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Eurozone: How can we solve the crisis?

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Tom Walker reports on a meeting last week where prominent left wing economists explored answers to the crisis in Greece and the Eurozone
Issue 2205

Greece is in revolt over attempts to make the working class pay for the economic crisis with huge cuts to public spending.

The fightback has raised questions of how workers can move from resistance to a solution on their own terms.

It is also clear that resistance cannot just address the issues in one country without addressing economic and political questions across the continent.

Last week left wing economists Costas Douzinas, Stathis Kouvelakis, George Irvin, Costas Lapavitsas and Alex Callinicos spoke at a roundtable meeting in London to discuss the way forward. It was chaired by Guardian economics editor Larry Elliott.

“The government and the media present recent events as an act of god – a force of nature that could not be prevented or averted,” Costas Douzinas told the meeting. “If Greece is like the Titanic, the markets are the iceberg.

“This is the naturalisation of economics. Political decisions in Athens and Brussels are presented as unavoidable, inescapable, almost non-human interventions.

“Yet the reality is exactly the opposite. Everything that led to the current predicament was deeply political.”

He added that the 2008 bailout revealed the bankruptcy of neoliberalism. He said, “You fiddle your benefits, you go to prison. You bankrupt a bank, you get huge bonuses.

“Financial markets operate at the virtual level, based on ideological structures and self-fulfilling prophecies. Market pressure is used to make debtors follow current orthodoxy by reducing public spending.

“It’s not that different from protection rackets. If a shopkeeper challenges the racketeer, he gets beaten up.

“Greece was beaten up as an example to others – debtors, destroy your welfare state or become the next Greece.”

Stathis Kouvelakis spoke about how Greece is both an example of the European crisis and a specific case in itself: “In 1981, Greek public debt was 27 percent of GDP. In 1990 it was 72.5 percent. After the crisis of the early 1990s it rose to 100 percent.

“How are we to explain that? Is it profligacy? Is it the Greek lifestyle?

“Greece has the lowest salaries and pensions in western Europe – the average salary is about 1,000 euros a month.

“It has the weakest welfare system in western Europe, with minimal unemployment benefits and low social spending.”

He placed the blame for the public debt on tax evasion:

“What happened from the 1980s is that we had an increase in the level of state expenditure without a rise in the level of tax receipts.

“Small improvements were not properly funded. Tax evasion by the wealthiest, the corporations and small and medium businesses was the rule.

“The only sector where we can talk about profligacy is the military. Greece has the highest level of military expenditure in Europe.”


George Irvin set out the three options for Greece: to accept the austerity conditions of the IMF-EU bailout plan, default on the debt and leave the euro, or attempt to restructure the debt.

“The problem with the current option,” he said, referring to the bailout, “is that Greece is being asked to cut its budget deficit from 13 percent of GDP to 3 percent of GDP in just two years.

“If we look at one country that tried to do that, Latvia, its GDP fell by 25 percent in 2008 and 2009.

“Paradoxically, if you attempt to close the deficit where the deficit is vast and you’re already in recession then the result ends up being the opposite because of lower tax receipts.”

One alternative is defaulting and leaving the euro, he went on: “The advantage would be that Greece could dump its sovereign debt on the EU banks.

“In Argentina, within two years of default the country did start growing again.

“The disadvantages are that it leaves private debt like mortgages in euros, which could grow astronomically.

“There’d be a need to nationalise the banking system, which would collapse.

“Greece would need to balance its budget as it wouldn’t get loans from the international money markets for some time. Imports would become more expensive across the board.

“And default has overspill implications – it would heighten the nature of the crisis.”

He pointed to debt restructuring – asking banks to take payments later and write off part of the debt – as the most probable outcome in Greece.

And he added that the crisis will continue to spread either way. “Other countries like Spain, Portugal and Italy have major sovereign debt problems,” he said. “Their loans are even more short-term than Greece’s.”

Costas Lapavitsas posed the question of the real aim of the EU-IMF “bailout”.

“The aim is not to rescue countries – it is to rescue the banks,” he said. He pointed out that banks in France and Germany have made large loans to the southern European countries.

“What’s their way out?” he asked. “The policy in Greece is social pain on a grand scale. This will prove disastrous.

“It’s clear that Greece must default. The public debt is insupportable.

“The next step is to exit the euro and return to the drachma.”

Costas called for radical solutions to the crisis.

“There’ll be turbulence,” he said. “Banks will go bankrupt – so nationalise them, put them under public control and use them as a basis for reconstruction.

“What are needed are anti-capitalist policies. The state itself will have to be transformed.

“In short, we need a shift against capital in favour of labour accompanied by a profound social and economic transformation.”

Alex Callinicos told the meeting:

‘Although this is a crisis that started in the financial markets, I don’t think it can be reduced to a financial crisis.

It’s the consequence of a much more protracted crisis of overaccumulation and profitability.

This is the latest phase, just as in the 1930s the depression went through a succession of phases.

What started as a crisis that arose from the massive accumulation of private debt has turned into a crisis of sovereign debt.

To prevent the crash turning into a 1930s scale depression, states stepped in and bailed out the banks. That is what led to the substantial increase in state indebtedness.

The banks that were rescued with state money are now turning round and demanding that the resulting increase in public debt is resolved through brutal cuts in public services, public sector wages and pensions.

The revived financial markets, ever desperate to make a quick buck, are testing faultlines and gnawing away at what they see as the weaker parties.

As a result we’ve seen austerity ricocheting from one country to another to assuage the markets: Greece, Spain, Portugal and a version of the same thing with the new government in Britain.

We should see the IMF-EU 750 billion euro “rescue plan” really as the second great bank bailout.

For them, the danger of what’s been happening in the markets is it could react back on the banks themselves.

It seems to me to be a characteristic of the crisis that it bounces back and forward between the public and private sector. It’s an indication of the absence of any solution.

What’s happening in Greece is important. Ideas that would have been unthinkable have come back onto the agenda, like the idea of default.

The general strike on 5 May had an insurrectionary quality that we haven’t seen in Europe for decades.

Part of the problem for the dominant forces in the eurozone is they’ve decided to make their test case against the workers’ movement, social movement and radical left that has the strongest history of combativity and militancy in the past few decades.

The question of agency, of collective forces, of resistance and developing the political imagination to think about these alternatives – and try to realise them – is the most important reason for looking at Greece so closely.

It is a laboratory of the worst that could happen but also the best.’

Costas Douzinas is professor of law at Birkbeck.

Stathis Kouvelakis is a lecturer at King’s College and an activist in France’s New Anticapitalist Party.

George Irvin is research professor at SOAS.

Costas Lapavitsas is professor of economics at SOAS.

Alex Callinicos is professor of European studies at King’s College and a regular Socialist Worker columnist.

The roundtable was organised by Research on Money and Finance at SOAS and the Birkbeck Institute for the Humanities.


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