• Greece

The Next Hundred Days

What should Syriza's economic strategy be going forward, given Greece's position in the eurozone?

Angelos Tzortzinisafp / Getty Images

As the bridge agreement with the Eurogroup approaches its expiration date, the conflict between the European “institutions” and the Greek government is getting tenser.

Last week, Jacobin sat down with Elena Papadopoulou to better understand the dynamics between the Greek economy and the European Union (EU), the role of Germany and the United States, and Syriza’s strategy for the ongoing negotiations.

In particular, we wanted to grasp not only how the structures of the European Monetary Unification have produced different outcomes for different countries — according to their existing economic and political structures — but also how it has created core-periphery relations inside the EU.

Papadopoulou is an economist currently working as an economic adviser to the Greek minister on international economical affairs. She is also a member of the board of the Nicos Poulantzas Institute and an editor of the Greek edition of transform! magazine. This is the second in a series of interviews that Catarina Príncipe and George Souvlis are conducting in Athens for Jacobin.

Catarina PríncipeGeorge Souvlis

In the tense relations between Greece and the European Union, how would you describe the process of neoliberalization of the Greek economy? Is it mainly a process imposed from outside or from within, as well?

Elena Papadopoulou

An important thing to observe in this conjuncture is how different European countries have been developing economically through their participation in the EU and the eurozone. This should be our starting point for testing the validity of the argument that Greece was an outlier in the process of European Economic and Monetary Unification — an exceptional case — as it has been presented in the context of the current crisis.

To do that, we have to look at the history of neoliberalism both in Greece and in Europe. This is the red line that connects the Greek public debt crisis with the Irish banking crisis, the Spanish real estate crisis, the French and the Finish stagnation. And by binding together all these pieces it suggests why and how the economic, social, and political relations within the EU became, as you say, tense.

What the Left in Greece was arguing long before the outburst of the 2010 crisis, was the need to challenge the main tenants of neoclassical economics and public choice theory: that what was wrong in Greece was that it never became a fully developed capitalist country, that it never modernized enough, that it never liberalized enough, and that it was trapped by vested interests which worked within the state and blocked the aspirations and the potential of the private sector in an inefficient vicious circle. So, the argument continues, it was insider interests that brought down both the private sector, and the Greek economy as a whole.

Looking at the evidence, one realizes that this is actually not the case. Neoliberalism worked its way into the Greek economy since the mid-1990s; with privatizations, deregulation of the labor market, reduction of corporate taxation, etc. All the basic pillars of what neoliberalism is about, were there. So, the argument of the exceptional case that is based on the “fact” that Greece did not follow the example of what good capitalist countries did, is not valid.

Going back to the question of whether neoliberalism came from outside or from within, the answer is that neoliberalism, and the political and economic forces advocating in its favor, deeply reshaped the Greek economy, as they reshaped all other European economies in the past decades.

The reasons why the crisis in Greece was more acute than elsewhere have to be examined in view of the specific characteristics that capitalism assumes in different national contexts. These characteristics, we should not underestimate. Nor should we fail to address chronic problems of the Greek economy, the Greek state, and the Greek public administration. But in order to deal with these issues, we must not confuse the lines of causation, and we must be clear on their nature.

Catarina PríncipeGeorge Souvlis

So, although the trend for neoliberalization in the European Union is similar, there are differences according to the political and economical structures of each country, and according to which place they occupy in the core-periphery relation.

Elena Papadopoulou

We have to speak about the eurozone as a currency area overall — not just in the context of this crisis. And we have to look back at the bibliography suggesting that the type of economic unification that Europe has been pursuing was only meant to work in “good times.” What happened due to that, is that the eurozone lacked one of the things that are indispensable for a monetary union to actually be viable: economic convergence in real terms.

What was made clear, especially during the years of the crisis, is that the opposite process was set in motion: a divergence tending to create a core-periphery structure, which at the same time lacks mechanisms for fiscal transfers and current account rebalancing.

Catarina PríncipeGeorge Souvlis

With this in mind, can you clarify the role of Germany both today and during the last decades?

Elena Papadopoulou

One of the most common accusations against the German paradigm is that, since the 1990s, it based its competitiveness gains on the so-called “wage moderation.” This helped Germany create a strong export-oriented economy, which at the same time was presented as a model for all other European countries.

The problem with this model is that it is not applicable in a relatively large closed economic area. In other words, when the volume of transactions carried out within the EU is a big percentage of the participating countries’s total transactions, not everyone can be in current account surplus.

This means that when Germany is lecturing that all other countries have to follow its successful lead, it knows that this is a self-defeating argument, and at the same time, when its internal demand is not strong enough to absorb exports of other countries, the scale will permanently be on its side. Thus, the problem is not that Germany exports too much: it is that its internal demand is too weak to support enough imports from other countries.

To be fair, however, we must note that Germany’s successful export-led growth model was not entirely due to “wage moderation.” Studies of the German labor market suggest that there is a great deal of dualism, for example between public sector and export-oriented private sector wages, as well as a big deregulated services market with a lot of precarity and insecurity.

At the same time Germany preserves many development tools which were destroyed in Greece during the crisis years due to blind, horizontal internal devaluation — among which are small special-purpose banks, cooperative or development banks, etc. So, in our case, what Germany seems to suggest is: “Do what I say but don’t do what I do.”

Catarina PríncipeGeorge Souvlis

What about the role of the United States in all this?

Elena Papadopoulou

For a long time now, the US has been arguing that Europe is not doing its job dragging the global economy out of the crisis. And it is true that, during these years, the US pursued a much more expansionary fiscal and monetary policy compared to the eurozone.

Thus, one would expect that this could be mirrored in the stance of the International Monetary Fund — especially in the case of Greece — which could act as a lever for the abandonment of austerity and the move towards a more growth-oriented, investment-driven strategy. Unfortunately, even the “multiplier” discussion (the underestimation of the fiscal damage caused by austerity policies) did not end up in a comprehensive view change — or active intervention for that matter — in this respect.

Catarina PríncipeGeorge Souvlis

Can you comment on the conceptual framework of austerity and why it can’t generate an economic recovery?

Elena Papadopoulou

The policy of austerity was based on the theoretical concept of “expansionary contraction” connected with economic, political, and moral arguments. The basic argument of this concept is not new. A similar debate took place during the Great Recession of the 1930s with the so called “liquidation theorists,” as well as during the crisis of the 1970s.

The story went in similar lines: certain economies live above their possibilities and therefore, they need to pursue a strategy of fiscal consolidation and creative destruction. In the case of Greece — with no real devaluation or expansionary monetary policy- what we had instead of expansionary contraction was, in fact, contractionary contraction.

What we should have learnt from the 1930s and from the Keynesian turn in theoretical and policy terms, is that in a structural crisis, there is no automatic market mechanism of economic rebalancing. How could we forget that the market can’t bring us back to full employment unless there is state intervention, unless there are public investments that can restart a virtuous circle, and unless there are tools that help development, such as a comprehensive industrial policy?

During the last five years, Greece went back decades in economic terms with huge losses in terms of productive and human capacities. Without a positive shock, its temporary balance might turn into a long-term bouncing around the bottom.

The whole concept of internal devaluation has shown its limits: Greece cannot expect to gain competitiveness through wage dumping; this is a strategy that doesn’t make any sense. On the contrary, Greece needs to rebuild its productive base in terms of quality and plurality regarding its forms of production, as well as relying on its social capacities, its highly educated, high-skilled human dynamic, and learning from the broad creative experimentation of self-organized, commons-based initiatives that have been developing all around the country during these years.

Catarina PríncipeGeorge Souvlis

What about today? What is Syriza’s approach to the problems within the EU and the eurozone, and what is its strategy for the ongoing negotiations?

Elena Papadopoulou

The neoliberal turn of the EU has been going through a gradual process of social delegitimization for many years now. This process (accentuated by the crisis) was particularly acute in Greece, and caused a major political change that challenged its track.

Syriza’s goal, since before the January 25 election and until today, was to give content to “changing Greece, changing Europe.” Given the current constellation, this might sound as an unrealistic project. But if we think about the core of the problems and the severity of the situation, economically and (perhaps even more seriously) politically, we cannot escape by just kicking the can down the road.

Major questions have to be addressed: Is the process of monetary unification, given different economic structures in the various participating countries, really viable? Can it move forward? If not, under which conditions and with which strategy can it be transformed?

In my opinion what the Left in Greece and in Europe need to discuss at this point, is how to develop a comprehensive strategy towards economic solidarity, challenging the economic model of the monoculture of the private-market sector, creating alternative mechanisms for fiscal transfers, connecting economic goals with social welfare and social justice, etc.

In this sense, Syriza’s obligation is to put this whole agenda on the table, to involve everyone in the problem, to make clear that this is not exclusively a Greek issue, that we must stop looking away and stop kicking the can down the road. This is one part of the strategy. The other part of the strategy is to actually do things inside Greece that actively constitute parts of the solution.

The problem is that the European institutions and the European political elites are not honest about the flaws of the project. This leads them to negate the fact that this is an opportunity for the whole of Europe to rethink about itself and at the same time to allow Greece to apply policies that prove that alternative ways do exist.

In the short period of the bridging agreement, Syriza’s goal should be to keep its red lines, while at the same time pursuing a left-wing agenda that connects short-term measures with medium-term policies that lead to social transformation.

At the same time, it needs to convince the people — inside and outside Greece — that the application of such a program is indispensable for Greece to survive and develop, and that the reason that the government pursues it is because anything else would destroy its society.

When this short period finishes, we have to make sure that we have made progress in both fronts: on the one hand keep putting the question of the political and economic impasses of the eurozone, taking into account all those facts that show that this is actually the case, and on the other, pushing a genuine left-wing agenda forward so that our social base can be reassured that we will not abandon its interests.

Bringing fairness, equality, and hope for Greece to escape the vicious circle of austerity is the only credible guideline for the government, not only for the negotiation period, but for its governance overall.