A couple weeks ago I wrote about how the negotiations between the new Greek government and its European debtors reminded me of the famous scene in Rebel without a cause where James Dean drives a stolen car over a cliff in parallel with Corey Allen to see who would “chicken out” and jump off first to avoid falling, and how I interpreted some declarations of Greece’s Finance Minister as visibly chaining himself to the steering wheel to show his willingness not to jump first (in the film, it is Allen whose jacket gets stuck to the door handle, and thus goes over the cliff-although at least he was not branded as a chicken it may be argued his fate was far worse). Well, the negotiations have ended (we may say the cars have already gone over the cliff) and it is a good time to reflect about how they have gone, what they have achieved, and what they portend for the future of Europe in particular, and of our socioeconomic system in general (not that I think they were specially momentous, but in the end everything counts).
But first I want to give some kudos to the Greek negotiator Yanis Varoufakis, who showed his intellectual mettle in this article from The Grauniad: Bruce Willis lookalike comes out as "erratic Marxist". The conclusion he reaches (even if Capitalism is a despicable, inhumane system, it is better to work for its strengthening and continuance than to try to speed its demise, as that demise would most likely cause at this point more suffering and distress than the alternative) I can sympathize with, and even his recollection of feeling guilty when boarding a plane to fly first class and his inner struggle to combat the temptation of somewhat rationalizing his privileges (assuming he had somehow “earned” them) is something that resonates with me, having felt the very same guilt and attempted the very same rationalization… I may disagree with the theoretical validity of some of Marx’s insights, but they are finer points in what seemed to me a courageous and well argued position (again, substantially above what you expect from your average politician these days).
Now to my analysis of the agreement: essentially both parties have punted and kicked the can down the road, postponing the resolution four months from now. That is indeed a strong rebuke of Greece’s initial position (Varoufakis first article I quoted explicitly stated they would not accept any temporary extension of the current agreement, and that anything short of a final resolution would be unacceptable for them). Taking into account that two of their original requests (to stop negotiating with the “troika” and to be given explicit recognition of the end of the requirement to reach a 4,5% primary surplus ) were also absent from the temporary agreement, it is understandable that many commentators (specially those tending to be less sympathetic to the Greek position) have called it an “unconditional surrender”, and them being “drubbed 0 to 3”. The German finance minister (Wolfgang Schaüble) declared that those pesky leftists had received a healthy dose of reality and would have some hard explaining to do to their electorate for all the foolish promises they would now have to accept they would not be able to meet.
However, things in Greece looked quite different. Support for the government stayed at a solid 80% (higher than in Germany and stratospherically higher than in Spain or Portugal, which had been recently denounced by the Greeks for “wanting to bring their elected government down”), and although a few MPs protested and talked about Tsipras and Varoufakis not respecting the electoral promises they made, none of them has resigned. Let’s not forget Syriza is a coalition, formed in a very short time to ride the tide of popular discontent with the traditional left communist party and PASOK, widely seen as accomplices in the crash of economic activity and the subsequent imposition of savage austerity measures), so for them just staying together is no minor achievement. What have they told their constituents they have achieved? Not that much, really. They are probably benefiting from the abysmally low expectations of the Greek public, for which just standing up to the powerful troika and not rubberstamping the dreaded existing framework agreement is already a resounding achievement (as they put it to a UK journalist “we had zero, and we were asking for ten, knowing that achieving two or three would be already very good”). They have gained four months to keep on receiving funds that should help stop the trickle of deposits fleeing the Country in exchange for very vague promises of fiscal responsibility and not taking unilateral action. If on that time they can effectively act against tax evasion (one of the open scandals of the Greek social compact is the extent to what it was considered acceptable not to pay taxes at all levels of society, starting with the widely considered corrupt and crony plutocracy), readmit a handful of public servants fired by the previous administration and maybe even raise pensions (giving the minimal dose of stimulus they can afford to help aggregate demand recover) and not act too rashly to scare investors (as if there were any of them outside European institutions acting on their government’s behalf) with nationalizations, they may be in better position to negotiate a more rational agreement.
The European debtors, on their side, have signaled a cautious openness to relax the target of a 4,5% of primary surplus, as well as they should, because it was a target that never made any sense at all. Let’s remember that as a percentage, it is calculated against the total GDP, whilst the expenditures (and the receipts) of the Greek state amount roughly to a 40% of that GDP. In 2013 The Greek State received 106,200 million € from its citizens, and spent 116,000 million €, but those 10,000 million € (10% of difference between receipts and expenses) amounted to a deficit of “only” 3.7% against a total GDP of roughly 267.000 million €. I have referred to that “magic” of camouflaging the real extent of the amount in which what the state spends beyond what it earns as a “legerdemain”, as it hides from view how structurally unsound most of the world State’s finances are. Now in the case of Greece (or any other Country forced by their foreign creditors to “live within their means”) the magic turns against them, as the fiscal mountain they have to climb is much, much higher than it sounds. To go from a deficit of 3.7% of their GDP in 2013 to a surplus of 3% (it is a primary surplus, which excludes debt payments, which translates to a more manageable 0.3% deficit, as approved by the previous government near the end of last year) requires reducing expenses (or increasing receipts) by a 3.4% of the GDP, or a bit above 9.000 million €. That means almost a 10% of an already severely depressed budget. Of course, that further cut would depress the economy by contracting the aggregate demand, thus reducing the tax receipt, thus making additional cuts necessary… Anybody that thinks that a 10% reduction in a modern government is a feasible policy should try to save every month an additional 10% of his salary (above whatever he was previously saving) by cutting 10% his expenses just to have a taste of how easy that is.
So the really big deal for Greece is how small the primary deficit they have to reach is going to be, and all the rest (troika or no troika, declarations of not taking unilateral action, collective bargaining or not, possible nationalizations) is just a sideshow, red meat they need to throw at their base if they become too restless. And what do they have as single bargaining chip? The threat of leaving the euro (which in everybody’s mind would be immediately followed by a bankruptcy, formally refusing to pay the insurmountable mountain of debt that is nominally the object of all this negotiationg), in what has been dubbed “Grexit”. How credible of a threat is that, and to what extent Grexit would be in the long run economically advantageous for Greece (and likely for Portugal, Ireland and Spain) will be the subject of another post.