19 Jun 2015

Greek crisis: crunch time

We’re at a critical point in the Greek crisis, which is really the 2010-11 Euro crisis being unfrozen after five years of make believe solutions.

Money is leaving the banking system at the rate of a billion euros a day. Bank deposits stood at €164bn when the conservative-led coalition began to totter last December; were €132bn at last count and are probably close to €125bn and falling as I write.

The situation today has potential to turn into a bank run, especially after Luxembourg leaked details of a closed door Eurogroup meeting in which an ECB representative is said to have warned the banks may not be able to open Monday.

With reports that the governor of the Bank of Greece will seek a further €3bn in emergency credit at noon (10am UK time), the pressure is on Greek finance minister Yanis Varoufakis to impose capital controls: limiting movement of money outside Greece and limiting cash withdrawals.

Varoufakis believes what’s happening is orchestrated and, combined with last night’s rejection of his three point proposal to end the debt standoff, is part of Europe’s effort to panic the Greek government into surrendering on the terms of a debt deal, to impose more austerity.


There is political panic too. Last night a very well-heeled crowd of people from business, finance and the old political elite joined a demonstration – ostensibly non-party political and organised on Facebook – outside the Greek parliament. The participants called for Greece to stay in Europe, but even here many objected to the austerity measures being imposed.

They swarmed up the steps of parliament, casting eerie shadows as they stepped in front of its illuminating lights. It was not lost on supporters of the far-left government that many of those doing the swarming had participated in a government that routinely truncheoned and tear gassed people for coming even close to the former barricades around the building, which the present government has removed.

So what now? There’ll be a political summit on Monday. But there was a political summit two weeks ago, after which Angela Merkel, Francois Hollande, the IMF’s Christine Lagarde and the ECB’s Mario Draghi offered Greece a take-it-or-leave it deal to secure the funding it needs to repay the €15bn coming due to creditors this year.

The Greeks rejected it, first because they cannot deliver the specific austerity measures demanded on VAT and pensions; second because the IMF/ECB is forbidding them to count in non-tax measures like fighting corruption or a crackdown on evasion, to reach their proposed fiscal target of a 1 per cent surplus this year.

And because there’s no long-term deal on debt. The Greek debt – €320bn – is unpayable because the level of austerity required to service it and pay it down is impossible for any government to deliver. That’s why the old pro-austerity coalition fell.

Plus, the structure of the Greek economy – with its small shops, high tax-exemptions for the super-rich and heavy reliance on the state to stimulate growth – means that here austerity always squashes growth. As I’ve said before, Greece is not Ireland. Plus Greece can’t devalue and export – because it’s in the Euro; wages have already fallen 37 per cent; and it can’t manufacture its way out of trouble because it is an agricultural and tourism economy, not an industrial powerhouse.

In a way the two demonstrations that thronged parliament on Wednesday and Thursday night illustrate the popular delusions that the right and left here share. The pro-Syriza demo was against austerity but, for the majority, wanted Greece to remain in the Euro. The centre-right demo is against leaving the Euro but neither wants, nor when in power could deliver, the austerity required.

So something has to give. The EU leaders are hoping it will be Greece – aided by a shove created by a full-blown bank run, stoked by leaks and frantic reporting by the right-wing owned TV stations here. The Greek leadership says it cannot budge.

I’ve reported this crisis from inside the Brussels HQ of the Eurogroup and from inside the mansion of the radical left prime minister – and of course from the streets. Here’s what I think:

First, the working assumption of the Greek leadership – that Europe would drive a hard but fair bargain that allowed them to rebalance the economy without added austerity – was wrong. They told their voters they could soften austerity but stay in the Eurozone because key people in power had assured them that would happen: the US State Department, the Italian and French prime ministers, and the old Commission.

But there’s a new Commission dominated by the right, and the Italians and the French ran into a block of countries in northern and eastern Europe who – reflecting the views of their own right wing voters – refused to budge.

The “good Euro” Yanis Varoufakis thought he could create has not, so far happened.

Likewise Angela Merkel miscalculated: having removed Berlusconi in Italy, and the socialist PM George Papandreou in Greece in 2010, she assumed political pressure would cause Syriza to split. Its hard left would leave; Alexis Tsipras would soften once inside the marble corridors of the Maksimou mansion, and form a national coalition with a small, modernised neoliberal party called Potami, and with the support of a liberal wing of the conservatives around former PM Costas Karamanlis.

This has not happened. Though Syriza has effectively three operative factions – the hard left, a softer left around Tsipras, and a more moderate social democratic group including some non-party ministers – the critical factor has been the grassroots. Syriza is not like most British political parties, whose members barely get a say on policy: its MPs and ministers are in constant contact with layer upon layer of activists and voters.

One newly elected MP, stunned even to be in parliament after January, told me: “I can’t cave in because I have to go back to my village and live there; they elected us to fight.”

Alexis Tsipras, and even some of the people around him seen as moderates and existential pro-Europeans, hardened their stance during the past three weeks. Psychologically, they have become convinced the Eurozone is being run by Germany and Germany wants Greece out.

If there is, now, an increased bank run, restrictions on withdrawals, and a crisis over bank solvency, then by Monday the EU’s leaders will have a heavy stick to beat Syriza with. But if they don’t come with a carrot, and some room for compromise, the Greek leadership will default.

Then it will be up to Europe to decide: does it rescue Greece or expel it from the Eurozone? A country with migrants flooding across an unpoliced border with Turkey, one land border away from the Islamic State, and with a left tradition that is always prepared to do deals with Moscow. That makes this a geo-strategic moment, not just an economic moment.

If you ask yourself why Syriza does not just fold, live to fight another day, you haven’t been watching the TV enough. After five years of austerity, imposed first by the socialists then a conservative-led coalition, the process has destroyed every political force that tried to make it happen.

The conservative right is fragmented, at war with itself; the old Pasok party, which once gained 40 per cent of the vote, can now fit all of its MPs around a table. Smaller parties that joined the austerity bandwagon – like the moderate Marxist DIMAR and the nationalist rightwing LAOS – just disappeared.

The Greek leadership will play this as Greece versus Euro-imperialism. They will, in the face of a totally hostile TV and newspaper media, appeal to the 41 per cent of Greeks who prize fighting austerity more than membership of a currency in which they are always the black sheep. They’ll have no shortage of supporters in the economics profession – including many traditional right wingers – who’ve observed the Euro and its hapless central bank become a dysfunctional and unpredictable structure.

The country will divide: right versus left – as it has been divided since British tanks rolled into Syntagma square in 1944 to install former Nazi collaborators into office in preference to the communist-led resistance.

But this time we don’t know who’ll win. For certain we’ll know who’s lost: everybody in Europe who argued the EU can contain the economic aspirations of the left as well as the right.

Follow @paulmasonnews on Twitter