Grexit now!

Literally as LALKAR goes to press, the Greek PM, Alexis Tsipras, has announced that the unyielding austerity proposals contained in the latest creditors’ ultimatum is to be put to the vote in a referendum to be held on 5 July. The Greek people will decide whether to fight or flee. Tsipras is recommending rejection of the creditors’ demands, indicating his own willingness to keep fighting. As this article shows, to cave in can only make matters worse.

The month of June has seen deadline after deadline imposed and then leapt over in the course of negotiations between European finance ministers on the one side and the Greek government on the other whereby the former are seeking to force the latter to accept the unacceptable while not allowing a single euro of the debt relief that Greece so urgently needs if it is to have any chance of economic recovery.

Every positive last chance for the Greek government to cave in has been replaced by another, slightly later, last chance. The favoured last chance at the time of writing is the last day of June when a €1.6 billion repayment is due to the IMF which Greece cannot afford to pay unless the last €7.2 billion of a promised bail-out facility is released to it – which we are told will not be released unless the Greek government surrenders.

As a matter of fact, however, sections of the financial press are already predicting that this last chance may well be replaced by another later last chance:

“… credit rating agencies have said that non-payment to the IMF is not formally a default, and the ECB is unlikely to decide it means Greece is bankrupt “, says Peter Spiegel in the Financial Times of 23 June (‘Greek debt crisis: key dates on the road to a possible Grexit’). Peter Spiegel thinks that the real “Drop-dead” deadline MAY in fact be 20 July when two bonds totalling €3.5bn fall due to the European Central Bank. Apparently if Greece failed to pay, which in the absence of the release of bailout funds it would be bound to do, even then ” credit rating agency Standard & Poor’s said recently it would not consider a failure to pay these bonds a full default – it said only non-payment on bonds held by private creditors constitutes a default in their books”. However Peter Spiegel thinks “it would be virtually impossible for Greece to survive inside the Eurozone if it defaulted on the ECB”. Note that he is still hedging his bets by saying this would only be VIRTUALLY impossible, not ALTOGETHER impossible. But then ” Another €3.2bn is due for two more bonds held by the ECB on August 20″…

It is clear that although the European finance ministers are being intransigent they are really very they are nevertheless very anxious indeed to force Greece to surrender rather than face the consequences of it being forced out of the Eurozone and maybe even the EU. Hence the rolling back of the ‘last chances’.

The issues

The failure to reach an agreement between the Greek government and its creditors is being blamed entirely on the intransigence of the Greeks, who are routinely castigated by or on behalf of European finance ministers, who invariably claim to be on the side of the Greeks or at very least to have sympathy for their position. For instance, Sigmar Gabriel, Germany’s vice-chancellor and head of the country’s Social Democratic party (supposedly sympathetic to the Greeks) wrote in Das Bild : ” The game theorists of the Greek government are in the process of gambling away the future of their country,” (a dig at Yanis Varoufakis, the Greek finance minister who is an expert on game theory). ” Europe and Germany will not let themselves be blackmailed. And we will not let the exaggerated electoral pledges of a partly communist government be paid for by German workers and their families .” (Quoted by Peter Spiegel in the Financial Times of 15 June (‘Greek default fears rise as “11th hour” talks collapse”).

The truth, however, is that it is the creditors who have exaggerated demands, not the Greek government. The latter has bent over backwards, even putting forward certain offers that could be criticised as being against their election pledges in order to secure the agreement with creditors that would enable Greece to remain within the Eurozone – an aim which for the moment at least appears to be what the overwhelming majority of Greek people desire, although they certainly don’t need it. Hence the government have put forward proposals to creditors designed to save €2.7bn this year and €5.2bn next year. The creditors, however, are not happy with this:

More than 90 per cent of the €7.9bn fiscal package would be covered by increases in tax and social security contributions. The tax measures include a special levy on medium-sized companies’ profits, higher value added tax rates, a rise in corporation tax and a wealth tax on household incomes above €30,000 a year.

“‘[The proposals] are intended to target the rich while protecting Syriza’s own political constituency – they’ve tried to avoid spending cuts while going for ferocious tax hikes that could end up strangling the economy,’ said Aristides Hatzis, a law and economics academic at Athens university ” (quoted by Kerin Hope in ‘Knives out for Tsipras as Syriza hardliners threaten mutiny’, Financial Times, 24 June 2015). Hatzis quite rightly takes the view that for capitalism to survive there is no choice but for the poor to get poorer. He now needs to ask why the poor should put up with assisting the survival of capitalism!

Likewise the Greek government has proposed increases in VAT but largely targeted these at luxury items, though more recently it has given even more ground to creditors, and has largely abandoned its election pledges on halting privatisations, intending to raise significant sums on the sale of regional airports. Pension savings it proposes to effect through an increase in contributions that would also affect employers.

Demand to raid Greek pensions for the benefit of the 1%

Because under the tender auspices of austerity-mongers Greek GDP has been falling steadily, Greek pensions are now high in proportion to that GDP (16%), and the impression is given that Greek workers all retire at 50 on pensions equal to almost the whole of their final salary. This is a total illusion. The reality is that the retirement age is 67, and although long-serving workers can still retire earlier than this, the average retirement age for male workers is 64 and female workers 63. Moreover, the average Greek pension provides a poverty level income upon which not only the pensioner but also in many cases the unemployed members of his or her family depend. The terms of successive bailouts that took place before the current Greek government took office have already reduced pensions considerably:

Main pensions have been slashed 44-48 per cent since 2010, reducing the average pension to €700 a month. Contributors to a supplementary scheme receive a top-up averaging €170 a month. About 45 per cent of Greek pensioners receive less than €665 monthly – below the official poverty threshold.” (Kerin Hope, ‘Q&A: Greek pensions – deal or no deal’, Financial Times, 5 June 2015).

In an effort to reach compromise with creditors the Greek government has offered to reduce the ‘early’ retirement entitlements but wants to introduce this over time, while the creditors want it put into effect almost immediately with penalties imposed on those who retire early.

The creditors even expect the workers of Europe to submit to a kind of Dutch auction with regard to pensions, with each country vying to bring down the pensions of each other country to a level at least as low as their own:

Some of Greece’s creditors view them, even with the cuts, as being more generous than benefits in some other eurozone countries, like Latvia, which are being asked to contribute to a Greek bailout and might refuse to help finance a standard of living that is better than their own .” (Liz Alderman, ‘Greece challenges creditors with new proposal to break debt impasse’, New York Times, 3 June 2015). The workers of Latvia would no doubt greatly prefer their own pensions to be increased than to be used an excuse for lowering the pensions of others!

In view of the creditors’ intransigence, even in the face of the Greek government’s considerable concessions, a Grexit seems increasingly likely.

Consequences of a Grexit

Although the Greek people have in the past benefited considerably from Greek membership of the Eurozone, this was achieved mainly through Gargantuan borrowing which is clearly no longer possible. It is to be hoped that the experience of the last few months of the Syriza government has taught the Greek masses an important lesson that will enable them to face future challenges in a decisive and productive manner.

However much the finance ministers may claim that they have safeguards in place that would enable the Eurozone to weather a Grexit, the truth is that a Grexit would put an end to a veritable gravy train for creditors.

The unfolding of the crisis in Greece over the past five years, in particular during the last few months since the Syriza government took over, and the negotiations it has engaged in with its creditors, bursts any illusion that a settlement in the interests of the Greek people can be reached within the framework of the EU.

It is time for the Greek people to make a tumultuous arrival on the stage of Greek politics and fight against the blackmail and intimidation being practised on them by the lenders. Only the intervention of the Greek people can put pressure on their government not to cave in to the outrageous demands being made by the bloodsuckers. It is time for the Greek people to impress on their government the urgent need for an exit from the Eurozone and the EU, as well as unilateral cancellation of debt as well as the taking into public ownership without compensation of all the monopolies.

Dr Stratos Ramoglou of the University of Southampton wrote a letter to the Financial Times on 17 June pointing out that the true beneficiaries of ‘rescue aid’ to Greece are its imprudent creditors, certainly not the people of Greece: ” The truth of the matter is that Greece is not in desperate need of money. Greece needs to stop bleeding by spending more billions towards the servicing of an unsustainable debt.

The funds to be released – if a bailout agreement is reached – will not go toward the Greek economy. They will be chiefly directed toward the refinancing of the Greek debt. This effectively means that those in desperate need of a bailout are the European taxpayers who will otherwise lose dozens of billions. Yet, the myth of Greece as the beneficiary of an influx of money is so well entrenched that most would be shocked to realise that since 2013 Greece has not received a single euro or that roughly 90 per cent of the so-called ‘bailout’ money went directly to banks that had made toxic investments by buying Greek debt”.

Obviously if a ‘rescue deal’ is not reached, all that lovely loot will stop coming …

Another problem for the creditors will be contagion since effectively all Eurozone countries are effectively guarantors of the Greek debt. The amount of various countries’ taxpayers’ potential extra liabilities are eye-watering – in January these amounted to €63bn for France, €83bn for Germany, €55bn for Italy, and €37bn for Spain, according to Eric Dor of the IESEG School of Management of the Lille Catholic University. Mish Shedlock believes that these figures have increased substantially since January and now stand at €72bn for France, €94bn for Germany, €63bn for Italy and $43bn for Spain (see ‘Greece played Germany like a violin; horrified Syriza demands “Icelandic” default’, 16 June 2015). Wolfgang Münchau of the Financial Times considers that ” If Greece were to default on all of its official-sector debt, France and Germany alone would stand to lose some €160bn. Angela Merkel and François Hollande would go down as the biggest financial losers in history.” (‘Greece has nothing to lose by saying no to creditors’, 15 June 2015).

Undoubtedly a Grexit would also be temporarily uncomfortable for the Greek people, but, short of a substantial write-down of its debts, it would be the only possible way that its economy could be put back on its feet. Were it to accept the finance ministers’ demands, its position would within a short time be even more hopeless than at present, as Wolfgang Münchau (op.cit.) explains:

Contrast the two extreme scenarios [available to Greek prime minister Tsipras] : accept the creditors’ final offer or leave the eurozone. By accepting the offer, he would have to agree to a fiscal adjustment of 1.7 per cent of gross domestic product within six months.

“My colleague Martin Sandbu calculated how an adjustment of such scale would affect the Greek growth rate. I have now extended that calculation to incorporate the entire four-year fiscal adjustment programme, as demanded by the creditors. Based on the same assumptions he makes about how fiscal policy and GDP interact, a two-way process, I come to a figure of a cumulative hit on the level of GDP of 12.6 per cent over four years. The Greek debt-to-GDP ratio would start approaching 200 per cent. My conclusion is that the acceptance of the troika’s programme would constitute a dual suicide – for the Greek economy, and for the political career of the Greek prime minister.

“Would the opposite extreme, Grexit, achieve a better outcome? You bet it would …”

While all kinds of disaster are being predicted for the Greek people should Greece default on its debts and exit the euro, with other Eurozone governments supposedly drawing up a ‘Plan B’ that will include ‘humanitarian aid’ for Greek people, a letter to the Financial Times from a US lawyer working in London and specialising in international finance had this to say:

On the day after euros are exchanged for new drachmas, Greek farmers will harvest the same amount of grain and fruits, olive oil processors will crush the same quantity of olives, Greek tailors will put the same number of stitches in the same amount of cloth and Greek furniture makers will produce the same tables and cabinets as on the preceding day. Imported goods will, of course, be more expensive, but exported goods will earn as many or more new drachmas than they would have earned in euros. Foreign holiday-makers will find Greek hotels and restaurants ‘better value’ than they did last year .”

Furthermore, he added: ” Depositors will not lose their deposits; they will be repaid (or withdrawn) in the new currency, which will of course buy less in Milan, Paris or London than euros would have bought. As Harold Wilson told the British public in 1967, devaluation does not affect the ‘pound in your pocket’ so long as you do not plan to spend it abroad.” (A Edward Gottesman, 22 June 2015, ‘No reason for the Greeks to produce less Domestic Added Value’).

There are also many parallels being made between the financial situation of Greece and that of Argentina which defaulted on its debts 10 years ago and was able to make a dramatic economic recovery as a result of the heavy devaluation of its currency leading to an export boom. It has been argued that this was only possible because Argentina had buoyant trading partners, which Greece lacks. This is to forget, however, that China and Russia have every interest in doing business with Greece. There is plenty of political advantage available to them if Greece shifts into their sphere of influence, with negotiations already well underway for the Russian Turkstream pipeline that bypasses Ukraine to be extended through Greece. Naturally, if Greece remains in the EU despite leaving the Eurozone, it can be expected to veto the renewal of economic sanctions against Russia, and there is also the matter of the US military base in Crete that might conceivably come up for reconsideration.

A Grexit which leaves Greece thriving would cause further headaches for the EU since other countries – Portugal and Spain in particular – might feel it necessary to follow suit. The fact is that the whole of the imperialist European project is under threat.