A Critique of the Austerity Proposal for Greece

UPDATE: Greece agreed to a deal with its European creditors on Monday.

Greece agreed to a deal with its European creditors on Monday. … The agreement, announced after a contentious all-night session among leaders of the 19 nations that use the European common currency, requires Greece to move quickly to adopt a host of economic policy changes and to allow close monitoring by Europe and the International Monetary Fund. NY Times

A Critique of the July 10th, 2015 Austerity Proposal for Greece from Syriza; There is an Alternative!

by Peter Bohmer / July 11, 2015

It is increasingly likely although not a done deal that Greece will come to an agreement with the 19 European Union countries that use the Euro, the European Central Bank (ECB) and the International Monetary Fund (the troika) in the next week or so.

The Greek proposal which can be found on the New York Times website for July 10, 2015 is similar to what the European Union proposed last week and that Greek voters overwhelmingly voted no to last Sunday, July 5th, 2015. There will be a new three year loan, the bailout to the Greek government of $59 billion dollars and there will be an infusion of Euros into Greek banks so that they can reopen and make loans.

Although it is not in the proposed agreement that the Greek parliament has ratified and the European Union countries, the IMF and the ECB still have to ratify it, there will be further negotiations that will lead to some reduction of the Greek government debt or reducing the interest rate or extending the repayment period after the agreement is signed.  It is probable although not certain that the Eurozone countries, the IMF and the ECB will accept the latest Greek proposal.  Germany, Finland and some other Eurozone countries want Greece to be forced out of the European Zone in order to show that there is no alternative to surrender to total austerity.

Basically, Syriza accepted austerity for the future meaning continuing high unemployment, a further declining social safety net including reduced pensions, higher taxes on poor and working class people, more wage inequality and declining workers rights, and further privatizations of the ports and electric company.  The Greek government agreed to cut government spending and raise taxes so that it runs primary surpluses (government surpluses excluding payment of the government debt) that will begin at 1% of GDP this year and rise to 3.5% of GDP by 2018.

This restrictive fiscal policy is just the opposite of what a good agreement would look like, one that permitted increased government spending and public employment.    It looks like the July 10, 2015 proposal by Syriza that was ratified by the Greek parliament has a slightly lower tax rate on some basic goods and allows a smaller government surplus for the immediate future than that proposed by the troika and rejected in the Greek referendum of July 5, 2015 but the improvements are minimal.

The only possible significant change is large debt relief for the Greek government although 1) we don’t know how large it will be, and 2) even if it is quite large, it will not lead to major new and necessary government spending because the agreement requires growing government  primary surpluses.

It seems that the leadership of Syriza was not willing to risk the uncertainly which would come if they didn’t accept the essence of the terms put forward by the troika and then had to leave the Eurozone.  They believed probably correctly, that no better deal for was possible and the alternative which the Syriza leadership was not willing to go to was rupture with the Eurozone.

The Syriza leadership also believes that the majority of the Greek population still does not favor this major step and perhaps  Prime Minister Alexis Tsipras and other Syriza leaders also believe they have not done the necessary preparation for ending the use of the Euro in Greece and having their own currency. According to a friend of mine and Syriza member, the rank and file of Syriza does not support the July 10th plan.  Greece using its own currency rather than the Euro and leaving the Eurozone, the 19 countries in Europe that use the Euro as their currency, is called Grexit which is short for Greek exit.

Syriza won the plurality of the Greek vote, 36%, by running on an explicitly anti austerity platform in January 2015.   Syriza signing this agreement with the Eurozone countries will lead to their losing much of their legitimacy and support in the same way that a previous social democratic party in Greece, PASOK, did after agreeing to austerity measures in order to get a large loan in 2010.

With this agreement, the Greek economic depression will continue even if there is a small increase in employment and GDP in the immediate future.   Youth unemployment will continue at 50% or more.  By signing on to this austerity plan,  the immediate crisis of running out of Euros, i.e.,  the Greek banks being bankrupt  and not be able to  pay depositors  withdrawing money or extending loans and the Greek government running out  of money and not being able to pay its employees, pensions, and other payments will  be resolved in the short run.   However, the longer run problem is only being postponed.

Greece will not be able to meet the terms of this agreement with regards to its requiring growing government primary surpluses as tax revenues are likely to fall below projected amounts as incomes and employment remain depressed.  This will then lead to further calls by the European creditors for the continued “economic torture” of yet new tax increases and cuts in government spending which will further reduce aggregate demand and employment. It is possible although unlikely that the troika will permit Greece to not meet the requirements of the agreement. However, similar to earlier this year, the troika is more likely to suspend promised loans to the Greek government.

Rather than accepting this scenario of even more restrictive and inhumane policies in the not too distant future, Syriza should begin now to prepare for a possible leaving of the Eurozone even if the agreement is signed. This would entail not only preparing for the logistics of the transition to a new currency such as printing new currency but also involving the Greek population in a serious two way discussion about what it would mean for Greece to have its own currency, that it would not necessarily mean economic collapse and long run hardship although it will be an even worse economic situation immediately after the break with the Euro.

Discussion between the government and the grassroots should also take place beginning now about other necessary accompanying changes with Grexit such as repudiating most government debt, socializing the banks where community or public banks provide the necessary credit, where privatization was reversed, and about developing an economy that prioritized national production over imports.  Discussion should also take place about the need for and type of increased public spending including substantial public investment and about a fairer tax system with increased revenues. All of this should lead to growing employment and a more equal distribution of income and wealth.

For a liberatory and feasible alternative to develop in Greece, Greek social movements,  grass roots activists and  the left inside of Syriza should  challenge and confront austerity and austerity policies and  be involved in popular education about the meaning of leaving the Eurozone and of possible economic alternatives. Also needed are further developing of  survival programs that meet the needs of all people in Greece,  and  the continued sprouting of the  seeds of a new society that have developed over the last five years such as free health clinics, food production and distribution networks, solidarity networks,  community media and  networked worker run cooperatives.

Being in solidarity with immigrants and confronting anti-immigrant fascists such as Golden Dawn is also necessary.   The growth of this anti-austerity politics and practice will put increased pressure on Syriza to reject the neoliberal austerity package and/or for some or all of Syriza to seek a democratic and participatory socialist alternative.  Developing a possible plan for Grexit will also increase Greece’s bargaining power for a fairer agreement with the troika although it will also further calls by other European leaders for Greek’s expulsion which Greece should then be more prepared to deal with.

The growth of anti-austerity social movements and political parties on the left in Spain, Portugal, France, Scotland and Ireland in Europe as well as their continued strength in many parts of Latin America is an important development, a growing popular challenge to neoliberalism and austerity. The election of Syriza in January, 2015 was significant and hopeful although there seeming acceptance of this very oppressive austerity agreement is troubling and a mistake.

The No Vote by over 60% of Greek voters to the troika austerity package was truly inspirational; the Greek people stood up strongly for their dignity, for economic justice and democracy and against financial capital’s blackmail and the fear mongering of the mainstream Greek media.  This powerful and courageous stand did not end on the day of the vote, July 5th, 2015 and will hopefully lead to massive popular rejection of austerity policies and of those who try to administer them.  There is a danger of the anti-austerity right-wing growing significantly and contesting for power if Syriza does not change course but the possibility of a democratic and participatory socialist alternative is also very real.

It is important that the Greek people not be alone in this struggle.  In the United States and other countries, we should connect our struggles against austerity at home to solidarity with the Greek people, their social movements and with left political parties who share this politics and practice.   The struggle in Greece for an alternative to austerity is so important not only for the Greek people but for all people who want to live in a world where human needs are put at the center  of our politics and economics.

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Peter Bohmer is an economics professor at the Univ of Washington at Evergreen, and is a former OBcean and resident of the famous Red House.