As we go to press, Greek Prime Minister Alexis Tsipras has made the dramatic announcement that the latest batch of draconian austerity demands from its creditors —the IMF the ECB and the European Commission (the so-called Troika)—have been rejected by his government. The package will be put to a referendum of the people on Sunday July 5.
The announcement has shocked the EU elites to their foundations. They have been operating—since the Syriza-led Government was elected in January—on the working assumption that it would in the end capitulate on their demands. This was never a part of the script.
The move has called directly into question Greece’s membership of the Eurozone and it has thrown the future of the whole European project into question.
Tsipras said that the Greek people had an historic responsibility to respond to the ultimatum from the Troika. He argued that the creditor’s demands were “blackmail for the acceptance on our part of severe and humiliating austerity without end and without the prospect of ever prospering socially or economically”.
He went on:
“These proposals, which clearly violate the European rules and the basic rights to work, equality and dignity, they show the purpose of some of the partners and institutions was not a viable agreement for all parties, but possibly the humiliation of an entire people.”
He told the Greek Parliament, when it met to endorse plebiscite, that he was calling on the Greek people to deliver a resounding No vote to the ultimatum for the Troika next Sunday .
A meeting of the creditors soon after the announcement was equally uncompromising. It decided unanimously not to extend the agreement and therefore Greece would be in default as from Tuesday.
Christine Legarde of the IMF put it even more bluntly. She said that after Tuesday the referendum would be irrelevant because the agreement would be gone and there would be nothing left to vote on.
They predicted turmoil in Greece after the default takes place, but it is not just Greece. Greece owes €320bn, most of it to eurozone governments, and a default will be expensive for the creditors, not least Germany, which has €92bn at stake.
Ten days 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 were demanding further deep cuts to pensions, a substantial rise in VAT, and the liberalisation of labour laws.
Crucial preparation for this confrontation has been made by the Truth Committee on Public Debt set up by the speaker of the Greek Parliament Zoi Konstantopoulou in April. It includes a number of left wing and Marxist economists 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.”
On Sunday June 21 the Greek cabinet decided to make concessions. They agreed a package that whilst it did not give the Troika everything it was demanding—there was still around a €2bn gap between the two sides—was a dangerous compromise.
It included a VAT increase, though not on electricity as demanded by the Troika and a 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.
It was clearly an austerity package, though not in the shape (or as severe as) the Troika wanted. They wanted to target the poor more and the employers less and they wanted to totally humiliate the Syriza leadership in the process.
Huge pressure was applied on the Greek government to bring about. Billions of Euros were hemorrhaging from the Greek banks and the ECB threatened to withdraw support facilities.
Concessions, however, were never an answer. They would have resolved nothing. Even if there had been a ‘settlement’ now, further debt major repayments are due to the IMF in July and August. All it did was to convince the Troika to take a hard line.
At first the elites 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 outright. 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 final take-it-or-leave-it offer 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.
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.
The statistics speak for themselves: 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 main weakness of the Greek government’s position was its attitude to Eurozone membership. They gave the impression throughout the negotiations that they were determined to stay in the Eurozone—which had handed the initiative to the Troika.
But then recently 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 the right approach. 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.
Now the calling of this referendum throws down a challenge to the elites and makes a clear declaration that they are not prepared to be held to ransom over the Eurozone any longer. This is very important since it has become very clear that to fight austerity within the Eurozone means being prepared to leave the Eurozone if necessary. Otherwise the threat of expulsion from the Euro will be made every time resistance is offered.
Nor are the elites in a strong position. They have a huge amount to lose. 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 made a concession to Greece, similar demands will be made by Spain, Portugal and Italy and beyond.
We have been seeing a major class-polarisation taking place in Greece. The right wing and middle class business people have been taking 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. The mood had already darkened and passions close to spilling over.
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 giving a powerful lead to the 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.
There was always, however, another side to this that the ultra lefts failed to recognise. This is that 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. In fact it has always had transitional implications.
The outcome of this remarkable confrontation therefore will define the future not only of the people of Greece but also the future of all those across Europe who struggle against austerity and for more democracy and equality. 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.