15 Jun 2015

Greek eurozone crisis: is time running out for Syriza?

The Greek crisis ramped up a gear last night when, at the start of supposed “last chance” talks in Brussels, EU negotiators told the Greek delegation that “negotiations were over” and that they had no mandate to offer anything new.

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The Greeks had prepared a new submission, accepting demands to close four-fifths of the so-called fiscal gap with direct new tax measures, and asking the EU and IMF to sign off austerity measures amounting 0.6 per cent of GDP to be achieved by anti-corruption measures.

This was rejected and the Greeks left the talks 45 minutes after they went in, triggering an intense final phase of the crisis. In Greece, according to my sources, there is now acceptance within a pro-compromise wing of Syriza’s leadership that even if they wanted to try and force through a surrender deal, it would not pass either the party or in parliament. And as the days go by, with one ultimatum after another from lenders, the voices within Syriza urging a “deal at any cost” have grown weaker.

Yesterday the IMF’s chief economist, Olivier Blanchard, went publicly further than the fund has gone in these negotiations in spelling out that to achieve the current austerity targets set by the EU – 1 per cent this year and 1.75 per cent next year – it will need Greek debt to be rescheduled so that it matures later and its interest rates fall. Any further deterioration in the Greek economy, and any higher austerity target, he said, would need the debts to be partly written off. This is a milder version of what Syriza’s finance minister Yanis Varoufakis has been saying since he took office – and what the EU cannot accept.

There are three possible outcomes to this week. One, a last-minute deal in Brussels. But it would have to be more favourable to the Greeks than the ultimatum presented last week, and would have to include both debt relief and a large dollop of structural funding aid from the commission, or Tsipras cannot sell it. The second is, no deal on Thursday night and the Greeks signal their intention to default on the IMF and ECB debt coming due this summer. That would probably – but not automatically – trigger the ECB pulling all its support from the Greek banking sector, and need capital controls imposed inside Greece.

The third is a nine-month delay, with the IMF/ECB paying themselves their own debts, which would suit both Angela Merkel and François Hollande but would be presented in Greece as a victory for Syriza. It’s hard not to conclude that default is getting more likely with every breakdown of talks. Not a hard and vindictive default demanded by the far left within Syriza, with pre-emptive bank nationalisations and border closures, but a default that throws the ball back into the court of Greece’s lenders, who would stand to lose €320bn.

Do they then force Greece out of the euro, and take action to collapse its banks, or do they save both the country and the banks with a debt restructuring offer? Though a default will unleash temporary chaos in the financial markets, few understand what it would do inside Greece. Up to now Syriza’s dominant narrative has been: Greece versus the world. It’s a narrative that fits comfortably into the ideology of Greek left, including the old social democratic party Pasok.

But there is another narrative inside both Syriza and Greek society that the six months of confrontation have suppressed: class against class. You get a reflection of it on the Twittersphere. But to fully understand it you have to speak to Syriza members, and that vast array of people to the left of them who always mistrusted the party. They’ve had to bite their tongues for six months, watching all the action happen in the corridors of power, or in Brussels. That’s not their element. What’s coming, many of them believe, is their element.

They believe the entire negotiating strategy of the ex-troika has been aimed at achieving “regime change” – just as Merkel and Nicolas Sarkozy got rid of George Papandreou and Silvio Berlusconi in 2011. But regime change has to involve domestic conflict as well as international pressure, and those I speak to in the organising networks of Syriza and the grassroots beyond it. They now have quite a strong appetite for domestic conflict – above all, against the “oligarchs” much of Syriza’s election rhetoric focused on.

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7 reader comments

  1. Alan says:

    Given the EU is in debt to the tune of trillions why is Greece making headlines? The so called Troika has more debt than Greece could ever amass. Why is the real debtor being ignored?

    1. Murray says:

      Because these countries can afford to pay the interest on their debt.

  2. Kevin says:

    Some bankers hanging from the lampposts soon? That should concentrate a few minds.

  3. nmb says:

    Why the neoliberal sadists seek to deepen recession in Greece

    http://tinyurl.com/qeo9bbv

  4. Boffy says:

    Regime change in Greece will mean the rise of Golden Dawn or of the Colonels, or both in quick succession. Given everything going on on Greece’s Eastern and Southern borders that stands to destabilise the whole of Europe.

    The €300 billion of debt is just the start. The total debt is undoubtedly much greater. But, even that amount written off bank capital, given the credit multiplier, means around €3 trillion of currency taken out of circulation, let alone what unforeseen consequences there might be for bank solvency. Then there is the unknown quantity of credit default swaps, bearing in mind you do not have to have been an actual creditor of Greece, to have gambled on the potential that it would at some point default. When it does, nobody knows how many peoploe will cash in on their winning bets, with a consequent cascading effect on all those who are on the wrong side of that trade.

    I still see no reason why Greece once freed of the shackles of ECB guidelines cannot simply decide to continue to use the Euro, thereby avoiding the devastation that would inevitably follow a return to the Drachma, which would immediately tank, pushing up Greek prices with a crushing effect on the Greek people, whilst simply instructing the Greek central Bank to print electronic Euros, by buying Greek government paper, and creating electronic Euro deposits in the governments’ account, thereby enabling the government to keep paying wages and pensions, and investing in infrastructure etc.

    The commercial banks create electronic money, by creating such deposits all the time, and its the basis of QE. There would be no inflationary effect, because the Greek economy is so small that any such Euro currency creation on its part would be tiny compared with what European banks do every day, and what the ECB itself is doing via QE.

    It would give an example to Podemos, and the people of other European periphery countries about how they too could stay within the Euro, whilst scrapping the damaging policy of austerity.

  5. Robert Farrer says:

    Interesting analysis but I am not clear what you mean by the IMF and ECB “paying their own debts”. Can an organisation simply ‘magic-up’ €300 billion?

    If it was that easy to invent money, surely we would all be doing it?

  6. Boffy says:

    @ Robert,

    “If it was that easy to invent money, surely we would all be doing it?”

    But governments are all doing it, and always have. From the very first coinage, states paid their debts by issuing underweight coins and other forms of debasing. A devaluation of the currency has always been an easy way to inflate away debt. The reason people who bought houses in the 1960’s and 70’s were able to see the capital sum of their mortgages shrink to nothing was precisely due to the inflation of the 1970’s and early 80’s.

    In the 1970’s the US covered its debts for the Vietnam War and so on, by simply printing more dollars, and when France wanted to protect itself by demanding payment in gold Nixon closed the gold window, made it illegal for US citizens to hold gold, and simply washed away the debt, or at least a large part of it.

    Commercial banks create money by simply creating electronic deposits all the time. With fractional reserve banking, banks can issue credit, or create deposits at least 10 times greater than the deposits made with them.

    The problem with creating money in this way is that if it actually does get into circulation without stimulating an equivalent increase in commodity circulation, it results in inflation of prices, which then causes interest rates to rise. But, Greece is such a small economy, and the proportion of its currency circulation compared to the overall € circulation, is so small that it would have very little noticeable effect on Euro price inflation, whilst its beneficial effect on dealing with Greek debts, and facilitating Greek investment and an end to austerity would be considerable.

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