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.
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