Dark Underwater Currents Explain The Recent Turbulence Of The Greek Crisis

It is not easy to decode what is happening in Greece. The essential facts are as follows: On the 24 June, the Tsipras government had rejected the terms set by the European Union and the International Monetary Fund for a new loan to allow the government to roll over the payment of €1.55 billion due to the IMF. The European Union broke off negotiations when Tsipras announced a referendum in which the terms set by the European Commission would be put to the Greek electorate. In the face of a refusal by the European Central Bank to increase the emergency liquidity assistance, Greek banks were shut down, capital controls were imposed and withdrawals restricted to €60 per day. But as it defaulted on its payment to the IMF, Alexis Tsipras wrote to the European Commission more or less accepting its terms.

Despite warnings that rejection of the Commission’s terms would be tantamount to a decision to leave the European Monetary Union, on the 5 July the Greek electorate rejected the terms by a stunning 62% of the vote. In the wake of the vote, the (ever) triumphant Finance Minister, Yannis Varoufakis was sacked, and replaced by the more emollient Euclid Tsakalotos. At the same time, Tsipras secured backing from the other main parties in the Greek Parliament, the socialist Pasok, and the conservative New Democracy and the pro-European To Potami party to back the fiscal reforms that Tsipras is putting to the European Commission. Other European governments and the Commission angrily denounced the referendum and lined up behind a view that the Greek rejection of the terms meant that Greece could not continue as a member of the monetary union.

Three elements, in particular are missing from the public discourse 

The first crack in the European view came with the IMF’s recognition that Greece does need assistance in rolling over its debt (principally so that the IMF can get its money back). The French President Francois Hollande assisted the Greek government to draft new proposals that might secure a positive reception in Europe. Within a week, the European Commission and finance ministers were back on track to a new agreement.

What makes the Greek imbroglio particularly enigmatic is that what is actually going has been obscured by the pronouncements of key protagonists, from Germany’s Wolfgang Schäuble to Varoufakis and Tsipras, that are largely for the consumption of their domestic electorate, rather than calculated negotiating positions. Three elements, in particular are missing from the public discourse around the Greek events.

First of all, there is the informal, tacit consensus that has emerged lining up Keynesians and Marxists behind German monetarists who have not yet realised that, in a capitalist economy, the precondition for an effective money is not that the government uses it, but that capitalists use that money. They believe that Greece can secure an economic recovery through exit from the monetary union and depreciating its successor currency. In this view, the exchange rate is a substitute for lowering wages so that, as Milton Friedman used to argue, a devaluation of the currency can actually increase employment through the expansion of exports. The view not only ignores the effect on imports and the position of banks with cross-border liabilities. It also ignores the effects of devaluation on domestic prices and real incomes. In practice, exit from the European Monetary Union would destroy the Greek banking system and reduce real wages. In the ‘euro-isation’ of the Greek economy that would follow, as everyone attempted to hold Euros, and tie contracts to the successor currency’s exchange rate with the Euro, inflation would take off, and the government would lose control of the monetary system and policy. The monetary fiasco would confirm the German monetarists in their belief that the rules of the European Monetary Union are necessary to prevent monetary chaos, while also confirming the extreme right and extreme left in the belief that a newer, healthier economy and society proceeds from the ruin of banks.

It would not be long before constitutional steps would be taken to remove SyrizaThis consensus represents a fundamental danger for the Greek left in general, and Syriza in particular. Any attempt by the Syriza government to move towards exit from the monetary union would threaten that government with the loss of control over economic policy in Greece. It would not be long before constitutional steps would be taken to remove the Syriza government and replace it by a pro-European government, much as Churchill replaced Chamberlain in 1940 when the latter proved incapable, or, more recently, as George Papandreou was forced to resign as Greek Prime Minister when his referendum plan failed. In their desire to maintain the integrity of the monetary union, and their relief at seeing off the main political threat to that integrity, the European leaders would provide the successor government with all the assistance and more that was denied to Tsipras.

The possibility of such a constitutional coup in Greece is therefore the second hidden factor in the crisis. It explains why Tsipras declared a referendum on terms which he was going to accept anyway, and also why, immediately after the referendum, he moved to secure the support for his negotiating position of the other main parties in the parliament. The support of those parties also makes Tsipras independent of the ultra-left Left Platform faction of Syriza. That faction, led by the Energy Minister Panagiotis Lafazanis, is ideologically committed to the German monetarist position. The faction has 30 out of 149 Syriza members of the Greek Parliament. With the recruitment of the other main parties to support, with more or less enthusiasm, the Tsipras negotiating position, the possibility of a constitutional coup has now receded. Its place has been taken by the imminent split in Syriza should the Left Platform denounce its alliance. At the height of the political crisis last week, the Left Platform was calling for the nationalisation of Greek banks, default on government debt, and preparations for the introduction of a new currency. Such steps would most assuredly have brought the removal of the Tsipras government and its replacement by a pro-European government.

The third hidden factor in the crisis was the influence of the United States government. Concerned about the budding relationship between Tsipras and the Russian President Vladimir Putin, Greece’s commitment to NATO and the country’s strategic position close to the troubled Middle East, Barack Obama let it be known that he would favour an orderly settlement of the Greek financial crisis. Hence the abrupt welcoming noises that suddenly came from Brussels a week after the referendum the European establishment had denounced that referendum and when Tsipras made clear that he was negotiating seriously.

Jan Toporowski is Professor of Economics at SOAS, University of London

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