Greece on the verge of default

Alan Thornett

Greece is on the verge of defaulting on its debt to the IMF which is due by the end of June. Negotiations broke down on Friday and an EU summit has been called for Monday in an attempt to break the deadlock—there are few signs that it will succeed.

The Greek government has announced that it as run out of money and will not be able to pay the €1.6bn it owes to the IMF. Christine Lagarde, managing director of the IMF, has said that ‘there will be no grace period or possibility of delay’.

Greece now stands at the cross roads between the failed austerity imposed on it by it creditors and making a break with the chains imposed on it by the debt. The Syriza-led, radical left, anti-austerity, government has been locked into discussions on this since it took office in January in an attempt to secure the release of the final €7.1bn tranche of rescue funds in order to avoid default.

The European elites, in the form of the Trioka, are withholding the €7.1bn until the Greece government agrees to implement substantial additional austerity measures designed to impose further deep cuts in the standard of living. They are demanding further deep cuts to pensions, a substantial rise in VAT, and the liberalisation of labour laws.

The Tsipras government is flatly refusing to accept such terms, and did not even table proposals in the talks on Friday. And it is not difficult to see why.

VAT is a regressive tax designed to hit the poor the hardest, and the rise proposed would also fall disproportionally on domestic electricity, and again hit the poorest the hardest.

Pensions are a huge issue. They have already been cut three times. And pensions in Greece today are often the only part of a household income left. Whole families are often reliant on a single individual pension as an income. In fact for almost 50% of families in Greece a pension is the main and often the only form of income.

The Trioka has made no concessions whatsoever. They are seeking to impose maximum humiliation on the Greek Government. It could hardly be clearer that the debt remains the principal mechanism through which neoliberal agenda, and so-called structural adjustment, is enforced.

As a result Greece stands no only on the verge of a default but of crashing out of the Eurozone—and even out of the EU itself. The situation is in uncharted waters. Martin Schultz, the President of the European Parliament, said recently that there was no legal avenue for leaving the Eurozone and that leaving the zone would mean leaving the EU.

The response of the EU elites to this deadlock is to pile the pressure in order to break resolve of the Greek Government. And the pressure is enormous. There is talk of a banking collapse and speculation as to whether the banks will even open on Monday. And indeed over €2bn was withdrawn from Greek banks between Monday and Wednesday last week.

Obama has been in touch with Tsipras urging him to be ‘realistic’ and the Governor of the Greek Central Bank—a supporter of the previous New Democracy government—has warned that Greece is on the verge of an ‘uncontrollable crisis’.

Mario Draghi, the President of the European Central Bank, has also stepped in. He has warned that time is rapidly running out and that the ball was squarely in the court of the Greek government to resolve it. Günther Oettinger, Germany’s EU Commissioner, has warned that Europe should brace itself for a “state of emergency in Greece if Greece does not reach agreement with its creditors”.

The fact is that even if Greece wanted to pay it would not be able to. It is impossible. Greece has been bled dry by the Troika, and its austerity demands. It has been forced to carry the burden of the crisis of the Eurozone and has been used as a test bed for austerity Europe-wide.

The statistics are frightening: There has been a 25% drop in Greek GDP over the past 5 years, a 28% reduction in public sector employment, a 28.5% drop in consumption, a 61% cut in average pensions, 45% of pensioners are living in poverty, there is 26% unemployment and over 50% amongst the under 25s. At the same time the health and welfare system has been cut to ribbons.

A crucial contribution in terms of how the Greek Government deals with this crisis is being made by the debt audit—the Truth Committee on Public Debt—set up by the speaker of the Greek Parliament Zoi Konstantopoulou (a leading member of Syriza) in April. It includes a number of left wing and Marxist economists from across Europe including Eric Toussaint from CADAM and the FI in Belgium and Özlem Onaran, who is a supporter of SR in Britain.

Its mandate is ‘to raise awareness amongst the people of issues pertaining to the Greek debt, both domestically and internationally, and to formulate arguments and options concerning the cancellation of the debt’.

Its first report published in the past few days concludes not only that is Greece unable to pay but that it should not pay because the debt is ‘illegal, illegitimate, and odious’. It says the following:

“All the evidence we present in this report shows that Greece not only does not have the ability to pay this debt, but also should not pay this debt first and foremost because the debt emerging from the Troika’s arrangements is a direct infringement on the fundamental human rights of the residents of Greece. Hence, we came to the conclusion that Greece should not pay this debt because it is illegal, illegitimate, and odious.”

It concludes that “the increase in debt was not due to excessive public spending, which in fact remained lower than the public spending of other Eurozone countries, but rather due to the payment of extremely high rates of interest to creditors, excessive and unjustified military spending, loss of tax revenues due to illicit capital outflows, state recapitalization of private banks, and the international imbalances created via the flaws in the design of the Monetary Union itself.”

This gives added weight to the stance that the Greek government has recently taken and points the way forwards in terms of dealing with the situation.

The stakes are enormous on both sides, however. The elites fear, with some justification, that if they make a concession to Greece, similar concessions will be demanded by Spain Portugal and Italy and beyond.

Contagion across Europe—which the elites have been claiming they could avoid—is already happening as the cost of government borrowing for Spain, Portugal and Italy rose after the latest attempts to reach a deal broke down. European markets slumped as bank stocks were sold off. The price of gold rose as investors sought a safe haven for their money.

Opinion amongst the elites has been changing in terms of Greece’s membership of the Eurozone and of the EU. Whilst they remained convinced that the Syriza government would in the end back down and accept their terms—and up to this point they were sure that this would happen —they were ready to continue to support Greece’s continued membership.

Now that the Greek government has dug its heels in, however, and (very importantly) appears to have returned to its position of no sacrifice for the Euro, many of those same leaders are saying – although they are divided on it – that if Greece refuses to accept the terms on offer then they should get out of the Eurozone and go their own way. In other words EU and Eurozone membership is now being openly used as a way of forcing Greece into submission.

It is a big gamble, of course, since a Greek exit from the Euro would be a major political defeat the European elites since it would change perceptions of the whole European project. Every crisis would pose the question is somebody going to leave the Euro?

Will it work? It’s hard to say. Most Greek people are fearful of an exit from the Euro—and its implications for EU membership, though the number saying this appears to be declining: from around 80% when the Syriza government were elected to around 65% today. In any case the Greeks cannot be held to ransom in this way indefinitely.

At the end of the day the fear of what will happen if Greece exits the Euro has to be set against the stark realities of life in Greece under the Euro if the terms of the Troika are accepted and further austerity imposed.

This is particularly the case since the right wing and the middle class business people took to the streets last week to demand the acceptance of all the austerity demands of the Troika in order to stay in the Euro. This represents a significant class polarisation at the current stage of struggle.

Syriza has been rightly criticised by many on the left—leaving aside the ultra left who have long written Syriza off as ‘reformist’ or as the ‘new PASOK’ and (in Greece) stand against it in elections—for dropping some of its pre-election pledges to reverse various austerity measures in order to avoid an early default. Dropping such pledges undoubtedly strengthened the elites who will always demand more once a concession is made. It was a dangerous game to play. It has also been deeply controversial within Syriza itself both amongst MPs and the membership.

There was always, however, another side to this that the ultra left failed to recognise. Even after Syriza had dropped some of its pledges—and it did implement some important promises of course—what was left, which was Syriza’s core position, and what defines it as an anti-austerity party – no further austerity, remained totally unacceptable to the EU elites.

The reality is that rejection of austerity in Greece today assumes transitional significance.

In this sense today’s standoff, resisting a new tranche of austerity, was always going to be the key battleground, and the one that will determine the outcome of austerity in Greece—including the ability of Syriza to reverse the measures of the previous government. If you can’t stop further cuts how can you reverse the ones that have been made?

The outcome of the ongoing battle against austerity will define the future not only of the Greeks but also the future of all those across Europe who struggle against austerity and for more democracy and equality. Put the other way, if resistance to austerity in Greece is broken than the implication for other struggles across the continent are clear enough. From this point of view the European left has now, more than at any time during this crisis, a responsibility to build solidarity with the struggle of Syriza and the Greece working class.

And there are plenty of initiatives on offer in this regard.

Next week is the European week of action in support of the struggle in Greece and there is an urgent need to make it a big success. The aim is to mobilise people across Europe against the pro-austerity forces and the EU institutions and in solidarity with those who fight for social justice and democracy.

In London on Tuesday July 23 there will be a mass rally in Trafalgar Square that will run from 6.00 -8.00pm organised by the Greece Solidarity Campaign (GSC), International People’s Assembly, Jubilee Debt Campaign, Global Justice Now and Debt and Resistance UK.

At the same time an urgent petition calling for support and solidarity with Greece has been launched by hundreds of leading members of trade union, professional associations, community activist networks, pensioners groups, ecologist organisations, migrant and refugee groups, social solidarity networks and public personalities.

More information about all this can be found on the GSC website

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