a tactical retreat that succeeded in buying time.
Syriza
essentially entered into the negotiations with inadequate leverage,
seeking financing to ease imminent liquidity fears and enact basic
redistributive measures, but unwilling to play the ‘Grexit’ card. Athens
is keenly aware that the effects of a disorderly exit from the
euro-zone would be domestically destabilizing, at least in the near
term, with ramifications that could potentially see other euro-zone
debtor economies default, causing a humanitarian crisis and wider
political upheaval.
Athens
has resisted austerity in the short-term, but reluctantly consented to
the February 20 agreement, committing it to continuing ongoing and
outstanding privatizations, and measures that would require Greece’s
creditors to approve prospective state policies to determine whether
they can be implemented. It is on this basis that the European
Commission condemned Greece for acting ‘unilaterally’ when it recently attempted to pass a law enabling social assistance.
Creative Solutions, Negotiated Exit
It
is utterly untenable for Greece’s creditors to continue maintaining the
delusion that the country would ever be able meet its obligations
through tighter, growth-contracting austerity. German intransigence has
inevitably raised the spectre of Grexit, having pushed Athens into a
corner where it can only resist austerity and avoid a banking collapse
by tapping into the cash reserves of pension funds and public sector
entities.
Though
the Greek leadership should certainly be encouraged to propose
alternative solutions to ease deflationary pressures and address the
liquidity crisis as practical measures to implement in the near term,
the unwillingness of Athens’ lenders to concede to a modicum of relief
for the social economy renders ineffective any strategy to restructure
Greece’s debt within the euro framework.
If
all options are exhausted, Syriza should be prepared to implement an
alternative strategy that would imply a negotiated exit from the
euro-zone, so as to regain sovereignty over monetary policy and open up a
process of debt restructuring. Any exit would be chaotic due to the
immense organizational and logistical challenges demanded by a new
currency regime, which would allow Athens to regain a competitive
advantage conducive to stimulating productive activity.
Strict
public control would need to be exercised over the banking system,
while a parallel currency denominated in euros could be utilized during a
transition to provide short-term liquidity in concurrence with
stringent capital control measures to prevent any excessive devaluation
of a successor currency. Yanis Varoufakis has also discussed a
variation of this option, advocating a state-backed cryptocurrency
built on a transparent algorithm that could be utilized to hedge against
deflation independent of the ECB.
If
Germany and the Eurogroup intend to keep the monetary union together,
which is certainly in their interest, a reduction in the nominal value
of Greece’s outstanding debt and basic flexibility on social expenditure
would be enough to ensure that Athens remained in the euro-zone. A
growth-focused debt restructuring strategy centered on a repayment
scheme tethered to GDP would be another measure in the interest of both
Greece and its creditors.
There
is no shortage of policy alternatives that can be explored to address
the ongoing deadlock. If Syriza fails to steer Greece toward a new
trajectory, elements of the extreme right – such as the Golden Dawn
party, an openly neo-Nazi political force fast gaining momentum among
disaffected segments of society – will ultimately stand to benefit from
the fallout. As it stands, the primary obstacle facing Greece is the
rigid inflexibility at the heart of European institutions.
Nile
Bowie is a political analyst based in Malaysia who has written for a
number of publications, his expertise lies in a number of areas, with a
particular focus on Asian politics and geopolitics, especially for the
online magazine “New Eastern Outlook”.
First appeared:http://journal-neo.org/2015/04/03/german-intransigence-raises-spectre-for-grexit/
First appeared:http://journal-neo.org/2015/04/03/german-intransigence-raises-spectre-for-grexit/
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