Heading for a Grexit?

April 28, 2015

Lee Sustar looks at the latest power play by European authorities and the IMF--and the hard choices that it places before Greece's left-wing government.

PRESSURE TO repay European creditors could soon force the SYRIZA government in Greece to either abandon key elements of the anti-austerity program that propelled it to victory and into office in January elections--or default on debt repayments, which could lead to a departure from the euro, the common currency of 19 European countries.

News reports on Monday as this article was being written suggested that Greek Finance Ministry officials, led by a figure close to Prime Minister Alexis Tsipras, are preparing to send proposals to the German government that would accept the austerity measures to maintain privatization and restrict government spending that the lenders are demanding, in return for funds to stave off default.

Even if the reports prove to be exaggerated or inaccurate, the rumors alone show the intensity of the pressure on Greece to capitulate to the demands of the lenders.

The crisis atmosphere has been deepening throughout April. To prepare to make an $815 million debt payment to the International Monetary Fund (IMF) due in early May, plus another $425 million in interest payments, Tsipras issued a decree in late April giving the Greek central bank direct control of all funds held by local governments and public institutions.

Greek Prime Minister Alexis Tsipras listens to European Commission President Jean-Claude Juncker
Greek Prime Minister Alexis Tsipras listens to European Commission President Jean-Claude Juncker (European Council)

That move led to more questions about whether the SYRIZA government would be able to keep three of its core commitments to voters: one, regular and full payment of salaries and pensions it owes to workers; two, an end to layoffs in the public sector; and three, no increase in the value-added sales tax (VAT).

If the government chooses to hold the line on those issues and not make the repayments, it could find itself out of the Eurozone--and compelled to take measures such as imposing controls on capital, nationalizing banks and even other sectors of the economy to keep them operating, with workers' action playing a decisive role.

There may soon be no other choice, even if the government makes further concessions. Having already been forced to retreat on many elements of its program in February, SYRIZA continues to face European authorities who are determined to block the left-wing Greek government from implementing any policies to reverse years of devastating austerity.

The question is stark: Pay the creditors or pay the salaries of state employees and retirees.

The showdown has raised the prospect of Greece being forced to abandon the euro. Whether it happens purposely, as a "Grexit," or as an unintentional outcome of a debt default--a "Greccident"--Greece's departure from the Eurozone would lead to unforeseeable economic and political consequences.

But that's a chance that Germany, the dominant European Union (EU) power, is apparently willing to take. Since the restructuring of Greek debt in 2012, the risk from bad debts has been transferred from private banks to taxpayers in EU member countries, the European Central Bank (ECB) and the IMF. With the banks purportedly insulated from the risk of a default, the EU's European Commission, the ECB and the IMF--known collectively as the Troika--are turning the screws.

Already, some 2.5 million people in a total population of 11 million live under the poverty line. Another 3.8 million are on the edge of poverty. The unemployment rate in early 2015 was 26.6 percent--and 52 percent for those aged 15 to 24. Wages have fallen by an average of 5 percent every year since 2009.

But to qualify for the $7.8 billion four-month bridge agreement that would give Greece desperately needed funds, the government must bow to further demands for concessions.

To ratchet up the pressure still further, the ECB has drawn up plans to limit loans for "emergency liquidity assistance" that have kept Greek banks afloat, even while the country's rich continue to move their money out of Greece. As researchers for the investment bank Brown Brothers Harriman put it, "Although there is no formal mechanism to eject Greece from the monetary union [i.e., the euro], cutting the Greek banks off of central bank funding has long been perceived to be one way that the process can be engineered."

IF THE Greek government thinks it can once more postpone this day of reckoning, it's because this has been the attitude all along among Tsipras and the majority of the SYRIZA leadership.

They believed from the outset that the catastrophic failure of austerity and a strong mandate from Greek voters would compel the IMF-EU-ECB Troika to make a reasonable compromise--one that both relieved Greece's debt burden and allowed the country to remain part of the Eurozone.

Thus, rather than prepare the country for the possibility of an exit from the euro, the government fostered illusions in the possibility of reaching a tolerable deal with the European authorities and the IMF.

As a result, an April opinion poll showed that 70 percent of people supported a compromise with the Troika in order to reach deal that would allow Greece to remain in the Eurozone--a view being pushed hard by the Greek mass media even as European authorities ratchet up the pressure that could push Greece out of the euro, like it or not.

As many on the left in Greece, including the Left Platform within SYRIZA, pointed out, Tsipras gave up one small possibility for leverage by pre-emptively ruling out any scenario involving default. Party leaders in charge of the government continued to cling to the hope of a deal with the Troika, even after being forced to retreat in their first confrontation with European authorities in February.

In that deal, the government agreed to maintain a high "primary surplus"--that is, money in the state budget before debts are repaid--and implement a list of further "reforms" involving privatization and other measures to be specified later.

Repackaging this harsh setback as a victory, Tsipras and Greek Finance Minister Yanis Varoufakis have subsequently played for time, hoping to outflank hardline German Finance Minister Wolfgang Schäuble with appeals to the leaders of France, Italy, the IMF and even Barack Obama.

It hasn't worked. Varoufakis tried to placate the IMF at the organization's April meetings in Washington, declaring that Greece would "meet all obligations to all its creditors, ad infinitum." But he got no concessions.

A few days later, he got an openly hostile reception at a meeting of Eurozone finance ministers in Latvia.

Even so, Varoufakis insisted in an article on his website that Greece was willing to limit early retirement, partially privatize state assets and carry out pro-business measures in the name of "fiscal consolidation"--a euphemism for budget cuts. "Our task is to convince our partners that our undertakings are strategic, rather than tactical, and that our logic is sound," he wrote.

A few days after this was posted, Varoufakis was bypassed by Tsipras, who made direct contact with German Chancellor Angela Merkel. But this may only mean that Tsipras is willing to go beyond Varoufakis in making concessions. Having taken the threat of leaving the euro off the table at the outset, Tsipras has little leverage.

WHY IS the troika pushing so hard to push another round of austerity on Greece, given the abject failure of the program so far?

There are three interrelated reasons: power, politics and money.

The money is considerable: Greece's bailout totals $260 billion. As a result of previous bailouts that benefited banks rather than the Greek people, European governments now hold most of Greece's debt. They want their money back to keep their own fiscal house in order. Plus, ruling parties in some of the rich countries that dominate the Eurozone are under pressure from right-wing populists who accuse them of being soft on "lazy" Greeks.

But in terms of the $14 trillion European Union economy, the amount of money involved in a Greek default might be manageable for the banking system--at least that's the calculation of EU officials.

Every serious mainstream economist understands that Greece, with a gross domestic product (GDP) of $242 billion, down from $341 billion in 2009, can't generate the surplus needed to repay creditors in full unless the process is stretched out by decades. While it's certainly possible that a Greek default could have wider implications for debt markets and trigger a financial crisis, EU officials have decided that forcing the issue is a worthwhile bet.

Which leads to the question of politics. As Greek Foreign Minister Nikos Kotzias described the situation to Reuters, "Do they want to support us to have growth...or do they decide to have Greece struggle, to punish Greece, and create an example of what happens to a country that has a leftist government?"

It is increasingly clear that the EU answer is, indeed, to make an example of Greece--in order to send a message to any political force across the continent that would dare to defy austerity.

In Spain, the left-wing Podemos party, in less then 18 months of existence, is poised to outpoll mainstream parties on an anti-austerity platform. If Greece were to get away with throwing off the yoke of Euro-austerity, Spain could well follow. With its far larger economy, a Spanish default on debt and/or a rejection of austerity would hit the big international banks hard and shake the EU to its foundations. At the same time, the unions, left-wing political parties and social movements that have been fighting austerity in other countries would get a tremendous boost.

BEHIND THE day-to-day political dynamics stands the issue of power--both in terms of social class and imperial might. The European capitalist class concluded in the early 1990s that a common currency was essential to counter the North American Free Trade Agreement trade bloc led by the U.S., as well as a rising China.

But the EU itself has a definite pecking order, with Germany, the largest economy, on top. Germany benefitted from the creation of the euro in 1999, as the common currency traded at levels below what Germany's old currency, the deutschmark, would have. That essentially made German exports cheaper, giving it a competitive advantage.

The world economy's turn to neoliberalism--a set of policies based on deregulation, privatization of state assets and "flexible" labor markets to weaken unions--added momentum to these policies.

Meanwhile, German and other big European banks financed exports by lending money to Greece and other Southern European companies without much regard to their ability to repay the loans. A Greek parliamentary committee is set to investigate those deals more closely to determine who benefitted from the harsh terms of the bailout--both in Greece and in the big European financial institutions.

The details of those deals should be exposed, but the basic picture is clear. The Eurozone is a bulwark of German imperialism. Greece, a heavily armed strategic asset for NATO and the U.S. during the Cold War with the USSR, is now itself the victim of big-power politics. Its population is expected to endure one of the world's worst social collapses in peacetime for the sake of neoliberalism and imperialism.

The choices of the Greek government in the days ahead could be decisive for the SYRIZA project and the left internationally. There are several possibilities, including a scenario in which Greece defaults on some loans, but remains in the Eurozone as it tries to reach an agreement with creditors--a limbo that some economists are calling "Grimbo."

Further abject capitulations to try to appease the European elite--which might not stave off default anyway if hard-liners like Schäuble get their way--would continue the process, just starting to unfold, of the Greek working people who propelled the party to power losing hope that SYRIZA will accomplish even a part of its program.

A Grexit--whether Greece is pushed out of the euro or jumps--will inevitably lead to a confrontation, not just between Greece and its European creditors, but also between the Greek working class and the employers and politicians who have implemented the austerity agenda.

In either event, solidarity from the international left will be critical in maintaining the message of opposition to austerity.

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