• Facts instead of Myths on Greece
  • Who Saves Whom?

  • 17 Aug 15
  • This is a shortened and translated version of a ver.di-paper. ver.di is the German service trade union.

    Change of government and political extortion

    During the elections in January 2015, the Greek population voted to remove the conservative government from power. They were fed up with the forced austerity. The strongest political power was the left-wing alliance, Syriza.

    Syriza campaigned in the elections for the end of the policy of cuts, for social programmes, for state reorganisation, for investigating the planned privatisations and for debt cuts. Syriza also claimed it would fight corruption, nepotism and tax fraud and improve employees' rights. The minimum wage was to be further increased and the price system strengthened. The measures were to be paid for by collecting outstanding tax debts, fighting tax fraud, from EU financed funds for bank stabilisation and from existing EU structure and investment funds.

    After winning the election, Syriza formed a coalition government with the right-wing populist Independent Greeks (ANEL).

    In order to meet old debts the government is dependent on further credit.

    Despite the hopes of the new government, the troika categorically refused negotiations for debt cancellation. Greece therefore had to continue to honour the old debts. Payments owed to the IMF and the ECB totalled over 17 billion euros in 2015 alone. However, the Greek government's income is just enough to finance the running government spending. There was no money for the repayments which the new government still owed. This is the reason why the Greek government is dependent on further credit and a new 'aid programme'.

    The German government in particular pushed for the continuation of the neo-liberal shock therapy. In order to receive more credit from the EU and the IMF, the VAT was to be further increased, pensions cut and public property privatised, among other things.

    However, the Tsipras government also created its own shackles. In the first five months it concentrated on negotiations with the creditors. In order to prevent its own elite (economy, church and military) from rising up against it, the new government did not risk any national conflict and only implemented a few claims from the election campaign. These did include a law to fight the humanitarian crisis. There was no clear signal that they were serious about fighting corruption and tax fraud. 

    The referendum was a clear vote to end the policy of cuts.

    With their backs against the wall, the Greek government finally asked its population in July 2015 whether they wanted to continue with the failed troika policy. The result of the referendum was a clear no to the policy of cuts. However, the will of the Greek population was ignored in Brussels. Even in the week before the referendum, the ECB had already almost completely cut off the money supply. They did not guarantee the Greek banks any further liquidity support. Thus, the Greek government considered itself forced to close the banks and introduce capital controls. The crisis escalated and Athens had a gun to its head. The German finance minister publicly threatened Greece with a 'Grexit', throwing it out of the Euro zone if the Greek government did not submit.  

    What would Grexit bring ?

    This 'Grexit' - that is the introduction of its own currency - would have further escalated the economic, social and political crisis. Savings would be devalued, the price of imported foodstuffs, raw materials and capital goods would have exploded. The debts would still have to continue to be paid in euros. As a result, the debt owed would have increased. The advantages of cheaper export prices would, on the other hand, have been very low, as Athens does not have a large export industry. Thus, the 'Grexit ' was never a realistic alternative for the Greek government. 

    In Europe the right of the strongest applies again

    In the agreement from mid-July 2015, the creditors used the hopeless situation of the Greek government to further intensify constraints. Despite the catastrophic experiences which were made with the trust company during the German agreement, the Greek government was now meant to develop further comprehensive privatisations via such a route. A trust company is to be set up into which Greece should put its state assets under European supervision. In addition, as a preliminary condition for reopening negotiations, the Greek government had to take the first steps in the fast-track proceedings through the parliament.

    Such political extortion has not been seen yet in recent European history. The 'power of the strongest' now once again applies in Europe.

    However, this was not enough. The Greek parliament must present all central proposed legislation to the creditors. Thus, in the future, Brussels, Washington and Berlin will also decide on the Greek financial market, job market and social policy. In addition, the troika will also continue to be involved in the national wage policy and therefore further undermine free collective bargaining. This external administration by the creditors ridicules any idea of a democratic and social Europe.

    In order for Greece to get out of the long-term crisis and to get the economic development back on track, the creditors must finally admit that the troika policy has failed and must be ended. Only when the Greek economy can get back on a growth curve will the social situation improve. This is also a necessary condition for Greece to be able to meet its debts.


    Economic alternatives

    Today, Greece has two big problems: firstly, the country is in the worst economic crisis in its history. An economic crisis which can only be compared with the great depression of the 1930s. Secondly, it bears an enormous burden of debt.

    In order to overcome the economic crisis, the economy must be stimulated urgently. This requires a significant increase in public and private demand. However, the current establishment cannot presently finance these. The Greek government has only just managed to cover running costs with the running income following massive savings. 

    Athens may not be forced into dissipating national assets

    In order for Greece to be able to aim in the short-term for surpluses, the troika wants to force Athens to sell its public property. However, this is completely the wrong path. Only state property which makes profit could achieve notable private yields. This one-time income would, however, largely flow into debt repayment. Thus, the money would end up abroad, once again increase the investors' returns and would therefore not available for economic stimulation. As Greece would have to sell under pressure, there is also the threat that state property would be squandered. Under the cynical title 'Summer closing down sale in Athens', the German economic newspaper Handelsblatt valuated lucrative sales objects, including numerous Greek islands. Potential 'investors' have already announced that they do not want to pay a single cent for taking over Greek state property, such as the Österreichische Bundesbahn (ÖBB - Austrian Federal Rail Company), which has shown interest in taking over the Greek national railways. Insofar, the privatisation of Greek state property is not suitable for mobilising the necessary financial means. It will either bring nothing in and there will be virtually an expropriation of Greece. Or, Greece will be long-term and permanently robbed of its income for the purpose of short-term, privatisation yields.

    Therefore, there is no other alternative other than to initially finance a growth stimulus with credit from the ECB, the IMF and the EU. In this context, the German trade unions are calling for an investment and development programme for Europe, a Marshall plan. 

    Economic recovery is the prerequisite for the settlement of debts

    As Greece is a small country - an eighth of the population and a sixth of the economic performance of Germany - relatively small stimulus packages could trigger relatively large growth stimuli. Five billion euros would be sufficient in order to grow Greek GDP by three per cent. As state increased expenditures push-start further expenditures - economists refer to this as a multiplier effect - this additional expenditure would even increase GDP by four per cent.

    First and foremost, investment should be in infrastructure projects, renewable energy and increasing energy efficiency. Then, on one hand, jobs would be directly created in order to create additional income and, on the other hand, there would be savings due to sinking raw material import costs which could then be used to further strengthen the demand. Together with the growth-related increase in tax revenues, which will also improve the state's financial situation and open new perspectives, the stagnation could be overcome and an upwards trend introduced.

    However, the current problem is that the financial help from the EU and IMF largely goes towards paying off debts. A lower burden of debt would release financial means for urgently needed growth stimuli and thus support economic recovery. There are also historical examples of this. Germany, for example, at the London debt conference in 1953 had around half of its pre-war and war time debts waived. The settlement of the remaining debt was also connected to the pace of economic development. A maximum of three per cent of the export income should go towards servicing debts.

    Greece also needs a similar debt relief. This does not even require credit in the sense of cancelling debt cuts. In particular, due dates must be pushed into the future and Greek debt servicing must be linked to the country's development, just like in the London debt agreement example.

    This would have the advantage that creditors must not irrevocably write off their assets and Athens would not have its hands tied in regard to the necessary economic stimuli.

    Investment programmes and debt moratoriums would have to be flanked in further reforms in Greece but also in Europe.

    In particular, in Greece the radical degradation of employee rights and the reduction of the legal minimum wage must be revoked. The measures have not led to growth and jobs, rather only to poverty and towards increasing injustice in the country. Equally, the right to collective bargaining must once again apply to its full extent and sectoral collective agreements must be promoted to strengthen income development and the entire economic demand. 

    Greece finally needs a modern adminstration

    Also unavoidable is the modernisation of public administration. The EU can provide support here. Through increased and targeted training for personnel is to guarantee the implementation of the tax legislation. A tax reform would make the rich and those with more assets contribute more towards financing the commonwealth. The drastic increase in VAT has particularly burdened people with low income and at the same time weakened the central pillar of an economic up-turn, the mass demand. 

    Only together can we overcome the negative developments in Europe

    However, in Europe reforms must also be pushed forward. As it was not only the Greeks who were responsible for the negative developments; all the Euro countries together are responsible.

    A central cause of the negative developments can be traced back to the founding of a currency union. The error here was that a common currency without a common economic policy cannot survive. The euro crisis and the further escalation in Greece show that a currency union only works with a political union. However, no European institution has been created yet which can effectively fight negative developments in Euroland. Thus, the union was watching helplessly as southern and northern Europe developed further and further away from each other. In particular export-strong Germany has profited from the debts of the southern euro countries. In this way, the massively increased German export surpluses were co-financed. In particular German and French banks have thoughtlessly provided Athens with credits of billions for a long time. The ECB watched on idly, which made Greece's high debts possible in the first place. "This collective responsibility, however, is completely overlooked by Minister Schäuble and his allies" wrote Harald Schumann in an analysis of the Greek situation in the Berlin Tagesspiegel at the end of July.

    Quite the opposite: it borders on reality denial if finance minister Schäuble will now make the German model - keeping wages low, increase export surplus and shrink the state - the example for the entire euro zone. However, surpluses of a country are only possible if others have deficits and go into debt. Insofar it is not possible to create Europe according to the German example. This model is based on 'fantasy economics', according to the American economist and Nobel Prize winner, Paul Krugman. 

    We do not need less but more from a different Europe

    In the future, economic exemptions in Europe must be prevented. This must be the lesson from the euro crisis and the developments in Greece.

    As a first step, the powerful ECB must be opposed by a European economic government. Only in this way the Eurozone can effectively fight economic crises in the future and operate common debt management controls. Through stronger coordination of the national wage policy, work-cost related competition distortions can be avoided and a contribution can be made towards compensation of the current balance. In order to avoid social and tax dumping, stronger coordination of the social and tax policies is also required. Such a concept of a European economic government, however, has nothing in common with Merkel's and Schäuble's plans of deepened European economic policy coordination according to a neo-liberal model (stability pact, fiscal pact etc.).

    In the long term, Europe needs a government which is elected by all citizens and has the means to combat negative developments in individual countries. This requires a suitably large establishment which can activate targeted state investment in the individual countries and in the event of a crisis, also act against social hardships with a social programme.

    With comprehensive aid from the EU, the ECB and the IMF, Greece can overcome a crisis and find its way back to self-supported development. In the future, however, we can only prevent economic crises if the necessary reforms are introduced in the Eurozone towards a democratically legitimate government which is capable of action.

    This requires, as former foreign minister Joschka Fischer correctly stated, that Germany becomes more European and not that Europe becomes more German. The Eurozone may not be transformed from a European project into a German zone of influence. Only in this way the crisis can lead to an opportunity for a more democratic and social Europe. More European influence, but in a different way.

    For the full version in German please refer to: wipo.verdi.de