The context of the European Union
As Humanists we aspire to a future in which all the peoples of the world integrate within a Universal Human Nation. In this sense we differentiate this process of integration that we call planetarisation from the one that has become known as globalisation; whereas the former has to do with the integration of the people with their cultural diversity, the latter has to do more with the expansion and penetration of global economic and financial power, disciplining countries with its predatory logic.
Of course as Humanists we encourage any advance that goes in the direction of regional integration, as this signifies a step prior to that future Universal Human Nation. And of course economic integration should be an important aspect of that integration; but it shouldn’t be the most important one, or at least it should be subject to a higher interest that has to do with true integration in solidarity with the population, one in which economic structures are at the service of human development without borders. And of course insofar as the use of a common currency within a framework of regional integration could contribute to that development, it should be encouraged.
But something very different is happening in some of the regional integrations that are happening in the world which don’t seem to be constituted from the needs and interests of the population, but rather from the interests of multinationals and global financial power. And such is the case of the European Union which is increasingly at the service of the banks and big business rather than the people; and the case of the Euro is such that it strengthens the expansion of the strongest economies and ends up dismantling and saddling the weakest economies with debt. In the meantime the media, ever at the service of those same economic powers, manipulates public opinion to convince people that serious countries are those that apply neoliberal economics and that if a country gets into trouble it’s only because the government is corrupt and the people lazy. So they divide the people in such a way that there is no solidarity when a country falls into disgrace, a victim of neoliberal policies, and so other governments have arguments for being cruel to the people and generous to the banks.
When the European Union, and later on the Eurozone, was formed there were already important differences between the economies of the member nations in terms of differences in productivity levels and industrial development. Historically in the world, to endure these kinds of differences countries with weaker productivity managed the value of their currency and their foreign trade by seeking a certain equilibrium that would allow them to maintain a certain level of employment. In this way, each country tried to establish a balance on which it could develop and it was assumed that the average standard of living was what corresponded to the level of development. But when Europe advanced in its free trade zone and monetary union, the members gave up these instruments of economic policy, surely assuming that the new supranational organisation would contemplate the resolution of asymmetry between countries. But the EU organised its economy based on the paradigms of neoliberalism, supposing that the market would regulate everything harmoniously. They supposed that where there would be unemployed people, productive capital would go to locate their factories, or that the unemployed would easily migrate to where the factories were. They supposed that financial capital would be mobilised to cover the needs of productive investment. But freedom of movement within the Eurozone has given different results in every case, because whereas financial capital can be moved from one place to another in seconds, productive capital requires more time, and whereas people can freely move across borders, in practice, rooting and cultural barriers limit such migrations. Moreover, it has already been seen in the rest of the world that neoliberal policies have given rise to speculation of financial capital, systematic debt and the dismantling of industry in numerous countries; it has given rise to capital flight towards tax havens and factories towards labour havens. And if all of this has been the result of a globalising neoliberal virus on nations that kept their sovereignty and currency, much worse has been the effect on a Eurozone in which countries had their defences down.
So if today the EU is in crisis and the Eurozone in doubt, it’s not because the world is not prepared for regional integration; it’s because it has been done under the sign of neoliberalism.
Truths and lies regarding debt
The version that has been established in large part across Europe, and the one that the media uses to blame everything on the Greeks, attributes blame to corrupt governments that have irresponsibly put the country into debt, that have weakened their resources, that have inflated the public sector with a subsequent fiscal deficit, and have furthermore doctored the accounts to hide the deficit and debt. This responsibility of those in government is shared with the population who, after all, voted for them and has benefited from such gifts as a lax pension system, consumer credit and the illusory prosperity of a bubble, living above the possibilities that the economy could afford. Some of these points are illustrated with real data and are disseminated to extol the indignation of the citizens of other countries, as is the case of the Germans when they found out that the maximum pension in Greece was 3500 euros, while in Germany it was 3100; or that the age at which many Greek workers retire is less than in other countries in a similar activity. The Greek Social Insurance Institute (IKA) that generates a deficit and takes an important part of the national budget pays some kind of compensation to 5.5 million people (practically half the country); there are more than 600 at-risk professions in which it is possible to retire early and have a pension, among which are counted hairdressers, waiters, broadcasters, musicians and other activities in which you would retire at the normal age in any other country.
In the case of national revenue collection there is also a lot of inefficiency as there is a lot of evasion, a lot of self-employment and business owners who don’t contribute to the system and there are even tax exemptions on islands where there is substantial tourist income, but which don’t generate a proportional income to the treasury that could contribute to reduce the deficit. Despite all this, Greece increased its public spending by 50% between 1999 and 2007, paid for with loans.
With all of this information in their working papers the representatives of other countries of the EU hardened their position towards Greece and demanded more and more cuts. And one-sidedly publishing this data in the media, the populations of those countries also hardened and backed their governments in their demands with Greece. And surely a lot of that information is correct, beyond the emphasis and the slant that is added by the media and the EU hawks; but there is other information that no one talks about, and there are other people responsible that no one talks about, and they are the banks, the multinationals, and the governments that defend their interests.
When someone goes into debt, it’s because someone has leant them money. And if someone goes into debt irresponsibly, it’s because someone has leant irresponsibly. Or do we believe that the banks that leant money to Greece were naïve philanthropists who believed in the country and were then defrauded in their good faith?
When the global financial crisis exploded, the detonation was caused by sub-prime mortgages on top of which had been built a fraudulent system of financial instruments made of a substance as flimsy as the millions of mortgages given out during the financial bubble in which many of the borrowers were insolvent right from the start, and others became insolvent when the bubble burst and the value of property dropped to a quarter of the value of the mortgage. No one thought that those culpable in this gigantic fraud were the millions of people who lost their homes, and that the banks and investment funds that generated the bubble and multiplied the con were some sort of naïve and kind lender that innocently trusted their borrowers and were then defrauded. Nevertheless, the hundreds of billions of dollars that were given to mitigate the crisis didn’t go to those who lost their homes, but rather it was given to save the banks. And the CEOs that pushed for this con were later on shamefully awarded obscene sums in bonuses.
It’s good to remember all this, because the banks that made juicy business lending to corrupt Greek governments not only understood perfectly well that Greece was insolvent, but moreover they didn’t care because they knew that in the final reckoning they would be rescued. And in fact it was like that, the French banks reduced their exposure to Greek debts from 79 billion to 1.3 billion; German banks from 45 billion to 10 billion and the Italians from 12 billion to 1 billion. And now the greater part of the debt has passed into the hands of EU countries either directly or through the European Stability Mechanism (145 billion euros) and also into the hands of the IMF and the ECB. In other words, once again governments and international organisms decided to save the banks who lent irresponsibly and now they say to their citizens that they have to recover what the Greeks owe their countries, and somehow the citizens of Germany, France, Italy and Spain are given to understand that they have paid taxes to rescue the irresponsible Greeks who misspent the money. A media farce to set some people against others, thereby hiding the complicity between governments and financial power.
The banks know the power they have. Not only do they control many governments inasmuch as they are partners but moreover, due to the complex financial framework of the banking system in the neoliberal economy, they blackmail the whole of society because when a bank fails it drags with it an important portion of the real economy due to the break down in the payment chain which provokes a domino effect that no government wants, and it generates a situation of blackmail in which governments regardless of their convictions end up faltering in favour of the banks. But as if this weren’t enough to understand the perverseness of the system, we must also understand that when a bank or an investment fund buys debt from a barely solvent country, those who take those decisions are not the owners of the money; those who make the decisions are the managers of those funds who know that in the final instance those who will lose are the savers, after they extract their considerable profits. That’s why the greatest responsibility in the debt trap lies with the lenders and not the barely-solvent borrowers. And for a country to get into debt beyond its means, it requires irresponsible and corrupt governors; but one of the problems of formal democracy is precisely the fact that the people have to choose between false options with the media manipulating everything so that the table is prepared for the vultures of finance who, once they have fed and flown away, leave countries in crisis with the only visible guilty ones remaining behind being the government puppets. And of course when these bubbles of illusory financial prosperity are created with debt, many people feel that their standard of living improves, that they can consume more, and that they receive benefits that they consider to be acquired rights over time, and then they resist losing them when it is explained that the party is over. But you can’t blame the population for this because there’s no reason why they should know about the turbid financial manoeuvres that are there behind every bubble.
Countries in too much debt have been around as a phenomenon for several decades. In the 80s it was the crisis of Latin American debt, and then the Brady Plan arrived to save the banks and put the debt in different hands, generating several crises among which we can highlight the Argentinian default which was a situation that is very similar to that of Greece. And since the beginning of the new century new bubbles have been incubating until the biggest exploded with its epicentre in the USA and with this explosion a debt crisis was produced in several European countries. Governments change, countries change, but there is an actor that is always there in all the crises: global financial power, preying on victims, putting countries in debt and eating the carrion of what remains through privatisation.
That’s why it seems to us that the Greeks must do their part by improving the tax system, cutting back on unsustainable privileges and eradicating corruption. And possibly they have to get used to living off what they really generate while they make efforts to grow and develop. But in no way do they need to go hungry and suffer deprivation, nor privatise their assets for decades in order to try to pay off an unpayable debt. Nor should other people have to pay for that debt with their taxes, nor should investors in good faith lose their savings. Debt should be paid by those who manage the world’s financial power, and so that they don’t continue to prey on their victims, their power should be dismantled. But while governments of the big powers don’t dare to dismantle global financial power, they have to explain to their tax payers and savers that it’s down to them to pay the price for their governments’ complicity with that power.
There’s another aspect of the debt and it is also related to neoliberal mechanics because it is sustained by consumerism. In a world in which wealth is increasingly concentrated, where the profits of business increasingly grow at the expense of employees’ salaries, and while the profits of financial speculation suck more and more resources that should go into production and work; in this world in which employees receive a smaller and smaller slice of the cake levels of consumption can only be maintained through debt. So, like a pincer movement, on one side is the financial system putting people and countries into debt so that they consume, and on the other side are the multinationals offering products for sale that they can buy with these loans. So it was in the case of Greece where German and French banks financed Greek consumption, and this consumption in great part was of German and French products (including weapons).
The Current situation of Greece
Today Greece has a debt of 340 billion euros, equivalent to 175% of GDP. After all the cuts carried out in recent years demanded by the Troika in order to refinance the debt, GDP has fallen 25% and unemployment has risen to 26% on average and up to 60% of young people. This has led to an impoverishment of an important part of the population, with numerous evictions and the highest levels of suicide in Europe. And all of this inhuman sacrifice has barely brought the country back to fiscal equilibrium, and now it must redouble the cuts and sacrifices in order to reach a 3% primary surplus in a couple of years that will allow it to fractionally amortise its debt, and at a pace that in the best of cases will take 50 years to pay off. This debt is unpayable, and everyone knows it, it’s just that before an inevitable default is declared, they want to get hold of Greek assets, forcing them to privatise everything in return for 50 billion euros that would go directly to pay off a part of the debt. In other words, the path ahead, in accordance with the demands of the Troika, is that of tormenting the people with more cuts, handing over all the country’s assets, and after doing so there will still be a default and in that case a forced exit from the Euro.
Greece constantly has loans maturing that it has to pay as a result of the different refinancing packages of its enormous debt, and as they can’t pay these loans from a budget surplus, they must constantly refinance with the Troika’s aid packages that are given in exchange for more cuts. If Greece doesn’t accept the cuts, the Troika won’t refinance the debt and the first loan that isn’t paid would lead to default. And if they default there will be no funds of any kind, in which case Greek banks will have no liquidity because Greece doesn’t print euros, the ECB does, and in front of this possibility there will be runs on the banks to withdraw funds, and very soon the government will have to start to pay pensions and public salaries by issuing some kind of bond, that in practice would be a new currency. In other words, it would be a de-facto exit from the Euro even though the EU doesn’t have a plan for it. This situation was about to happen in July when bank runs started and capital restrictions were put in place such that Tsipras had to go to negotiate a new agreement under threat, and despite the result of the referendum he ended up capitulating out of fear of the consequences. Maybe Tsipras believed that with the support of the referendum in which the Greek people voted No to cuts, he could negotiate from a position of greater strength with the Troika and that would make their position more flexible, but what happened was the contrary.
In reality the Greek government even before the referendum said that their intention was not to leave the Euro but rather to moderate the cuts under the new agreement. But the weakness of their position was precisely that, if they weren’t willing to leave the Euro, then there was no plan B for the case in which the Troika wouldn’t show flexibility in their demands, because the only way to remain in the Euro was with the financial help of the Troika, and they have their conditions.
It’s clear that the situation is very delicate and that there is no easy way out and that any way out will have a cost and it will be high. Many compare the situation of Greece with what happened to Argentina between the end of 2001 and 2002, and in fact there are many points in common. In those days, and over several years prior, Argentina had a convertibility regime in which one peso was equivalent to one dollar; this provoked an overvaluation of the peso that increased the cost of exports and reduced the cost of imports, leading to a deficit in the balance of trade which was sustained through borrowing, the same as a fiscal deficit. In one moment the debt became unpayable, Argentina couldn’t get any more refinancing, a bank run was set off and capital control imposed; then there was a default on the debt and convertibility had to be broken and the currency devalued by 300%. The social crisis was enormous, there was an impoverishment of a large part of the population, unemployment rose, and there were numerous legal cases when deposits, debts and loans previously in dollars were converted to pesos. But after one year Argentina started to recover, thanks to devaluation local industry was rebuilt to substitute imports, the internal market was reactivated and exports grew and contributed foreign exchange. Later on in 2005, after recovering and growing the economy at a high rate, the government renegotiated the debt they had defaulted on with almost two thirds of it written off.
Surely Tsipras knows this example that has also been cited by the Economics Nobel Prize winners, Krugman and Stiglitz when they criticised the cuts to which Greece has been subjected, and suggest, in the case of Krugman, that an exit from the Euro would be a solution. But we must remember something in order to understand Tsipras’s doubts: President Kirchner, who governed during the period of recovery and growth of Argentina from 2003, in a manner of speaking found a smooth path regarding the drastic economic decisions, because prior to his arrival, there was another president who was forced to impose the capital controls on bank deposits and ended up resigning in the midst of social chaos; a second president who had to declare a default and resigned a few days later, and a third one who took the decision to get out of the convertibility mechanism, and even if he was in power for a year and a half before handing over to Kirchner, he left with a terrible public image. In other words, the crisis devoured three presidents, despite the fact that they had no choice but to take those measures because the country had been left without foreign reserves with which to pay debt and sustain convertibility. For Tsipras it’s difficult to see how by rejecting the demands of the Troika and leaving the Euro, his will end up being the government that leads Greece to recovery, or if the initial chaos will devour him and when Greece sees the light at the end of the tunnel he will already be a political cadaver, and someone else will be in charge and perhaps even from a different political party.
Moreover, we can say that Greece’s economic situation is even worse than that of Argentina back then; not only because the debt is bigger, not just in real terms but also in relation to GDP, but rather because Greece doesn’t have the same productive potential as Argentina had, with an industry that operated at 30% of capacity as a consequence of the boom in imports under the convertibility regime, and which recovered as a result of leaving that regime. And because Argentina has a great food export capacity.
So economically speaking, Greece’s recovery after any hypothetical exit from the Euro, will surely be slower than Argentina’s but it will always imply a substantial improvement with respect to the current situation, and above all it opens possibilities for the future.
But continuing with the comparisons, it must be said that the geopolitical situation of Greece is more advantageous than that of Argentina when its crisis erupted. In that moment the South American country was extremely isolated, above all from the biggest powers, and they could only count on the support of a few Latin American countries and so it was obliged to subsist and grow exclusively through its own resources. On the other hand, Greece can call on other international political strategies to achieve a more orderly exit from the Euro. Even if the EU were to stop approving the deepening of cuts, there are differences of position among its members; and within the Troika itself, even the IMF is arguing that the debt is unpayable and must be restructured. And outside the Eurozone, Russia has expressed an offer of support to Greece and that could be extended also to China. And in the USA they are extremely alert because they also consider that the demands on Greece are unviable, and above all they are worried because the country occupies a strategic position in NATO and they wouldn’t at all appreciate a closening of relationships with Russia. With this we’re trying to say that an exit from the Euro doesn’t necessarily need to be totally traumatic as it would be if there were a forced break in the context of a financial stampede. In the case of Argentina, there were indicators back in 1998 of what could happen in the future and the Humanist Party was the only one to propose an orderly exit from the convertibility regime; if it had been done in that way maybe the social chaos of 2001 and 2002 could have been avoided; nevertheless, they insisted until the last moment with that inviable regime and the subsequent forced and tortuous exit. We consider that Greece is in conditions to develop a strategic policy seeking allies that support them financially in order to put together a level of reserves in strong currencies that would allow the country to return to the Drachma without falling into hyperinflation.
Are there other solutions or just an exit from the Euro?
As we said before, the underlying problem is that European integration wasn’t designed to suit the people, but to suit financial capital and multinationals. Therefore it is very difficult for other kinds of solutions to emerge from the EU. But of course if they reflected and decided to reformulate the paradigms of the region then there are other solutions, not only for Greece, but also for other countries in crisis. There have been proposals to issue Eurobonds to restructure and refinance the debts of countries under pressure but they were discarded. Germany and their allied hawks in the EU resisted calls for the ECB to generate a monetary expansion in order to finance the writing off of debt, arguing that in this case they would not achieve the goal of a maximum inflation rate of 2% that they want for the Eurozone. Some affirm that Germany fears an increase of inflation due to the traumatic experience of hyperinflation that was suffered after the First World War which led to the emergence of Nazism. But this argument isn’t very credible because we are talking about something that happened almost a century ago in a totally different set of circumstances. The only way to explain such concern about using a more expansionary monetary policy, which in total could temporarily result in 2 or 3 points higher inflation in the Eurozone, is through the protection that they want to give to the sectors with important financial assets that would be devalued.
You can’t get out of recession with more cuts and austerity, you get out with active policies, and here the ECB must assume its role, absorbing an important part of countries’ debts, and financing investment and consumption in order to drive forward an economic recovery. This would have as a cost, the devaluation of the Euro but the losses would be shared among debtor and non-debtor countries alike, because the focus should be on solidarity among the members of the EU and not on miserly calculation. But it seems to be that the paradigm of solidarity is not the bulwark of this regional conformation, in which countries with problems must resolve them through their own means. And for the moment it is under that conditioning that Greece must manage its options, and the only ones available are: either the agony of cuts, in order to sooner or later end up with a forced exit; or a voluntary exit in the most orderly way possible.
Paul Krugman (Nobel Prize for Economics) who previously doubted the convenience of Greece leaving the Euro has recently said that that is the solution, and he said that bearing in mind the penury through which Greeks are going, it’s better for them to leave the Euro in order to at least feel the benefit of such an exit, as right now they are in hell.
But in reality, we aren’t just talking about the impossibility of paying Greek debt leading to default and this leading to an exit from the Eurozone as a result of receiving no more Euros from the ECB. In other words, we aren’t just talking about Greece stopping to pay its debt with the hunger of the people, and therefore it must abandon the Eurozone. We are dealing precisely with the fact that one of the main factors why Greece got into debt is due to a common currency with other nations that it couldn’t compete with. An exit from the Euro, independently of the debt situation, will allow Greece to improve its balance of trade, increase exports and strengthen tourism, generating greater income and employment.
We could also ask ourselves if in order to improve competitiveness there is no other solution than to leave the Euro but we go back to the same point as before because if the Eurozone was built on the basis of solidarity, the role of the ECB would be to bring forward expansionary policies, not only to moderate the debt of some countries, but also to drive forward development, and that development would be planned at an EU level, putting a priority on the acceleration of the least developed countries. And it should be in this framework and in this dynamic that budget corrections could be made that help Greece to diminish the weight of the state on the economy; because in a developing economy it is possible to decrease public employment and move it to the private sector, without affecting the level of employment. So it would tackle the problem from several flanks and Greece could improve competitiveness without leaving the Euro. But this is an aspiration that doesn’t correspond to the current priorities of the EU.
Definitely, it would be possible to resolve the issue of Greek debt without leaving the Eurozone. Of course the asymmetries in development could be compensated so that the common currency doesn’t affect other countries’ balance of trade. But that possibility today is very far from the intentions of the great majority of members of the EU, which is why the best option remaining for Greece is Grexit.
What would be the consequences of Grexit?
Now nothing will be easy, and all decisions will be difficult and bring problems that need resolving. But in an exit from the Euro there will be light at the end of the tunnel, whereas on the path of growing cuts, one can only see the abyss.
One of the first problems that Grexit would bring is the pressure of capital flight, of which there has already been 42 billion in the last nine months, and we can assume that if Greece goes back to the Drachma there would be a bank run because everyone would go to the banks to take out their euros. That’s for sure, but that’s why there are mechanisms of capital control which can be implemented as an emergency measure as other countries have done and are doing. One way or another there will be capital flight and of course there will be complaints and protests by thousands of savers as a result of the restrictions. There will be strong turbulence at the beginning.
Another problem to resolve is logistical as we aren’t talking only about the devaluation of an already existing currency, but rather the minting of a new one, its distribution everywhere, the setting up of systems and cash machines; in short a logistical complexity that has to happen in the first months, and something that guarantees a tortuous transition.
Another conflict will be the debts of Greeks to other Greeks and of Greeks to overseas creditors. Internally creditors will protest a lot because those owed money in Euros will now be paid in Drachma thereby liquidating their credit. And those that have debts with anyone overseas will either have to save a lot in order to pay them as their income will be in drachma and their debts will continue to be in Euros, or they will go into default until the relative prices go back to normal.
Greece imports many products, including food and medicine, and their balance of trade is in deficit, so with an exit from the Euro there will be an increase in the cost of imported products, and therefore a decrease in people’s buying power in relation to the rest of the Eurozone. Of course this relative impoverishment can be redistributed across several sectors depending on how the government manages the budget in Drachma, helping the most unprotected. In contrast to the current situation, in which those who are unemployed have it worst, the devaluation will better redistribute the effects and everyone will have to take on that relative impoverishment until the economy starts to recover and improve, and then their situation gets back to normal.
The positive consequences of an exit from the Euro will be important although the fruits will arrive later on. Greece will be a relatively cheap country, as a result of which tourism and export of some products will increase, which will imply the income of important foreign currency, which will help to decrease the deficit and stabilise the exchange rate. There will be more employment in the areas of tourism and exports and there will be the opportunity to substitute some imports.
As it is assumed that if Greece leaves the Euro then it’s because it has defaulted, then the country won’t be worried for a long time by external debt which will bring problems of external financing and some political conflicts, but at least the current bloodletting will have stopped, Greece will have to live within its means, but it won’t have to cut even more to amortise unpayable debts. And of course monetary sovereignty and management of its economic policy will allow the government to set a public budget at the service of development; for which invariably they will have to improve the tax system and restructure public administration.
To synthesise we could say that currently Greeks are being gradually and progressively impoverished, and the tendency to continue this way will lead them to be increasingly worse off and despite that they will still not manage to pay the debt and therefore they will have to privatise all their assets and when they have nothing left they will fall into default and leave the Euro by force, but in a state much worse than now. Whereas if they leave the Euro now, they will go through a difficult period, but gradually they will recover and then they will grow again, recovering employment and a standard of living: maybe not the standard of living that they once had thanks to borrowing, but still a better level than the one they have now with all the cuts.