”Thinking again?” the Duchess asked, with another dig of her sharp little chin.
”I’ve a right to think,” said Alice sharply, for she was beginning to feel a little worried.
”Just about as much right,” said the Duchess, “as pigs have to fly....”
Lewis Carroll, Alice’s Adventures in Wonderland, Chapter 9
One cannot be sure that the acronym PIGS (Portugal, Italy, Greece, Spain), which I first saw in the Economist of July 9, 2008, was invented by a smart-alecky journalist because of its racist, xenophobic and insulting connotations. However, it certainly corresponds to the stereotype of the people in the South of Europe that is held by the people of the European North and, in any case, its extensive use in the public debate is strongly indicates who has the ideological hegemony in the EU today.
There is no doubt that Greece is the most vulnerable of the pigs, i.e. of the profligate, irresponsible, gross spenders of the European South. With a huge public deficit, “discovered” to be 12,7% or more of GDP after the October 2009 elections1, an equally huge public debt of almost 300 bn. euro or around 113% of GDP (a large part of which will mature by 2012) and an alarming current account deficit (14% of GDP), it is no surprise that this country has been put into the sausage grinder of the financial markets, although there is a widespread suspicion that the target of the international speculators is the euro itself. At the time this article is being written, the rate of return for the 10-year Greek government bonds in the “markets” is almost 7%. That means that the Greek government’s cost of borrowing from the international institutional investors and speculators (i.e. foreign hedge funds, pension funds and big French, German and English banks, which incidentally hold 70% of the total Greek debt) is double that of the German government.
Greek fiscal imbalances are, to a large extent, related to the so called “sovereign debt crisis”, which is the third phase of the on-going economic turmoil, with the financial and the “real economy” crises considered as the first and second phase correspondingly. The “bail out” of the banking sectors, as well as counter-cyclical policy measures intended to prevent a deep recession and/or social explosions, is the main reason behind the general increase of public debt all over Europe and most parts of the developed world. According to European Commission estimates, public debt will be steadily rising in the future and, if governments don’t change their policies, the average EU-27 debt/GDP ratio could reach 100%, by 20142. In this context, the “Greek problem” is also a “Southern European problem” and an “EU problem”.
The way the EU has up to now handled the Greek problem is indicative of its own identity crisis and the rivalries between its member states, as well as between them and the EU institutions (European Commission, European Central Bank, European Parliament). In contrast to any concept of “European solidarity”, Greece has been left to the mercy of the markets. The so-called “EU fiscal support mechanism” agreed, decided on in the March 25, 2010 meeting of the sixteen leaders of the euro-zone countries (the Eurogroup), seems to be nothing more than a euphemism for a compromise which was acceptable to Germany, a country that seems to have abandoned not only the “Rhenish” model of capitalism, but also its traditional leading role in the process of European unification, replacing this with the new goal of becoming one of the new world powers3. According to this decision, if a majority of the members of the Eurogroup want to lend to Greece, they can do it, together with the International Monetary Fund, at the prevailing market rates, only after a unanimous decision of the Eurogroup members and only if Greece cannot borrow from the international markets, i.e. until it is on the verge of default. However, since the danger of such a default might contaminate the other countries of the European South and ultimately the euro-zone itself, it is not improbable that the “support mechanism” can be put into practice and Greece be obliged to follow the rules of IMF Conditionality, to the absolute discontent of the European Central Bank.
The EU inaction also shows the instability of the neoliberal compromise forged in the 1990s among the founding EU big states (especially France under Mitterand and Germany under Kohl, but also the UK under Thatcher), reflected in the Maastricht Treaty and henceforth carried forward to all treaties (Amsterdam, Nice, Lisbon). A currency union of independent capitalist states, with big divergences in productivity, each with its own fiscal, income and social policy, with a minimal common budget, a Central Bank that not only is not a lender of last resort (as is, for example, the Federal Reserve in the US and the Bank of England in the UK), but whose only aim is to ensure low inflation, is not sustainable in the long run. In case of a serious crisis, like the one we are in, everyone knew that European Monetary Union was doomed to act in the context of ever more severe troubles, even if the European subaltern classes were consistently squeezed under the wheels of the Stability Pact. However, in the period of the western world’s arrogance following the collapse of Soviet communism, the dominant political forces in Europe believed that crisis-free neoliberal capitalism would soon lead to the end of history.
One should, however, be careful not to interpret what happened in the 1990s and is still happening today as choice or policy “mistakes”. The admission of Greece, Portugal and Spain to the EU was not a mistake – it was the result of state decisions of both the then “new entrants” and the old members, taken in a bi-polar world, mainly for geopolitical reasons. Holding German wage increases to levels below productivity increases, for the last fifteen years, a policy which has resulted in this country’s big current account surplus and its Southern European partners’ corresponding big deficits is not a mistake; it is the result of the balance of social and political forces – the weakening of the segmented German working class – in post-unification Germany. The abandonment up to now of an EU member to its fate, a decision which may cost dearly not only for the stability of euro but for the very existence of the European Union, is not a mistake – it is the result, on the one hand, of the decision of most EU states and their conservative or centre-left governments to abide by the rules of the financial markets and, on the other hand, of the policies of Mrs. Merkel’s government which apparently influence and at the same time express the will of the majority of the German people.
It is neither wise nor radical to be silent about the very bad shape the Greek economy is in. Its extreme fiscal imbalances are not due only to the world crisis, but also to past and recent political choices reflecting the balance of political and social forces in this country, as well as the way of reproduction of its capitalist social formation which has the following, among others, characteristics: a weak productive basis, low savings and investment, a wasteful and inefficient public sector (underfunded and understaffed hospitals, schools and universities), clientelism and corruption connected to bi-partism, huge military expenditures, extreme income inequalities, a large shadow economy, a large native and immigrant precariat, low wages and pensions and, last but not least, a very slim tax base due to low actual tax rates of firms and high incomes and an extensive tax evasion practiced by a “cross-class alliance” of big Greek, foreign and off-shore companies, but also of medium and small enterprises as well as professionals (lawyers, doctors, taxi owners, plumbers etc).
As we said above, with the German government’s insistence, the EU has not only abstained from taking any positive policy measure for the support of the Greek economy, but has not even issued a clear official declaration of support, which could hopefully tame the “beast” of the financial markets. The Papandreou government’s Stability Programme, approved and supervised by the European Commission, the ECB and the IMF which, according to official statements, provides only its “technical expertise”, has set policy targets that are both unrealistic and disastrous for the Greek economy and society. It is aiming at reducing the deficit from 12.7% of GDP in 2009 to 8.7% in 2010 and 5.6% in 2011! The country is supposed to reach the Stability Pact target in 2012, when the deficit will fall to 2.8% of GDP. No sane person believes these targets can be reached without plunging the country into stagnation and extreme poverty. It is noteworthy that the government of the UK, a country which has a deficit/ GDP rate equal to Greece’s, is not thinking of reducing it in an abrupt way, and in this decision it has the support even of the usually hawkish Financial Times4.
Being the “weak link” of the EU, as a small, indebted and powerless country of the European periphery and not in Lenin’s anti-imperialist sense, Greece is the guinea pig in a big social, political and geostrategic experiment. The dominant classes and political forces (mainly, but not exclusively) of the big EU countries expect this experiment to provide answers to the following questions, among others:
Will the government of the naughtiest of the PIGS manage to cut real wages, fire “excessive” public employees, increase labour flexibility, privatise what is left of the public sector including the pension system, increase the retirement age, etc.? Will Papandreou be able to reach social and political consensus in the name of Greek national interest, or, if this proves not possible, how will he manage to suppress popular anger? Will Greece finally manage to convince the markets that it is able to follow its Stability Programme, at any social cost, or will it ask for the “support mechanism” to be activated? If the latter decision is taken how will it be implemented and what will the reaction of the Greek people be? What will IMF intervention mean for Euro-Atlantic relations? Will Greece and possibly other intractable countries of the South voluntarily decide to quit the euro-zone, or should they be expelled from it, and how will this development influence the euro?
The Greek government’s IMF-type policies, praised by all its partners in the EU, have not managed, until now, to reduce the spreads between Greek and German government bonds. The markets and the notorious rating agencies are pushing the country to the “support mechanism” in order to test the strength of the euro itself, and it seems that Germany, having second and more reasonable thoughts (for its own and the euro-zone’s interest), will not veto an EU decision.
The radical left in Europe can feel completely vindicated for its criticism of the neoliberal construct established by the various European Treaties since Maastricht. The neoliberal European project is staggering and nobody can guarantee its future. Pigs cannot fly and this is no a fault of the PIGS! However, ex post vindication is not an achievement per se, although it can be a useful weapon in the ideological and political struggle with both the right and the centre-left political forces, which are responsible for the state of the Union. The problem is that the left has neither managed to prevent this disastrous neoliberal process of integration nor change it after it started. Effectiveness is even more urgent today, since the situation in Europe is extremely difficult for the working people in all countries.
I am in a position to know that in Greece Synaspismos has a coherent programme for a progressive exit from the crisis, which includes specific proposals for the euro-zone and the EU in general, and I am sure that the same is more or less true for most European left parties. What we don’t know is the way the radical left can gain the ideological and political hegemony in our countries in order to change the balance of political and social forces, without which no social transformation is possible at national and European levels. Here are some, not so original, personal ideas on this effort.
In the face of the ongoing crisis and the problems in Greece, the countries of the South of Europe, the euro-zone and the EU in general, the European radical left should:
The situation in Greece, the South of Europe and EU is really worrying and unstable. One cannot say if the crisis will destroy the dilapidated neoliberal project of Europe’s dominant classes and mainstream political forces or will be a catalyst for a so called neoliberal “political governance” of a Union with or without some or all of the PIGS. In these historic circumstances, the European radical left should try to regain its transformative outlook which is constitutive of its identity. Our comparative advantage in this arduous task is internationalist solidarity, cooperation and common action. Let’s try to concretise this aim.
1) The initial target for the 2009 public deficit/GDP ratio included in the New Democracy government’s budget was -2%; the Commission’s January 2010 update raised it to -3.7% and its Spring 2010 update to -3.7% (see Council Decision Establishing whether effective action has been taken by Greece in response to Council Recommendation of 27 April 2009, Commission for the European Communities, Brussels, 11.11.2009, SEC (2009) 1549 final).A report published by the European Commission, on January 12, 2010, written after a request from EU finance ministers, found “deliberate misreporting of figures by the Greek authorities in 2009”. According to an article of Louise Story, Landon Thomas and Nelson D. Schwartz published in the New York Times, on February 13, 2010, the known investment bank Goldman Sachs has, from 2001 when Greece entered the euro zone until recently, been helping successive Greek governments to “massage” Greek statistics.
2) European Commission, Directorate General for Economic and Financial Affairs, Sustainability Report 2009
3) For an excellent presentation of the changes in this country, see Perry Anderson, “A new Germany?” New Left Review, 57, May-June 2009.
4) See “World economists join UK fiscal fray”, editorial, Financial Times, February 18 2010, referring to a letter to the newspaper by 67 eminent economists with the title “First priority must be to restore robust growth”, in which among other things they say that “There is no disagreement that fiscal consolidation will be necessary to put UK public finances back on a sustainable basis. But the timing of the measures should depend on the strength of the recovery”.
5) See C. Lapavitsas et al., “Euro-zone Crisis: Beggar Thyself and Thy Neighbour”, RMF occasional paper, Research on Money and Finance, SOAS, March 2010.