Tsipras’ big swing?

Note kindly translated by Anne-Marie de Grazia

Alexis Tsipras, the new Prime Minister of Greece will be in Moscow on April 8th. As it happens, on April 9th, Greece is to make a payment to the International Monetary Fund. The declarations of Greece’s Minister of Finances on the latter point are unambiguous: Greece will honour its debt [1]. But on April 14th, Greece must simultaneously emit 1.4 billion Euros worth of Treasury bonds, to renew the debt in the short term (what is called to roll-over the debt) and the government must pay out 1.7 billion in salaries and pensions. However, the European Central Bank has « recommended against» Greek private banks accepting new short term Treasury bonds issued by the Greek state [2]. One can see that this visit to Moscow by Alexis Tsipras will go way beyond the traditional display of friendship between Greece and Russia. It might signify, in the relatively short term, the beginning of a shift at the European level.

I. The situation in Greece

We know that Greece has entered a temporary agreement with its creditors (the Eurogroup, but also the IMF). Presently, the country is facing important short term difficulties such as the flight of capitals out of the banking system (12 billion Euros in the month of February) as well as financial uncertainty as to its capacity to repay its debt. This financial uncertainty is both a political and an economic weapon against the new government. Investments have now slowed down a lot in Greece and Foreign Direct Investments (FDI) are at a standstill. And it is under these conditions that the Eurogroup (i.e. the reunion of the Ministers of Finances of the Eurozone) has taken the responsibility to exert ever stronger political and economic pressures on the Greek government.

We also know that austerity policies are a failure not only in Greece but in many other countries. The destructive effects of these austerity policies, not only in Greece but also in Portugal, Spain and Italy are presently evident and perfectly recognized. From a technical point of view, it can be said that the fiscal spending multiplier, which links the movements of the GDP with those of budgetary expenses, has been grossly underestimated by the European Union authorities, and this even after the publication of the famous Blanchard study, carried out at the IMF, and dating back to January 2013[3]. It is evident that policies implemented in Greece under the vocable of the « Memorandum » are not working, and moreover they are having very considerable destructive effects on the economy. These policies, it must be stressed, were not implemented in order to “help” Greece, but only in order to allow creditor countries to be reimbursed. This has been recently acknowledged in a note from the IMF. But, in this regard too, they reveal themselves to be counterproductive. Indeed, it is quite clear that Greece, after all these various memorandums, will not be able to pay back its debt. The policies implemented in order to pull the country out of insolvency have, in the contrary, precipitated it into insolvency.

This is the framework within which we must consider the policies implemented by the European Union, the anti-democratic and even fascistic character of which is coming increasingly to the fore. By cutting off the access to emergency liquidities which were already earmarked by the ECB on February 4, in turning down all the solutions proposed by Athens, the European leaders are expecting that the pressure upon Alexis Tsipras will be such that he will be forced to accept the conditions of his creditors. Conditions which are not economical, for we have seen that they have in reality worsened the situation of the country. These conditions are, in fact, political. By the way of insisting on « reforms » of the job market and of pensions which are of no urgency on the economic plane, but which would demonstrate the capacity of the European institutions to politically wipe out the mainstay of Syriza’s program and message. This is the imperative, and this one must understand in order to grasp the whole situation. In doing so, European leaders want to annul the results of the elections of January 25th if these are putting in jeopardy the policies they have been carrying out for years. They want to annul these elections even though they pretend to be the great defenders of democracy. In so doing, they are demonstrating irrefutably that « democracy » is only a word in their mouth, and that, in reality, they are denying democracy non-stop and negating the sovereignty of the people which has expressed itself in these elections. Following this strategy, the Eurogroup constantly rejected the reform proposals presented by Greece. But in so doing, it has radicalized the positions of the Greek government. One must then try to understand why the latter has not broken frankly with the European institutions.

II. The reasons of the Greek policies in regard to Europe

In reality, Syriza is situating its action inside the European Union. Some do it for ideological reasons, but the majority of the party does it out of realism. The attachment of the population, and of the Greek elites to the EU is important and the reasons for it must be understood. They are several.

There are first of all geopolitical considerations. The Greeks remember the isolation which their country suffered during the Cyprus events in 1973, which lead to the Turkish intervention in the island (operation ATTILA). These events, as it were, brought the fall of the dictatorship of the « colonels. » But there remain of these events the memory in Greece of the dangers of a repeat of such an isolation. This is what successive governments, of the right and of the left, have sought to avoid by way of Greece adhering to the Common Market (under the conservative government of Karamanlis), then unfailingly supporting the various stages of the European construction. Even Greece’s membership in the Economic and Monetary Union, that is, in the Eurozone, can be interpreted as an expression of this will not to be isolated. It is conceivable now that this fear of isolation in face of Turkey can be counterbalanced by military and political agreements with Russia just as well as by membership in the European Union.

Then, there are economic reasons. Greece has much profited during the period 1975-2000 from the European structural funds, and much of public investment has been realized thanks to the various programs of European aid (help to island zones, to mid-altitude mountain zones, etc…). The fact that the latter has broadly shrunk since 1995, and especially since the former countries of Eastern Europe entered the EU, much weakens this argument, as against ten years ago. The Greeks have now evaluated that this “aid” is becoming less and less, whereas the constraints imposed by the European Union are truly murderous.

There exists, finally, an ideological reason. The modernizing elites of Greece, of which Syriza is in reality an integral part, have always considered that the reunion with Western Europe, that is, with the initial nucleus of the Common Market, guaranteed the implementation of the reforms needed to free Greece from the Ottoman legacy. One can discuss ad infinitum what pertains, and what does not, to the “legacy” of the Ottoman occupation in the social and political culture of Greece, it still remains that the massive existence of nepotism, corruption and more generally of institutions which can be qualified as “soft,” or “slack,” and which allow for the maintaining of nepotism and corruption, are attributed to this “legacy.” From this point of view, membership in the European Union was the only guarantee of the necessary reforms.

These three reasons explain why Syriza is a viscerally pro-European party, and that having to wean itself from Europe is a painful process. The leaders of Syriza had hoped to federate around themselves countries which suffered similarly from austerity, such as Spain, Portugal and even Italy and France. They had hoped to constitute a great “united front” against austerity at the European scale. But they sinned by an excess of optimism. An optimism as far as the positions of the French government are concerned, which reveals itself to be every day a little bit more the lackey of Germany. Optimism as far as the positions of the conservative governments in Spain and Portugal are concerned, which see in Syriza a threat to their own domination over their peoples. The leaders of Syriza, mutatis mutandis, have found themselves in the same position as the bolhevik leaders who were convinced that the Revolution in Russia would provoke the Revolution in Germany, and found themselves out of a strategy when this failed to happen. We know that out of this was born the strategy of the autonomous development of the USSR, with the NEP, which was conceived as an alternative strategy in the face of the failure of the revolution in Germany. Around the NEP, an implicit block was able to aggregate, going from the Bolcheviks to the various modernizers (Mensheviks, Socialist-Revolutionaries), and this block was to provide the NEP with its extremely progressive economic and social dynamic [4]. In fact, it seems that the leaders of Syriza anticipated to be disappointed in their optimism. The political alliance which they concluded with the « Independent Greeks » (An.El) showed clearly that the concessions which they were ready to make in order to stay in the fold of the Eurozone had limits. It is possible also that they underestimated the movement of national resistance which has manifested itself after the elections of January 25th.

This is where we are standing. The Greek government has understood that, barring surrender without conditions and an abject submission to the European diktats, it would find no terrain of agreement with the Eurogroup and the ECB. The fact that its positions have evolved regarding the privatization of the harbor of Piraeus, in order not to offend China, is an indication that the Greek government does not expect much any longer from the European Union and is preparing to count more and more on Russia and on China.

III. Which strategy?

We must now consider what might happen in the days and weeks to come.

The Greek government has decided to honor its debt to the IMF. This is entirely understandable. It cannot antagonize both the Eurogroup and the IMF. A default against the latter would moreover have important consequences for Greece, the more so that Greece would find itself cut off from European financings and forced, de facto, from exiting the Euro. The decision to honor the debt to the FMI makes one think that a position of rupture is emerging within the Greek government.

So far as this rupture is concerned, the Greek government wants the Eurogroup and the European Union to bear the entire responsibility for it. It wants this on the one hand for reasons of interior politics and of morals in politics. Having asserted during the electoral campaign that it would not get out of Euro, it must act in such a way as to be expulsed from it. From this it ensues that one must not expect gestures of rupture on the side of Greece, but a principled firmness: in no way will one renounce electoral promises and the program on which this government has been elected. But the Greek government also wants this rupture to be the doing of the European institutions in order to make the breaking of the European dream less painful. The loss of the European idea, at least in its most inclusive form, will certainly have consequences. If the responsibility for this loss can be made to rest on Brussels and Frankfurt, it would entail additional legitimacy for the Greek government.

This is where the possibility is coming up to create a new currency which would circulate in the same time than the Euro, in order to allow the Greek government to carry out the payments it must make for the population and to relaunch the financing of investments. It must be pointed out here that this has no equivalent. Not that double systems of currency circulation have not existed before. But such systems have been both very unstable (one currency ending up ousting the other) and there is no example of a case where a supra-national currency has been challenged by newly created national currency, except in the case of the break-up of a country (Austria-Hungary, USSR). In this case, the double circulation lasts no longer than a few weeks. If the Greek government decides, logically, in the face of the financial strangulation to which it is subjected, to create a new currency, two problems will immediately come up:

  • What amount of stability for the new currency.
  • What rate of exchange between this new currency and the Euro.

The stability of this new currency could be guaranteed by a stabilization fund, itself emanating from a short term loan (2 years maximum). Russia has already made known, through the voice of its Minister of Foreign Affairs, that it was ready to study such a loan. In fact, one can well see this being a “soft” way of getting out of the Euro. If this new currency is stable, it will rapidly impose itself against the Euro in the internal monetary circulation while undergoing a depreciation of 20% to 30%. This depreciation should result in a balance of trade being strongly in excess within a period of 6 months to one year, guaranteeing the conditions for the repayment of the loan. In fact, the conditions for a mid-term stability of the new Greek currency appear good. This stabilization fund could well be provided by Russia. This excess trade could also be increased by the lifting of the « counter-sanctions » taken by Russia against food products of the EU countries, the lifting of which could at first affect Greece and Hungary. Otherwise, Greece will have to default on its debt underwritten in Euro, which will not happen without creating some problems for the countries of the Eurogroup and for the ECB.

More generally, a definitive conflict between Greece and the countries of the Eurogroup would lead to Greece turning to Russia and China both for investment (FDI) and political as well as economic relations.

IV. The great swing

Such a solution would imply a “swing” the significance of which goes way beyond the sole case of Greece. While preparing his trip to Moscow which is to take place on April 8, Alexis Tsipras gave the tune on March 31 in stating that the « sanctions against Russia are not leading anywhere.»[5]. This declaration is a very clear disavowal of the East politic of Brussels, particularly concerning Ukraine. Here’s something to give worry to the European Commission. Athens could then decide to defend the positions of Russia within the EU, and this especially if the EU displayed aggressiveness towards Greece. It is in no way in the interest of Greece to leave the EU. The Greek government would be a much better ally of Moscow if it remained a member of the EU, while systematically contesting and paralyzing decisions. However, if it is possible in theory to expulse a country out of the EU, one must for this obtain the unanimity of all the other members. Clearly, there will always be one or two other countries which will refuse to vote for such an expulsion, be it only out of fear of being next on the list.

Such a refusal to go farther ahead in the confrontation with Russia, a refusal which – it must be pointed out – is very largely shared in Greece even by political forces which are not in the government, might make other countries come out of the woodwork, which deep down are sharing the same positions : Cyprus, Slovakia or Hungary, for example. But presently, the stakes of Tsipras’ trip are probably bigger even than that. It is clear that the conflict between the Eurozone and Greece is inevitable, and that this conflict can provoke an exit of Greece from the Euro. Alexis Tsipras’ trip to Moscow, but also the tight relations which his government is in the process of establishing with China and with the BRICS countries more generally, present us potentially with a historical moment. The one of the reflux of the European institutions of the EU in the benefit of an advance, timid and cautious indeed, yet real nevertheless, of the emerging powers, such as Russia and China, in the European game. This is why there is much more to this trip than meets the eye of the observer.

 

The fear of such a big swing must be beginning to dawn in the somewhat hazy brains of the European leaders. What will then be their possibilities? They can give in, in all or in part, to the demands of Syriza. As we have already said, such a solution would bring about in itself the implicit condemnation of the austerity policies. One would not have to wait long for other countries, such as Spain and Portugal, to worship what they had burned shortly before, and decide to embrace the demands of Greece. There is an immense risk, then, to see the policy established by Germany for the profit of Germany to fly up into high heaven. The German government is aware of this, which is why it is leading a « front of firmness » on these points. But, by being intransigent towards Greece, the same leaders are taking the risk of a break-up of the political construction which they have put together over the past fifteen years. As one can see, whatever the outcome of this crisis, we are presently the spectators of the end of the European construction such as it has been carried on for the past twenty-five years. The expression “big swing” seems appropriate. Remains to be seen how the French leaders will adapt to such a new situation.

Notes

[1] http://lexpansion.lexpress.fr/actualite-economique/la-grece-s-engage-a-rembourser-le-fmi_1668428.html

[2] http://www.latribune.fr/economie/union-europeenne/la-bce-demande banques-grecques-de-ne-plus-acheter-de-dette-d-athenes-463735.html

[3] Blanchard O. et D. Leigh, « Growth Forecast Errors and Fiscal Multipliers », IMF Working Paper, n°13/1, January 2013.

[4] Sapir J., “Éléments d’une histoire économique de l’URSS: quelques questions sur la croissance”, in Historiens et Géographes, n°351, December 1995, pp.191-218. Idem, “La guerre civile et l’économie de guerre, origines du système soviétique”, in Cahiers du Monde Russe, vol. 38, n°1-2, 1997, pp. 9-28.

[5] http://www.theguardian.com/world/2015/mar/31/alexis-tsipras-greece-russiarelations

 


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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