What has been happening in Greece since the outbreak of the financial crisis in 2007/2008 and of the eurocrisis in 2009/2010 is not unique to this country. Greece is not an exceptional case.
The Greek crisis displays many characteristics shared by other member-states, albeit in extremes. It is the extreme shape and dynamics of the Greek case that have acted as a catalyst for change in its domestic social and political landscape with the rise of the non-traditional, radical left. However, for such a change to influence the course of events there needs to be a broader change in European affairs.
EU- policy has to change
In particular, the current economic and social policy of austerity hitting the vast majority of the people in the EU, on the one hand, and of unconditional support for the European banks, on the other, needs to be re-examined and, to a large extent, reversed. Thus, what is implicit is a two-way effect. For the radical left in Greece to succeed in its goals there needs to be a broader shift of the EU away from tested and failed economic and social policies. The fulfilment of this requirement however implies that the EU will also undergo a fundamental change in terms of its policy and dogma. It is in this sense Greece may change the course of the EU, with which it is intrinsically linked.
More specifically, the current debt overhang obstructs member-states’ efforts at fiscal expansion via increased consumption and investment. The abstention of the European Central Bank from the traditional central bank role, of a lender-of-last-resort, prevents the indebted EU member-states from seeking a way out of their present predicament. The negative implications of this state of affairs are amplified by the official doctrine of enhanced austerity adopted by the EU institutions. For example, the fiscal thresholds of the Stability and Growth Pact have been made even more restrictive by the Fiscal Compact, already constitutionalized in the EU member-states. In this way, the Great Recession triggered by the financial crisis is deeper and more long-lasting in the EU and especially in the Eurozone, by comparison with other parts of the world, such as the USA. Not surprisingly, the rate of growth of the EU economies has been slowing down to a dangerously low level, unemployment remains persistently high, while the rate of inflation is very low, turning into a fully-fledged deflation in certain member states such as Greece.
The world’s biggest economic damage
Greece was the first Eurozone country to be exposed to the pressures of the government bond markets, which the ECB did not abate due to its limited mandate. The financial assistance provided by its Eurozone partners in 2010 was granted on especially harsh fiscal austerity conditions, as well as structural reforms, mainly in the labour market, including the suspension of the minimum wage and the elimination of employment protection measures. The negative impact on the economy became evident soon after, while the greatest part of such assistance was directed to the European and Greek banks.
The fast economic decline soon turned into a humanitarian crisis, as unemployment increased to unprecedented heights, while public services – education and health – collapsed. Furthermore, the fiscal indicators, measured in relation to a fast shrinking GDP, kept rising, thus locking the country into an unsustainable position of economic and social decay. In fact, it has been found that the long-run damage to the economy over the period 2007 to the present has been greatest in Greece, by comparison to other OECD countries, while the country is faced with poor prospects going forward1.
The Greek Left and its program
The extreme circumstances observed in the Greek case have led to a deep restructuring of the domestic political scene. The social democrats and the conservatives, alternating in power since the fall of the Junta in 1974, have lost credibility, while a small left party, SYRIZA (acronym for Coalition of Radical Left), became the main opposition party in the national elections of 2012 and the first party in the European elections of 2014. There have also emerged a populist right wing and a fascist party. In particular, the latter is on the ascendant; this is a worrying trend also observed in other EU countries.
It is widely expected that SYRIZA will get into government in the next elections. Hence, its programme acquires special interest. At the outset, it should be stressed that SYRIZA is committed to keeping Greece in the Eurozone. At the same time, it is committed to restarting growth through (i) confronting the humanitarian crisis; (ii) restructuring production; (iii) reforming the public administration.
A European Debt Conference is required
However, for these policies to take effect, the country’s debt overhang needs to be dealt with. Although this has reached great proportions in Greece, it is fundamentally a European problem. Hence, government debt needs to be dealt with on a basis of solidarity amongst Eurozone member states. It must be cancelled &/or mutualized, at least in part. This is a central issue which needs to be decided upon by the EU member states at a European conference convened for this purpose. The mutualization of government debt may be implemented in any of the following ways:
· Restructuring – For example, 50% of existing public debt may be swapped with zero-interest perpetuities, so that the corresponding part of the debt is wiped out. The agency best suited for this task is the ECB;
· Intervention by the ECB in government bond markets – The ECB assumes its role as a lender of last resort (LOLR) with respect to governments.
· The common issue of Eurobonds – Each country’s debt would be guaranteed by all the others. The rationale is that the overall level of European debt is not high by comparison to that of the US and Japan. It is however distributed in an uneven way across the EU and the Eurozone.
In addition to dealing with the debt overhang, solutions must be put in place on the European level in relation to low inflation and the threat of deflation, since these are also European problems. Such solutions include the implementation of a large investment programme, the needs of which should be excluded from the strict limitations of the official EU fiscal indicators. Also, the repayment of the public debt needs to be tied to the rate of growth of the economy, so that fiscal space is created for the economy to restart.
A majority want change
Rough times lie ahead for Greece and the EU. The success of a left-wing government in Greece is going to affect is future path, while it may be expected to have a wider impact on EU developments. The rise of left forces in other countries, such as the PODEMOS in Spain, indicates that the political left is gaining in support from people who do not necessarily identify with the left.
Greece and the Greek left cannot and should not go it alone. A future Greek left government needs to work closely with other European progressive forces in building a new paradigm; one of social and ecological sustainability, of democracy and of economic progress. In this sense, Greece – a notion which goes beyond the left forces, as it includes the majority of the population who look forward to a much needed change in Greek and European politics – may indeed bring about such a change.
This article has been first published in German in A&W Blog