Ideas, Interests and Neoliberalism
Debtfare States and the Poverty Industry

Hope is Coming and the Fear of Dominoes

by Troy Henderson on February 4, 2015

When Greeks voted last Sunday a SYRIZA victory was all but assured given the party’s consistent lead in the polls and a strange quirk of the Greek electoral system that gifts 50 ‘bonus seats’ to the party with the highest vote. With 36.34% SYRIZA topped the poll followed by centre-right New Democracy (27.81%), neo-Nazi Golden Dawn (6.28%), neoliberal The River (6.05%), communist KKE (5.47%), right-wing nationalist Independent Greeks (4.75%) and centre-left PASOK (4.68%). SYRIZA quickly negotiated a coalition arrangement with the nationalist, xenophobic Independent Greeks (ANEL) due to the latter’s anti-austerity, anti-memoranda stance. The River and PASOK are both neoliberal parties and the KKE was not interested in entering into a coalition.

Despite the expected result, the reality of a SYRIZA government – and its actions since being elected – has sent shockwaves through the European establishment and seen Greek bank stocks crash while bond yields soar. SYRIZA’s victory raises important questions regarding the future of Europe, the resilience of neoliberalism, the role of economic theory (and economists) in any alternative to austerity, the power of social movements and the potential for the radical Left to win mass support.

The core of SYRIZA’s agenda, as outlined in the Thessaloniki Program, is built on 4 pillars: confronting the humanitarian crisis, restarting the economy and promoting tax justice, regaining employment, and transforming the political system to deepen democracy. The economic program is essentially Keynesian, welfarist and developmentalist in orientation and envisages Greece remaining part of the Eurozone. The key to its implementation is a renegotiation of the quantum – and terms – of Greece’s public debt.

TsiparasThe Thessaloniki Program demands a “write-off [of] the greater part of public debt’s nominal value so that it becomes sustainable in the context of a European Debt Conference”;  “a ‘growth clause’ in the repayment of the remaining part so that it is growth-financed and not budget-financed”; a “significant grace period (“moratorium”) in debt servicing to save funds for growth”; a ‘European New Deal’ of public investment financed by the European Investment Bank”; and “Quantitative easing by the European Central Bank with direct purchases of sovereign bonds”.

At 175% of GDP, Greece’s sovereign debt is clearly unsustainable. In addition, there are questions regarding the debt’s legitimacy. As Martin Wolf writes, the “€226.7bn (about 125 per cent of GDP)” loaned to Greece by the troika “went overwhelmingly not to benefiting Greeks but to avoiding the writedown of bad loans to the Greek government and Greek banks. Just 11 per cent of the loans directly financed government activities. Another 16 per cent went on interest payments. The rest went on capital operations of various kinds: the money came in and then flowed out again”. But despite these facts it is obvious that SYRIZA’s demand for a complete reorientation of European policy will encounter stiff – perhaps intransigent – resistance.

As James Galbraith writes: “The European powers hold three cudgels as negotiations start. First, Greece has debts coming due this year that it cannot pay. Second, Greek banks rely on the Emergency Liquidity Assistance of the European Central Bank, which could be cut off. Third, Quantitative Easing gives the ECB a new way to insulate the rest of Europe from Greece’s agonies. Should Europe choose, these cudgels can be used to enforce a policy of threats, so as to maintain austerity, foreclosures and penury in Greece”.

The European powers, especially Germany, are clearly concerned about the contagion effects of any deal struck on Greek debt. On one hand, acceding to SYRIZA’s demand for a substantial write-off of Greek debt would lead to similar demands by other heavily indebted Eurozone countries. On the other hand, refusing such a deal could ultimately push Greece out of the Eurozone and prompt other countries on the European periphery to follow suit, leading to a breakup of monetary union. A key factor could be the impact of SYRIZA’s victory on the political fortunes of anti-austerity parties in other countries, such as Podemos in Spain, Sinn Fein in Ireland, and even the Front National in France.

These matters may soon come to a head with Greece scheduled to pay €22.6bn to the troika this year with the first tranche due in February. As Phillip Inman writes, with “Greece running a €10bn deficit in 2014, mostly the result of debt repayments, paying the monthly bills is going to be impossible without EU/IMF funds”. A group of heterodox and radical economists will play a key role in these negotiations, and in the design and implementation of SYRIZA’s program of government more broadly.

yanisGiorgos Stathakis, a political economy professor at the University of Crete, has been given the tourism, transport and shipping portfolio. Oxford-trained economist Euclid Tsakalotos has been named deputy minister for international economic relations. German-trained Marxist economist John Millios remains a key advisor to Alexis Tsipras despite not being in parliament. Rania Antonopoulos, the Director of the Gender Equality and the Economy programme at the Levy Economics Institute was elected to parliament. Well-known Marxist economist Costas Lapavitsas was also elected. Finally, former University of Sydney economist and prolific blogger and commentator Yanis Varoufakis was appointed to the key role of finance minister. Varoufakis is the author – with Stuart Holland and James Galbraith – of a Modest Proposal that outlines four policies designed to solve Europe’s banking, public debt, under-investment and social crises without the need for reform of EU institutions.

But the practical role of left economists in SYRIZA’s political project is of course only one point of interest for political economists in relation to Greece. The ‘Memoranda Era’ has constituted a five-year field experiment into the effects of austerity and the results are damning. The Greek economy has shrunk by 25 per cent over 5 years of troika-mandated bailouts-for-austerity. Because of this shrinkage its public debt to GDP ratio is higher now than at the beginning of the crisis. Unemployment is 24 per cent. Youth unemployment is 50 per cent. Real wages fell by 22 per cent between 2009 and 2014. The European debt crisis has also exposed serious design flaws in the architecture of European monetary union and pointed to the perils countries face in giving up their own currencies. The failure of austerity and SYRIZA’s victory also raise the question of whether the post-GFC resilience of what Damien Cahill calls “embedded neoliberalism” has reached a critical juncture and may be showing signs of breaking down.

As James Meadway writes: “There is the potential now inside Europe to shake off the dead years of neoliberalism. History was declared to have ended 25 years ago, as the Berlin Wall came down. We have lived as a result for a generation in a world where the left had been ruled out of existence. Those years are now coming to an end.”

On this point, the spectacular demise of PASOK has given rise to a new term “Pasokification” that serves as a warning to all centre-left parties of the potential consequences of clinging blindly to neoliberalism. It also points to openings for the radical Left.

Ultimately, the future of Greece will not be decided by charismatic leaders and left-wing economists but by the balance of social forces within Greece, and across Europe. SYRIZA’s victory provides some evidence of a shift in a progressive direction.

Troy Henderson
Troy Henderson is an economist with a particular interest in the past, present and future of work in Australia. He received a Bachelor of Economics and Social Sciences and a Master of Arts (Research) in Political Economy from the University of Sydney. He is completing his PhD in 2019. His Masters research focused on The Four-Day Workweek as a Policy Option for Australia, while his PhD thesis explores Basic Income as a Policy Option for Australia. He has published academic articles and book chapters on these and other work-related topics, and has undertaken economic consulting work for Public Services International. He has presented at national and international conferences, and is a regular media commentator. He is passionate about fair work, social justice, cricket and the NBA. Twitter: @TroyCHenderson

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