On the brink of Grexit?

As we go to press, deadlock over the Greek debt crisis remain unresolved, despite three emergency EU summits over the past few days. Greece, therefore, remains not only on the verge of defaulting on its debt to the IMF but of crashing out of the Eurozone –a so-called Grexit – if a deal is not reached in the next few days.

A week ago the Greek government announced that it had run out of money and was unable to pay the €1.6bn due to the IMF by the June 30 deadline.

The EU was withholding the final €7.1bn tranche of bailout money until Greece agreed to accept further stringent austerity measures. This money, due under the third bailout agreement was the only way that the debt to the IMF could be paid The Troika (the IMF the ECB and the European Commission) were demanding further deep cuts to pensions, a substantial rise in VAT, and the liberalisation of labour laws.

The consequences and nature of the debt has been spelled out clearly by 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 CADTM and Özlem Onaran, a supporter of SR in Britain.

Its first report 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.”

But last week the question posed was which side would blink first. Unfortunately it was the Greek government.

On Sunday June 21 the Greek cabinet decided to make major concessions. They agreed a package that did not give the Troika everything it was demanding—there was still around a €2bn gap between the two sides—but it was a dangerous compromise.

The 11 page package included a VAT increase, though not on electricity as demanded by the Troika. It included reduction in pensions expenditure by increasing contributions from better-off pensioners and reduced early retirement rights—but not a cut in the rates paid as the Troika was demanding. It also proposed raising corporate taxes.

The biggest concession, however, appears to be on debt reduction. The Greek Government has always insisted that any deal must include immediate measures to cut the debt. Now it appeared prepared to accept a pledge to address this in the future.

It was clearly austerity, though not in the shape (or as severe) the Troika wanted it. They wanted to target the poor more and the employers less and they wanted to totally humiliate the Syriza leadership in the process.

The EU elites applied huge pressure on the Greek government to bring about this climb down. They talked of the imminent collapse of the banking system and speculation as to when the ATMs would close down resulting in riots on the streets. Billions of Euros haemorrhaged from the Greek banks and the ECB was threatening to withdraw support facilities.

Climb down is no answer. It will resolve nothing. Even if there is a ‘settlement’ now, further debt major repayments are due to the IMF in July and August.

At first the creditors welcomed the proposals, and European Commission President Jean-Claude Juncker described the package as “a major step forward”. The mood then changed. When the Troika met, they rejected the package. Led by Christine Legarde of the IMF, they tabled a heavily revised version reintroducing their hard line demands. In particular they were not prepared to accept the Greek proposals to raise pension contributions, but insisted on a direct cut in the pensions rates paid.

This was rejected by Tsipras and hence deadlock.

Pensions are a huge issue. There has already been a mass demonstration of pensioners protesting about the proposals. Pensions in Greece today are often the only part of a household income left. Several generations are often reliant on a single individual pension as an income. For almost 50% of families in Greece a pension is the main and often the only form of income.

If any deal is reached it will have to go to the Greek Parliament, of course, where there is a real danger of it being accepted by the votes of the right. It will also have to deal with Syriza’s base in Greece. Tsipras, who had vowed not to cut wages or pensions, is under huge pressure from within Syriza itself, including its MPs. Also from the (remarkable) 47% of voters who say that they would vote for Syriza if there was an election tomorrow.
Even if Greece wanted to pay it is unable to do so. Its debit is 180% of GDP. It has been bled dry by the Troika. 95% of the bailout money would be immediately paid back to the banks to service the debt. Greece has been forced to carry the burden of the Eurozone crisis 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. The health and welfare system has been cut to ribbons.
The biggest factor behind this climb down, and weakness of the Greek position, is clear—the Greek government’s attitude to Eurozone membership. A week ago they appeared to have returned to their pre-election position of ‘no sacrifice for the Euro’: that if it came to a choice between exit and austerity, they would accept exit.
This was right. Most Greek people are fearful of an exit from the Euro—and its implications for EU membership, though the numbers holding this position has declined from around 80% when the Syriza government was elected to around 65% today.

In the end, however, the fear of what will happen if Greece exits the Euro has to be set against the realities of life under the Euro if the terms of the Troika are accepted.

But the Greek government backed down; making major concessions to austerity precisely in order to avoid Grexit. To fight austerity within the Eurozone means being prepared to leave the Eurozone if necessary – otherwise the same threat of expulsion from the Euro will be made every time resistance to austerity is offered.

And the elites are not in a strong position to issue ultimatums. The single currency has been the central project of the EU for over 20 years. The idea that a Greek default and Grexit would cause anything less that chaos for the rest of the Eurozone, severe reputational damage to the whole EU and disruption for the world economy makes no sense.
As one commentator put it: Greece may be only small part of the economy of Europe but the plug in a bath is only a small part of the bath, but if you pull it out it has a big effect.
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 attempts to reach a deal broke down.

The stakes are enormous for both sides. The elites fear, with justification, that if they make a concession to Greece, similar demands will be made by Spain Portugal and Italy and beyond.
This is why we are seeing a major class-polarisation taking place in Greece today. The right wing and middle class business people have taken to the streets to demand the acceptance of all the austerity demands of the Troika in order to stay in the Euro

There have been alternate protests outside the Parliament. One day there have been Syriza supporters calling for the government to stand firm and the next the right wing calling for the opposite. How long before there will be clashes between the two sides is hard to say. The mood has already darkened and passions could soon spill over. It is a dangerous situation

The election of a Syriza-led government in January, at the head of a mass anti-austerity movement, and after 30 general strikes, was an historic victory for both the working class of Greece and of Europe with the possibility of giving a powerful lead in terms of the anti-austerity struggle.
Since it was elected Syriza has been 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 many of its pre-election pledges in order to avoid an early default.

This undoubtedly strengthened the elites who will always demand more. It was also deeply controversial within Syriza itself both amongst its leadership and its membership.

June 26

This piece has been written as an editorial for the forthcoming issue of Socialist Resistance

1 Comment

  1. The Syriza government had also promised to restore the 13th monthly payment to pensioners which have dropped. Also much of their saving for future financial years comes from accelerating privations. Their €8 billion austerity programme would have pushed Greece back into recession with the spiral of falling revenues and negative budget surpluses more austerity would have been demand from the creditors. Exit from the Euro and defaulting on the public debts I is only way to improve the station for the majority of people in Greece as many of us have been arguing for over four years.

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