29 Jan 2015

Tsipras: the reverse shock doctrine

Now the euphoria in Greece has subsided, it is being matched by astonishment in Berlin and the European Union institutions.

On its first day in government yesterday, Syriza cancelled a privatisation progamme of the ports and energy sector, pledged to re-employ around 15,000 workers, and announced minimum wage and pension rises costing around 12bn euros.

The astonishment in Europe cannot be expained by lack of foreknowledge. Numerous journalists who cover Greece, including me, reported in detail what Syriza planned to do: cancel the austerty and privatisations, run a balanced budget and massively hike the tax take from the so-called oligarchs and the black economy.

The astonishment comes because all the political centre’s contingency plans come apart. The centre-right did not win, the centre-left parties formed to create a moderation mechanism on Syriza in coalition did not get asked into the government (and in the case of Papandreou’s party, To Kinima, failed to get into parliament).

By tying up an immediate coalition with a far-right nationalist party, Tsipras was able to seize the apparatus of the Greek executive faster than anybody expected. That is what drove yesterday’s collapse of Greek bank shares, and the fall on the stock exchange.

Most market analysts thought before the election that Syriza would be forced into a U-turn. As someone who has grilled all of its economics team on camera, and Mr Tsipras himself, I can report they have no intention of backing down.

Dealing with the ‘troika’
But their strategy is not confrontation over debt. It is confrontation over the institutional form of debt resolution. They will deal with the “troika”, as Yanis Varoufakis (pictured below) put it to me last week, “as a sovereign government” – i.e. separately. They will no longer recognise the troika, and will challenge its legality.

Newly appointed Greek Finance Minister Varoufakis attends a hand over ceremony in Athens

Syriza’s ministers know that it is the job of the ECB, and the politically conservative Bank of Greece Governor Yannis Stournaras, to manage Greek bank stability. The ECB’s said yesterday that it has Greek bank liquidity under control:

“A lot of good work has been done to strengthen their balance sheets during the last years. So I think that they will go through this crisis like they went through the previous ones,” said the ECB’s Daniel Nouy. But he said Greek banks have to manage their liquidity positions carefully.

What that means is that any sustained withdrawals by retail savers would require capital controls or large cash injections from the ECB under emergency lending assistance.

Fiscal union
Syriza’s international strategy remains, economically, to insert themselves into the wider debate over austerity and monetary policy in Europe. Bank of England Governor Mark Carney became the latest European policymaker to slam Germany’s begger-thy-neighbour polcies and refusal to share risk. He said:

“Cross-border risk sharing through the financial system has slid backwards. Europe’s leaders do not currently foresee fiscal union as part of monetary union. Such timidity has costs.”

Syriza, and its ally Podemos in Spain, which also has a chance to gain power this year, want Europe to be a full fiscal union. Yanis Varoufakis, the Syriza finance minister, has proposed for example that the Greek banks be “Europeanised” – with banks in Cyprus, Greece and Spain handed over to the ECB to recapitalise direct.

So long term, Syriza’s leaders know the fate of their government lies not just in debt renegotiation, but in the ability to make QE apply to Greece, to grab a part of any infrastructure money that comes out of the commission, and in forcing a strategic policy change in Germany which leads to a banking and fiscal risk-recycling union.

The two metrics to watch over the next few days are bank share prices and Greek bond yields, which have soared to 17 per cent – crisis levels – since Syriza demonstrated it is effectively governing alone on economic issues. But it’s worth remembering that only about 60bn of Greek long-term debt is held by the private sector. The government is not going to go bust short-term because yields rise, though it will right now be looking hard at its short-term liquidity.

Extreme-right links
I want to explain here the parliamentary arithmetic. There’s been strong criticism and distaste among the European left and centre of Syriza’s coalition with the Independent Greeks (ANEL), an ultra-conservative right-wing party whose leader accused Greek Jews of not paying their taxes in December, and who are alleged to have links with the Russian extreme right.

The outcome is to create a stable government for Syriza. The Independent Greeks – who will run defence, and have ministers in tourism, the cabinet office and Macedonian regional affairs – will have little or no influence on economic policy. Even if their parliamentary group fragments, Syriza only needs two of their MPs in any confidence vote.

People looking for political synergies between Syriza and ANEL will find them in just one area: geopolitical stance towards Russia. And this is deeply rooted. Tsipras’s party emerged out of a split with pro-Moscow communism – but the Greek people have both religious affinities with Russia (orthodox Christianity) and historic sympathy (via the Communist-led resistance movement during the war). Meanwhile the Russian sanctions on EU agricultural exports have hit Greece hard.

Economically, meanwhile, Syriza can rely on the support or abstention of 15 communist MPs, who have refused to join a coalition, in any economic measures against austerity. Even if the communist KKE refuses to back nationalisations, wage rises and welfare increases on principle, just by abstaining it gives Syriza – voting alone – a majority on any measures.

Tsipras’s original position was that he would call a referendum if the ECB tried to force Greece out of the eurozone, or tried to veto anti-austerity measures. Given his unexpectedly high 36 per cent vote, the wipeout of the Democratic Left (which refused to join Syriza), and the surge of positivity that’s happened in the political centre since he won, my guess, after speaking to party activists, is that now he would do something different.

If he can enfranchise 200,000 18-year-olds the government refused to put on the register, and change the law to allow a further 200,000 Greek recent emigres to vote at embassies abroad, Syriza could probably win a snap second election.

That’s what some on the left of Syriza, queasy at the coalition with ANEL, actually want.

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19 reader comments

  1. VN Gelis says:

    All the measures if allowed by Brussels will give Syriza a 6-8 month window of opportunity bar a new global crash. The difficulties are creating jobs in the private sector in an open EU Labour market which are sustainable and provide a good standard of living. This is extremely difficult taking into account the geographic location of Greece in the Balkans surrounded by countries with even more side economic prospects e.g. Albania, Rumania and Bulgaria.
    With 1.5m unemployed and no social benefits Syrizas capacity to survive politically depends on how these numbers are reduced. If no cuts occur in army spending then the situation will continue in its present path and the brief interlude of hope will be overtaken by despair…

  2. ringo starris says:

    “… and the surge of positivity that’s happened in the political centre since he won…” How do you measure political “positivity” and where can I find the figures?

    “…If he can enfranchise 200,000 18-year-olds”, it’s 100,000 and you cannot count on them voting for SYRIZA if the country implodes. They could go towards the fascists, in fact.

    “,,, to allow a further 200,000 Greek recent emigres to vote at embassies abroad …” There are also hundreds of thousands of emigres still on Greek election rosters, and most, I would say in an equally subjective manner, don’t vote for ex-, former-, reform, lite- or crypto communists.

    It’s simple: either the radical left government will ask for a bailout extension or not. If it does, it will have to do so publicly, and at that point the troika’s “clerks” will ask for clarifications, commitments etc etc.

    There is no absolute economic independence when you are in a common currency, problem is that it is too late now to back away

  3. Philip Edwards says:

    “…all the political centre’s contingency plans come apart.”

    What a joke……..WHAT political centre?

    Except in your far right mentality and the usual mainstream media propaganda claptrap.

    I wish Syriza good luck in their initial moves. But they have yet to face the full backlash of a transnational capitalist establishment furious the Greek people have made their wishes known. It’s only a matter of time before the Yanks join in and put their thug boots in in their usual fashion.

    But if all else fails you can always try to pull this one through manufactured guilt by association: “……who are alleged to have links with the Russian extreme right.”

    Your propaganda blogs get more rabidly desperate by the day. Entirely predictable, though.

    People like you are an obstruction to genuine democracy. But that’s what you’re paid for, so no surprise there.

  4. doug says:

    Very encouraging! The “word” that was leaked prior to the election was that Syriza would have to compromise significantly with the troika. So much for that word! An exciting part of this quick move is that it has potential to shake up the world. The propagandized public has sunk into an amazing stupor, especially in the US. Let’s hope that this effort can be sustained, and that it can kindle a surge of like actions WORLDWIDE. Civilization and our planet need no less!

  5. Boffy says:

    People keep talking about how much money Greece needs. But what they need is not money but capital. In modern economies most money exists in electronic form. The more payments are made by electronic transfers – for example people’s wages paid direct to their bank account – using debit cards, or electronic cash cards, for example, the more “money” as most people understand it, as notes and coins disappears, and as far as I understand it, its only this latter form of money that the ECB has control over printing.

    In fact, private banks create all the other forms of money, in large amounts every day by simply recording a deposit in the account of a borrower electronically, which enables them to then make other electronic transfers to other people’s bank accounts, which via the money multiplier gets expanded. Marx long ago pointed out that, in fact, as the extent of economic activity expands, the amount of actual “money” in the form of money tokens, notes and coins, diminishes at least relatively, because companies simply give commercial credit to each – in the 19th century in the form of Bills of Exchange, but today in the form of only requiring payment of invoices after 30, 60, 90 days etc. All of this commercial credit, is then netted off, as one charge against another, so that the only “money” required, is that to cover the net balance of all these contending charges.

    Syriza should begin to encourage more electronic transfers as a means of reducing the requirement for additional “money”. But, its also not clear to me why the Greek Central Bank cannot simply buy Greek sovereign bonds, and place an electronic deposit in the account of the government. The government is then free to make similar electronic transfers to other bank accounts from there, to cover its expenditure with no need for recourse to the ECB.

    The problem here is then not a shortage of money, but a shortage of capital. In other words, the government could not simply use this electronically created money to pay for higher wages, pensions and so on, unless this resulted in an equivalent production of value in the economy, plus an amount of surplus value, if it wants to actually grow the economy, and be able to cover additional purchases.

    The government could then simply have the Greek create additional electronic money, as described above, but to overcome its problem, this additional electronic money must go to the purchase of additional productive-capital, so as to produce new value and surplus value. The problem for Greece is that its not easy in its present condition to overnight create such capital, as opposed to simply create additional “money.”

    This same problem exists for most peripheral economies. Its why austerity has been a disaster for them, a fact that Mark Carney now seems to have recognised. Its why the EU needs a single federal state, able to undertake a single fiscal policy so as to build additional capital in these regions.

  6. Nigel Wilson says:

    Funny isn’t it? Political operators have become so cynical that they cannot understand sincerity.
    Didn’t they realise that Syriza meant what it said?
    Didn’t they understand that Syriza have a huge public mandate?
    Democracy indeed: the Greeks truly have a word for it.
    Realism rather than cynicism needs to be understood among the chancelleries of Europe. Or is the collective head so deep under the pillow that it doesn’t want to know? Bourbons!

  7. Mel Henry says:

    What are the plans for screening the documentary, released at the end of the month? I would dearly love you to present it at our Film Festival this year.
    This is without doubt the most important political event occurring in Europe in the last decade. Perhaps the beginning of the decline in global corporate hegemony.

  8. Phyllis says:

    ANEL is NOT an ultra nationalist party. It started from the internet and it mainly attracted voters from the right but also from the left. As a matter of fact, its positions on the issues of illegal immigrants and the building of a mosque in Athens are anything but extreme right.
    I think you are confusing ANEL with Golden Dawn.

  9. carla skirten says:

    This has been brewing for many years and it is definitely needed globally as a take back from IMF assisted resource grabs by private corporations at fire sale prices. This deeply entrenched economic hardship creating logic of austerity does not work and has no track record of ever working. Look to the South American countries and their throwing off the restrictions the IMF placed on their citizens and natural resources.
    I think it is wonderfully ironic that the place to fight for a reworking of democracy is Greece. Good for them and Spain its your turn next.

  10. Athanasios Koumantos says:

    What a load of b…! I am really angry because at first I was delighted at your balanced reporting, but now I see you have another agenda!
    12bn in minimum wage increase and extra pensions? Where did that number come from?
    Even if 1 million workers are at minimum wage 1 mil times 2.000 (that’s the increase over a year) are about 2bn, and not even the whole public sector has 1 mil employees.
    Even if 1 million pensioners are paid the ceiling pension of 700 euros Tsipraw mentioned, adding another pension would amount to 700 mil.

    So 2,7 bn in a far fetched scenario! So I challenge you, give us your figures, or give us your lying bosses!

  11. Seamus Martin says:

    Simplistic analysis of Coalition with Fascists.

  12. Helen Lawrence says:

    I want to clarify the remark by Panos Kammenos, the ANEl leader. He is often said to have claimed that “Jews don’t pay taxes” during an interview on the Antenna television channel.

    The full quote is a bit less dodgy as he was talking about religious bodies rather than individuals (although obviously he is really right wing).The quote: “We see that Orthodoxy, which Mr Samaras cites in his article, his government took most of the decisions that are against the Church of Greece; cremation, civil partnerships for homosexuals, taxation just for the Orthodox religion. Buddhists, Jews, Muslims are not taxed, the Orthodox Church is taxed and in fact is at risk of losing its monastery assets”

  13. nonny says:

    The current Greek primary surplus is ~€3bn and the debt interest payments are around €6bn. If they’re now spending an extra €12 bn, doesn’t that mean they’ve gone right back into deficit spending? I understand that they intend to get more money by clamping down on tax evaders, but they’ve no way of reliably knowing in advance how much that’s going to yield, so it looks like they’re spending lots of money up front and then hoping everything’s going to work out when the bills come due. How is that different to the practices that got Greece into this fix in the first place?

  14. Bobfisher says:

    Excellent and up to the point report mr Mason. One of the few reports I ‘ve read that actually “got” what syriza has in mind on the economic front.

    Just one point on the ANEL party.

    ANEL may look like a far right party by European standards but considering Greek realities, it isn’t. They have consistently decried Golden Dawn as the nazis they are, they refer to Karamanlis the elder as their spiritual father (sic) and have suffered massive media attacks due to their firm stand against the infamous “memorandum”. They ‘re more of a populist right wing species, rather than the extreme xenophobic modern far right. Kammenos considers himself a patriot not a nationalist and his party members are certainly not crypto fascist elements. Most Greeks consider him to be a somewhat picturesque figure, dazed by conspiracies and geopolitical plots, rather than a fuhrer of any sort. And you ‘re right about his ties with Russia – but they are not limited to the russian far right. He is also an admirer of Putin and I believe he may benefit from some kind of subtle “mainstream” Russian support.

    Again, thanks for an excellent report

  15. Michael says:

    Syriza’s win certainly cannot be defined as solid. Despite the deep discontent resulting from the deep austerity program imposed by the previous governments Syriza’s win is just 36% of the popular vote, a far cry from the masses that have supported election platforms that offered the same type of “HOPE” that Syriza offered. If anything this support is on very shaky ground. Supporters’ expectations will be challenged by their needs and demands. Their commitment will increasingly become evident in the next two weeks as the already thin liquidity conditions deteriorate further as ECB and EU puts pressure on the government. Certainly the lack of diplomatic finesse displayed by Syriza places them at a disadvantage. If you want to change the rules of this multiplayer game you do not go about it alone. So allow me to doubt your conclusion of a second electoral win on any ground. These general elections showed one thing, that the people want change but not at any cost, unfortunately.

  16. Matthew Byrne says:

    Paul, Just want to say your coverage of Greece has been compelling, insightful and ahead of anything else I am reading in helping me to understand the dynamic changes. Keep it going! Cheers Matthew

  17. Ian Gardner says:

    This change in the collective human psyche of Greece was an unavoidable step in the evolution of the collective human psyche of the world as it is time for the elimination of an immoral, impractical, and, for those reasons, unsustainable economic system.

  18. Phyllis says:

    Since the ‘monster’ is going to eat this comment too, I might as well spell out some truths.
    No wonder the world is going downhill.
    All of you “great analysts” are parroting stupid propaganda and wont even admit to that.
    And the funny thing is that you talk about “extreme rightists” as if it’s something that doesn’t characterize yourselves.

    Don’t forget to offer to the world your ‘well informed’ and ‘objective’ analysis Mr Paul Mason.

    Simply disgusted.

  19. VN Gelis says:

    For a reversal of austerity to really occur under present conditions one would have to have a national economic policy which is impossible under current EU rules and with the existence of China which has become a global manufacturing hub. Syriza has no economic policy which can create 2m jobs nor does it have a policy to sustain those out of work as they are sustained in France and Germany. So getting an agreement on the Debt allows it some breathing space. The difficulties will ‘re-emerge after the electoral parenthesis. Less work but work for all would be an essential requirement if they want to stay in power longer than 16months…

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