Greece at bay

This is the “long” version of an interview done by Mr. Tassos Tsakiroglou for the daily newspaper Εfimerida ton Syntakton (Journal of Editors) ( This Greek newspaper is a cooperative effort of journalists and press workers with self-management and self-funding which took the place of the centre-left « Eleftherotypia » newspaper, which bankrupted in 2011. A shorter version has been published in Greece and could be found too on internet for those who are Greek reading here. A pdf version is Jacques Sapir grèce PDF.

Version longue de l’interview donnée au quotidien Grec  Εfimerida ton Syntakton (Journal of Editors) (, journal autogéré constitué par l’équipe des journalistes du journal « Eleftherotypia » qui fit faillite en 2001. Pour les personnes lisant le grec, le lien internet est ici. Une version pdf peut être obtenue ici Jacques Sapir grèce PDF.

 -How do you judge Mrs. Merkel’s proposition in December that, in the name of the salvation of euro, the states of Eurozone should sign a kind of “contract” with Germany in order to fulfill their commitments?

Mrs. Merkel had launched the idea of “contracts” on the economic policy several weeks ago. But it is and idea basically flawed on principles. Economic policy is to be decided by a community, with a Parliament voting both incomes and expenses, in a country or a federation of country. This is the basis and the origins of democracy. There is no place here for contractual relations. To try to ape the private law in such a domain if a recipe for failure. Actually what we could see here is an attempt to turn something highly political into something of “technical”. But this depolitisation of economic policy is actually harboring a deep threat on Democracy. In a Federal State, one could have common guidelines for economic policy, but with a strong solidarity in return. Germany by example, or the United States, is a Federal State and it is well known that the federal budget is by far the most important compared to states or Lander budgets. The Brussels budget, or the EU common budget, is topping just 1,26% of the European Union GDP. This is far too small to qualify as a “federal” budget. What is needed is a 10% to 12% GDP budget at least.  In the short term what would be needed is a large transfer budget from North to South, amounting to 300-300 Billions euros a year. This amount of money is to be supported by Northern Europe countries. But, we know that this would imply a burden far to high even for Germany: between GDP 8% to 12%. That would break the back of German economy. There is then no point asking to Germany for such and amount of money or complaining that Germany doesn’t want to pay. Germany can’t pay. So, behind speeches on “contracts” we are seeing the naked truth: Germany is just trying to impose on other countries its will. What Germany failed to do twice in the XXth century by brutal force she is trying to do through economic means.

-What’s the future of the Eurozone if we continue with the budget cuts and the austerity programs?

The future of the Eurozone is of course bleak. We have to look back at the beginning. The Euro couldn’t work with so different countries included in the zone. The heterogeneity level was much too big. Diverse issues were raises. First, the one of inflation with the presence of “structural inflation” rates widely different among countries. Second, the fact that the rate of productivity gains was too widely different among countries. Third, differences in demography were important, with demography stagnant in some countries and much more expansive in others. These differences were inducing different needs for economic growth. These issues were well known at the beginning of the Eurozone by 1999. But, economists and politicians for the sake of reaching the “single currency” overlooked them[1] when they did not pretend that the creation of the Eurozone would by itself induce some growth. We are paying now the prices of these mistakes, which were however denounced as such by some economists[2].

Budget cuts and austerity measures are of course worsening this situation and they are pushing a lot of countries in a deep crisis. It is important to recall that austerity effects were largely underestimated since 2012. By then, the “liberal” economic credo was that we could have a strong reduction of public expenditures and growth. It was of course wrong. The IMF has acknowledged this fact[3]. Some doubts were present by 2010 at least and even before[4]. Austerity is just precipitating countries into a large depression trap.

This can be seen in Graph. 1.

Graph 1


Source: IMF data base

Unemployment is still rising in all “Southern” countries (Spain, Italy), including France. But, it is to be said that even with a more lenient economic policy, the future of the Eurozone would still be bleak. Even if Germany decided to loosen the austerity straightjacket that would not cure basic common currency defects, which are well known by economist all over the world. We are facing a rapid death or a long agony, but the end result will be same. It is now absolutely impossible to make the Euro working for all countries.

 -Some days ago the Centre for European Policy (Freiburg) has asserted that there’s no possibility for Greece to repay its loans and that its creditworthiness is reducing fast. What does it mean to you?

It is not a surprise. I told, by fall 2011 that Greece could not and would not repay its loans. I told that again after the first haircut. We already had several haircuts, but for what result? The Greek debt is still unbearable. To say otherwise is utter irresponsibility. Two solutions are then possible, either a strong inflation (possibly coupled with an exit from the Eurozone) or a default. The first one would be the better. However, the faster we will come to this reality the better it will be for everyone in Europe. The Greek debt is going fast nowhere under the so-called “Troïka” regime.

-Is the exit from the Eurozone a realistic scenario and what the consequence in real economy and social life would be?

Again, I told by 2010 that exiting from the Eurozone, with a large devaluation, would be the best option for Greece. Of course there would have been some economic suffering in this process but far less than what it is imposed on Greek people now, and without any result. Investment is now falling well under its year 2000 level, which is compromising the long-term future.

Graph. 2


Source: IMF data basis.

It is not just material capital, which is now not replaced at the same level than in 2000 but also human capital. It is to be known that the health situation is fast degrading in Greece. The medical journal The Lancet is writing:

« The cost of adjustment is being borne mainly by ordinary Greek citizens. They are subject to one of the most radical programmes of welfare state retrenchment in recent times, which in turn affects population health. Yet despite this clear evidence, there has been little agreement about the causal role of austerity. (…)In view of this detailed body of evidence for the harmful effects of austerity on health, the failure of public recognition of the issue by successive Greek Governments and international agencies is remarkable. Indeed, the predominant response has been denial that any serious difficulties exist, although this response is not unique to Greece; the Spanish Government has been equally reluctant to concede the harm caused by its policies.[5] »

With a large devaluation population suffering would have been far less and on a shorter period. Greek industry and agriculture will recover their competitiveness and exports, which were quite impressive before 2004, would more than balance imports. Import restriction would not be the only way to balance foreign trade. This would have highly beneficial consequences on GDP growth. The surge of GDP has been computed as at least +15% in the first two years after an Euro exit and devaluation[6], the best result for any Eurozone country. The final results could reach between +25% to +35% in the first five years after the devaluation.

-And what about the consequence for the rest of the Eurozone?

As I told you, the Eurozone is doomed whatever we could do because it has been misconceived. If Greece had exited the Euro by 2010 or 2011 that would have crippled the Eurozone at once. But this would have been a much lesser evil than the current situation. Of course, some foreign banks would have faced difficulties. But, they are now facing difficulties even worse because of a stagnating economy. Even if Greece would be exiting now, that would be a severe shock on the Eurozone frail structure.

-Is the surveillance mechanism of banks sufficient enough to put under control shadow banking and speculation practices that have produced the present crisis?

The so-called “banking union” has ended into a most ridiculous situation, where a lot of banks (in Germany) are not to come under this supervision, and the budget needed would not be ready before 2025. But the “banking union” story, with all its bargaining and horse-trading ultimately going nowhere, has taught us a lesson. Germany is to do everything preventing it to have to pay for other countries. No country (including France) is ready to abandon its own regulatory power when it comes to money. It’s a pity that no one seems to have understood the lesson.

You have stated that a real Federal Europe is less possible than a Martian invasion on Earth. How do you explain?

As “European elections” are coming now a lot of people in a lot of political parties are now speaking about “Federal Europe” and pledging to do now what they did not for more than 20 years. That’s pure fantasy, like banking on a Martian invasion. You could see this fantasy as a kind of selfish illusion or as a kind of damned lie. Some of these people are entertaining themselves with dreams but have not seriously addressed the actual conditions of realizing them. Other people never had and still have not any intention to build a “Federal Europe”. What has been a fantasy remains a fantasy. Countries, which have been recently admitted in the EU don’t want to help others. The North doesn’t want to help the South. The idea of a “Federal Europe” is dead. We are in a world of Nations and we have to accept this reality. Remember that Airbus and Ariane, frequently hailed as “European” accomplishments were actually the result of international cooperation decided through inter-governmental decisions. In the last 25 years we have been unable to define mechanisms for a true cooperation and integration but for international cooperation. May be the Martian would…


[1] A good example of such mistake can be found in Rose, A.K. (2000), « One money, one market: the effect of common currencies on trade », Economic Policy Vol. 30, pp.7-45 et Rose, Andrew K., (2001), “Currency unions and trade: the effect is large,” Economic Policy Vol. 33, 449-461.

[2] Bun, M., Klaasen, F. (2007), « The euro effect on trade is not as large as commonly thought», Oxford bulletin of economics and statistics, Vol. 69: 473-496. Berger, H., Nitsch, V. (2008), « Zooming out: the trade effect of the euro in historical perspective », Journal of International money and finance, Vol. 27 (8): 1244-1260. Flam, H., Nordström, H. (2006), « Trade volume effects of the euro: aggregate and sector estimates », IIES Seminar Paper No. 746. Baldwin R. (2006) « The euro’s trade effects » ECB Working Papers, WP n°594, Francfort. Baldwin R. et al. (2008), « Study on the Impact of the Euro on Trade and Foreign Direct Investment », Economic Paper, European Commission, n° 321. See also, Kelejian, H. & al. (2011), « In the neighbourhood : the trade effetcs of the euro in a spatial framework », Bank of Greece Working Papers, 136.

[3] O. Blanchard et D. Leigh, « Growth Forecast Errors and Fiscal Multipliers », IMF Working Paper, WP/13/1, FMI, Washington D.C., 2013

[4] A. J. Auerbach et Y. Gorodnichenko « Measuring the Output Responses to Fiscal Policy », American Economic Journal: Economic Policy 2012, Vol. 4, n° 2, pp 1–27. L. Christiano, M. Eichenbaum, et S. Rebelo, « When Is the Government Spending Multiplier Large? », Journal of Political Economy, Vol. 119, No. 1 (Février 2011), pp. 78-121.

[5] Source: Alexander Kentikelenis, Marina Karanikolos, Aaron Reeves, Martin McKee, David Stuckler, «Greece’s health crisis: from austerity to denialism», The Lancet Vol 383, February 22, 2014, pp. 748-753, p. 751,

[6] Sapir J, Murer P. et Durand C., Les scenarii de dissolution de l’Euro, Fondation ResPublica, Paris, 2013.

Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s'est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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