Greece has two choices. And so do the creditors

Mitterand at the G-7 summit in 1983, fourth from left. Wikicommons. Some rights reserved.When Francois Mitterrand's Socialists assumed power in France in 1981
with a Keynesian programme in hand, he and his coalition partners, the
Communists, were forced to backtrack. The French currency could not defend its
exchange rate and as inflation spiralled out of control, Mitterrand began
introducing neo-liberal reforms – the famous U-turn of 1983. Andreas G.
Papandreou's Pasok in Greece put up more of a resistance to neo-liberal
globalisation, but its programme was far more radical than Mitterrand's. Several
discontinuities before and after it assumed office occurred and a
transmogrified type of socialism took shape in Greece in the 1980s, the most
peculiar aspect of which was the introduction of a national health system and
other welfare reforms, financed via domestic and external borrowing, rather
than taxation as is the norm in the west.

Obviously, this worsened the country's public debt situation, bringing
it up to 100% of GDP. Let us dig a little further. Before they conquered power
in 1917, Lenin's Bolsheviks advocated a direct passage to socialism (equivalent
to those years of the so-called "dictatorship of the proletariat");
confiscation and nationalisation of all land and property and all power to the
workers' and peasants' councils (the Soviets). Lenin, in particular, despised
Taylorism, which in a series of articles in 1913-14, he characterised as the
most inhuman capitalist way of organising industrial relations.

What did he do after 1917? He introduced the famous ‘New Economic
Policy’ and ‘tax in kind’, advocating co-existence between the public and
private sectors of the economy; began praising Taylorism as the advanced method
Soviet Russia most needed in order to increase its productivity, and invited
English capitalists to invest in his country through diplomatic channels and
various interviews he gave in the then Manchester
Guardian. Interestingly, Lenin then praised Plekhanov as the best Russian Marxist
philosopher that its youth should study (before 1917, Plekhanov and other
Marxists of the Second International were dubbed ‘renegades’ and ‘traitors of
socialism’).

The conclusion one might draw is that being in government matters. It
makes you confront the real constraints of capitalism, both national and
international, as well as the limitations you face in terms of state capacity
and realistic delivery on promises. One of us developed this approach back in
the early 1990s, going so far as to define populism
as a political strategy of discontinuity before and after the conquest of
governmental power.[i]

The Syriza experiment

And here comes Syriza. Its Salonica programme of September 2014 was a
moderate Keynesian set of proposals aiming at alleviating the humanitarian
crisis and gradually raising the minimum wage. At the same time, it advocated
balanced budgets, administrative reform and withdrew its opposition to Nato. It
was expected that the ECB would support this programme, especially since a Syriza
government, like all eurozone governments, lacked Keynesian instruments to
implement Keynesian policies.

Syriza comes to power with a mild reform and anti-austerity agenda believing
that tough negotiations with the troika would bring positive results. Syriza,
among others, had hoped that a part of the country's debt would be written-off
and some of the cash flow coming into the country would go to productive
investment.

The effort was very brave but brought no results. This was because the
so-called ‘EMU rules’ do not allow flexibility. And they do not allow
flexibility because the institutional and ideological bias upon which EMU is
based reads as follows: no wage growth, anti-inflationary policies, budgetary
discipline and export-led growth. In other words, the rules are set according
to Germany's successful neo-mercantilist economic story which, contrary to the
rules of the EU and EMU, suppressed wages for years in order to make Germany a
surplus country and improve its competitive position within the EU and
internationally. Germany is now exporting austerity as it first imposed
austerity on its own workers. But this austerity is bound to take on different
shapes and forms across the eurozone and beyond, simply because the levels of
economic and political development in each country are vastly different. All
EU/EMU countries, and also all candidate countries, are subject to the same
discipline and neo-colonial controls.

This is what Syriza failed to break down in the negotiations and,
despite the resounding and heroic victory of the NO vote in the anti-austerity
referendum of 5 July, it was in the end forced to backtrack, submitting to creditor
power. The deal Syriza took is recessionary; it has no chance of improving the
Greek economy as it stands; and, as the IMF predicts, the debt/GDP ratio would
increase under the new agreement. More to the point, Syriza, like all the left
radical movements in twentieth century European history, had to conduct a massive
retreat, capitulating on every single point it was making when in opposition.
Effectively, it signed up to a new recessionary Memorandum of Austerity, which includes a €50bn privatization fund
that will be replenished by selling public assets and a target of 1% primary
surplus for 2015.

So far, commentators in various venues have said almost everything about
the Greek/eurozone crisis. From Bloomberg analysts to Financial Times' journalists, and from scholars such as Leo Panitch
and Sam Gindin to Paul Krugman and Joseph Stiglitz, all the major issues have
been tackled and explained competently. Obviously, without Keynesian
instruments at the national level and without a European federal state at the
European level you cannot have any form of Keynesian policies. Too much
reliance on the ECB – which, first and foremost, is a bank – and the "good
will of European partners", coupled with lack of institutional preparation
to return to a national currency, has brought Syriza's negotiating team to a
standstill. Others, quite rightly, have argued that there has been no real
negotiation since Syriza assumed office back in January 2015. The Germans, this
argument goes, wanted regime change
as they could not agree with the Greek finance minister's reasonable demands —
which included restructuring of the debt, ie debt relief. In fact, this insight
is correct: after the referendum of 5 July, the Greek PM sacked finance minister, Yanis Varoufakis, in order to keep his cabinet in place and avoid
being pushed out by the creditors (mainly via financial and media warfare and
permanently blocking liquidity to the Greek banks). Yet, what we have not seen
being tackled is the following really dramatic issue.

The creditors seem to be of the opinion that there is a Greek state in place that can implement and a Greek society
that can accept the new austerity measures. This is reminiscent of the gruelling
rationale behind America's various wars post-9/11, but also before: we go to Afghanistan,
Iraq and elsewhere to bring about the lights of liberal democracy, human rights
and free market capitalism. This indicates total ignorance of the
concrete societies and states they supposedly want to change and improve. In
fact, wherever American power went, it only made things worse.

Greece and the European periphery should be seen in the same light.
Greek political elites, mixed with big comprador and corrupt interests, as well
as the institutional materiality of the state as such, have always been
fragmented, deeply inefficient and in the service of clientelist, corrupt and
nepotistic deals and practices. But Syriza did not inherit just this. Syriza
inherited a non-state, a completely
dilapidated administrative apparatus with civil servants shivering in fear over
who will be next to lose his/her job. Society itself, with 27% unemployment and
57% youth unemployment and unpaid salaries for months, swims in this strange
mixed mood of anger, radicalization and demoralisation. Recent administrative
reforms in municipalities (the "Kapodistrias" and
"Kallikratis" plans) caused havoc, further distancing the citizen from
the state.

Add to this the factional warfare within Syriza and the government and
you will have one of the most inefficient ‘ruling’ machines in the west. In
other words, Syriza's state cannot reach the 1% primary surplus fiscal target;
it will be unable to effect privatizations and other neo-liberal reforms
required by the creditors in order to receive bail-out funds. The new
anti-austerity package will fail. Even Syriza MPs who voted for it in the
parliament may well boycott it. The PM himself said publicly that he does not
believe it is a good deal. Equally and arguably, for the same reason, a
debtor-led default and exit from the eurozone will fail. A transition to the national
currency requires a strong and well-organised state apparatus to lead an
impoverished society through hardship to eventually achieve renewal and
something positive at the end of a long and arduous journey. We argue that
there is not enough state capacity in place to hold sway over the implementation
of a new austerity package or indeed to buttress and deliver Grexit. So what is
to be done now and in order to avoid a new election in Greece that is bound to
achieve nothing of substance?

What we propose

We can see only two solutions. The first entails a substantial write-off
of the Greek debt of about 40% and a concrete development plan for the country
which should take place in parallel with an overhaul of the state machine.
Austerity measures may continue but not without immediate cancellation of a large part of the debt, a developmental
perspective and modernisation of the state administration. Syriza's negotiating
team must put forth these two points as non-negotiable items for the
implementation of the new austerity agenda.

To a certain extent, this is also a choice, perhaps the only choice, for
Europe. The common currency has no chance of surviving if the union is
unprepared to move towards a federal state allowing debt write-offs of the
periphery, the same way that the American North forgave the debt of the South
after its victory in the Civil War. That is how the USA happened. Here, Greece
and the eurozone crisis in general offer the creditors a golden opportunity to
build a European federal state with the European taxpayer guaranteeing payment
of the weaker economies of the union. It is as simple as that.

But Germany may stick to its neo-mercantilist policy of low inflation
and low wages and refuse debt relief. What, then, for Greece and, for that
matter, Europe?

If this eventuality becomes reality, then Greece must default on its
debt obligations, restore the independence of its central bank and introduce a
new currency in stages. For this to happen successfully, the current Syriza
government must open up the debate among civil actors, go public with the
problems it faces in terms of state capacity and reform and invite all Greek
people to assist in rebuilding the state and society on the basis of a new
developmental agenda.

Here, the Greek government must nationalise the banks; pursue a
courageous policy of import-substitution; build on the existing strengths of
its economy and modernise all these sectors (aluminium and cement industry,
tourism, fishery, solar energy, agriculture and biological agriculture) – SMEs,
which are the backbone of the Greek economy, need special protection innovation
techniques and incentives for developing new patents – and it must re-design
the state apparatus, commencing from the drafting of a new constitution.

Given the level of inflation that will ensue and the devaluation of the
new drachma, imports of raw materials and pharmaceuticals will have to be
negotiated with the EU and Russia. Also, the EU, the USA and Russia should be
in a position to assist with possible challenges to Greece's sovereignty by Turkey.

It looks as if this will also be the only choice left for Europe, in the
eventuality that it fails to move towards a federation: to assist Greece to
survive its exit from the EMU, because an impoverished failed state with
hundreds of thousands of migrants and on the brink of war with Turkey either in
the Aegean or in Cyprus will blow up not just the EMU but also the EU and Nato itself.                     

---

[i] Vassilis K. Fouskas
(in Greek) Populism and Modernization.
The Exhaustion of the Third Hellenic Republic (Athens: Ideokinissi, 1995).
The approach suffers from some problems that we were unable to see back then
but, overall, it captures many of the developments and structural tendencies
inherent in any radical political perspective that attempts to disregard
systemic constraints inherent in the national and international political
economy.

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