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The Eurozone Debate

Syriza is divided over whether Greece should leave the eurozone — and at what cost.

Eurogroup chief Jeroen Dijsselbloem and Greek Finance Minister Yanis Varoufakis speak at a January 30, 2015 press conference.

Consider three people. First, Costas Lapvistas, the recently elected Syriza member of parliament for Imathia and a lecturer in economics at SOAS, University of London. Four years ago, he was at the heart of an intense debate within Syriza as to whether the party should have a policy of leaving the eurozone (“Grexit”).

In the e-book Against the Troika, which Lapavistas wrote with Heiner Flassbeck late last year, the authors predict that a Syriza or Podemos government would be met with relentless hostility from within the eurozone, and that its options would rapidly narrow: “Without effective debt restructuring a left government would find it impossible to implement an alternative programme, even in the short run . . . There can be no conflict within the EU on [the debt restructuring] that would not also raise the spectre of EMU exit.”

They turn to the practicalities of Greek exit. They suggest that a left government should start by insisting on the independence of its bank from the eurozone, including alternative currency (i.e. short-term paper loans, or “scrip”) denominated in euro. This paper currency could become the first step towards re-establishing a national currency. A left government should also have capital controls to prevent money leaving the country.

Lapavistas and Flassbeck call for social mobilization and negotiations towards a voluntary exit from the economic and monetary union. If consensual exit was not possible, Grexit could take place by first declaring a default on the country’s debts and ceasing to pay them, then re-denominating the balance sheets of the central bank, commercial banks, private enterprises, and households. The government would have to increase its circulation of money and should expect a sharp devaluation of its currency. Medicine, food, and fuel would need to be administered (i.e. rationed) to get basic goods to those in need.

While they paint in some ways a brutal picture of a government necessarily operating in temporary conditions of extreme scarcity, they do also emphasize that the countries of the European periphery have vast unused capacity, to produce goods, medicines, even such basic needs as electricity, so that an economy that was allowed to grow back even if only to its 2010 state would be growing rapidly.

Second, Yanis Varoufakis, the Syriza finance minister, who blogs regularly in English. In 2012, he was interviewed by a website on Grexit. In Varoufakis’ now-familiar, paradoxical style, he argued that Grexit was impossible not because it would have negative connotations for Greece but because it would be self-defeating for the other European economies.

The whole point of creating the common currency was to impress the markets that it is a permanent union that will guarantee huge losses to anyone bold enough to bet against its solidity. A single exit suffices to punch a hole through this perceived solidity. Like a tiny fault line on a mighty dam, a Greek exit will inevitably lead to the edifice’s collapse under the unstoppable forces of disintegration that will gain a toehold within that fault line. The moment Greece is pushed out two things will happen: a massive capital flight from Dublin, Lisbon, Madrid etc., followed by a reluctance of the ECB and Berlin to authorise unlimited liquidity to banks and states.

As for the risks to Greece:

Exiting the euro is not the same as cutting a peg (as Argentina did a decade ago) or exiting the Gold Standard (as Britain did in 1931, followed by the US a year later). The profound difference is that Argentina and Britain had their own currency and they simply severed its link to some exogenous hard currency – allowing it wisely to drift “south” in order to restore competitiveness etc. Greece, Spain et al do not have a currency to devalue. We must do something that has never happened in history: Create a currency in order to devalue it! And since it takes months to create a currency, we are talking about driving countries that are already savaged by recession into an un-monetised state for months on end . . . One only needs to state this to realise the immensity of the hardship it will create.

In another interview in 2013, he again emphasized the practical difficulties:

As for an “orderly” exit, there can be no such thing. One only needs to think a little bit about what that “orderly exit” might entail to realise that it is an impossibility. For the moment it is announced, all hell will break loose. Greek ATMs will run out, immigration officers in airports and ports (not to mention land crossings into Bulgaria and Turkey) will have to search people for cash, the banks will be closed indefinitely.

Although these articles do not make the link explicit, it would not be fanciful to see behind the fear of devaluation (and inflation) the fear that a lasting run on the Greek banks would permanently set the Greek middle classes against Syriza, in the same way that the hyperinflation of 1923 turned a generation of Germans permanently against the Weimar Republic.

Finally, Giorgos Gogos is a dockworker and trade unionist in the port of Piraeus, and a supporter of the Anasa (“breathe”) faction within Syriza, positioned somewhere between the leadership bloc and its critics in the Left Platform. Both Pasok and New Democracy have loyal party-run trade unions, he complains, which they ran like their pet businesses (or, in his word, “clients”). In a recent interview with Katy Fox-Hodess, he insists that the Communist Party’s operation was fundamentally the same: “the Communist Party is part of this clientelism and has especially non-democratic ways of holding power within the unions.”

The party received one of its highest votes in the Piraeus B district, he notes, where the electorate includes many dockers and their families. He is proud of the part that he and other activists have played in winning the workers to Syriza — a process that took place largely outside the workplace, including through initiatives such as Solidarity for All in Piraeus, which provides food kitchens for workers without ever asking about their immigration status (unlike those run by Golden Dawn).

In 2011 and 2012, Gogos was observing the debate within Syriza concerning Grexit. “I was following [Lapavistas] during 2011 and 2012, for two years, I was following his speeches.” But ultimately Gogos decided that he agreed more with the Syriza leadership than with Lapavistas or the Left Platform:

I was quite open to hearing such opinions but I was not persuaded that they have a clear answer especially for the first period of a transfer from the euro to a local currency. They didn’t convince me that they have something concrete to propose to the people for those first critical six months of transition. And you know, our society is not trained or educated to suffer under such terms.

For example, if you leave the euro, the iPhone will be three or four times more expensive. I don’t care. I don’t give a damn. But many people give a damn about some items that they don’t even have the power to buy in euros. So I’m ready to wait for gasoline and to do my part and not to demand more but I know many guys around me that would be happy to simply take their share and their family’s share for the month. So I think we’re not trained well enough to confront such a danger.

There is not yet a “Greek revolution.” What we have, rather, is a left government trying to do what it can when the level of strikes has been falling for two years, when the strikes have been largely limited to the public sector, and when millions of ordinary Greeks — not merely the rich — have been removing their savings from the banks.

Whether Grexit will become a reality or not is likely to depend not only on the terms demanded by Berlin, not only on the attempts by Syriza leadership to find a breathing space, but whether the likes of Giorgos Gogos reconsider and conclude that another way forward is possible.