Washington D.C., July 5, 2015, (Alochonaa): Symbolic Relevance of the Referendum – 5 July 2015
Besides the Iran-US nuclear negotiations, Greece was one of the biggest stories in the last two weeks of June 2015. Not just the mainstream media throughout the world, but the social media has been covering the drama unfolding in Greece, a drama that actually started in early 2010 when the creditors decided to make borrowing expensive for the Greek government. In May 2010, Greece opted for IMF-style austerity and massive cuts in public spending and public sector jobs, combined with higher indirect taxes, measures the EU and IMF promised would lower the public debt and stimulate higher growth rates on a sustainable basis. Promises notwithstanding, the result has been one of the highest unemployment rates in the world, negative GDP growth, accompanied by much higher debt.
The center-left SYRIZA government called for a referendum on 5 July 2015. In my view, this makes a difference only in a political and symbolic sense for the reformist orientation of SYRIZA, but it means nothing when it comes to whether Greece remains integrated with the Western alliance and market economy. The country has been a virtual semi-colony of the West throughout its two-century history and it remains so to this day. While many around the world find it surprising that German officials are demanding the right not only to conduct policy in Greece but to determine what party will govern, those familiar with Greek history know this is actually part of the country’s legacy from 1832 until the military Junta of 1967-1974.
The “panic of 1893″ hit countries from the US to Russia very hard, and it was the era that gave birth to many radicals in Russia, China, Europe and the US. On 10 December 1893, Greek premier Harilaos Trikoupis stood before Parliament and announced official bankruptcy. After a frenzy of massive borrowing that European banks encouraged so that Greece could modernize its infrastructure so that it could attract more foreign investment, after a decade of Western economic expansion in the 1880s, the depression of the 1890s that plagued the US and Europe forced Greece into bankruptcy.
Like the Ottoman Empire, China, Russia and many Latin American countries that had a very large foreign debt, Greece fell under tight financial control of the Great Powers. Like the Ottoman Empire, China, Latin American republics and to a certain degree Russia, Greece was a quasi-protectorate of Britain and France that represented the interests of bondholders and export interests. As to be expected, Greece had very limited sovereignty in the 19th century as it does today, except that the people really want to believe they are Europeans with equal rights as much as the French and Germans. Naturally, this holds true for the top 30% who do not have much of an economic problem, but it is hardly the case for all the rest.
At the core of the problem is the immediate and long-term sustainability of the sovereign debt, but below the surface the patron-client integration model that Germany wishes to impose is far more significant. The Western media and pundits have used a scare campaign to force Greece into the neoliberal global consensus that the IMF and EU demand. The issue they have used is lack of liquidity and the promise for continued supply if Greece accepts more austerity and neoliberal polices.
Greek Money Supply and the European Central Bank
Although Greek banks account an estimated 80 percent of the money supply, this is a very elusive statistic because the wealthy Greeks and even medium-sized businesses have taken their money out of banks. After all, they had five years to prepare for the inevitable bottom of the crisis that is yet to come. The same holds true for the retail investors. This means that what held true during the Great Depression when FDR was asking the American people to put their money back in the banks also holds true for Greece today. Fear and insecurity drove people to deprive the banks of liquidity, leaving the European Central Bank (ECB) in the role of playing politics with this issue. The ECB has essentially precipitated a run on the Greek banks by signaling it will not provide liquidity, but a percentage of the money Greeks have taken from the banks remains largely inside the country.
It is important to underscore another cultural trait about the Greek mindset regarding money and banks. Even before the EU-IMF austerity, Greeks had a tradition of hoarding large amounts of money outside the banking system. This is largely in part because of the thriving “informal” economy that operates in an economy that includes everyone from your local dentist who does not provide patients with a payment receipt to the billionaire oil-gasoline distributor whose goal is to conceal illegally-gained profits so it is not traceable by the tax authorities. In short, Greek banks may have a very low liquidity level, but as a whole Greece has most of its liquid assets in private hands because there has been the fear government will impose a “haircut” on deposits or simply confiscate everything in case there is conversion to a national currency.
There is no accurate number about how much money is held in private hands. On the basis of official bank withdrawals in the last two years and the worth of the “informal economy”, there are speculations that over 100 billion euros are held, or more than half of the GDP. This kind of home-cash reserve situation has been building from January 2010 until the present. Even before the crisis Greeks kept large reserves outside of banks and those amounts are not counted as part of M3 money supply. Nor can we argue that money in circulation is an accurate reflection of M3 in the case of Greece, because there is a huge difference on the manner that the US accounts for money supply – always taking into account the subterranean economy – and the manner that Greece does where the subterranean economy is much higher than the US.
Long before the austerity crisis, Greek accounting methods have been immersed in corrupt practices, especially by the private sector that insists on tax evasion. Historically, Greek businesses prefer to spend almost as much money bribing officials to avoid paying the right amount of taxes as they would have paid legally. In short, the money supply as shown on official records is meaningless. Most of the cash is in the hands of the top one-third of the income earners who have a stake in keeping the euro and continuing with austerity no matter the devastation for the bottom two-thirds of the population.
German-Neoliberal Colonization of Greece
The SYRIZA government promised a great deal more than it could possibly deliver to the Greek people, but from January 2015 until the end of June 2015, it tried to negotiate the following things: a) easier terms of austerity so that the very poor are not impacted further; b) halt to measures that continue to erode the middle class and working class living standards; c) a policy mix that permits some modicum of development to offset austerity; d) trying to secure funding for the immediate debt payments for which there is no money in the current budget; e) a long-term program (anything from haircut to a rollover by issuing new bonds) to address the unsustainable public debt and avoid default; f) easing on privatizations that provide essential services to the public – electricity and water, for example.
Led by Germany and the IMF, the EU rejected everything and demanded even greater austerity and conformity to neoliberal measures. Both Germany and the IMF made it clear that Greece must be reduced to the level of its northern Balkan neighbours in terms of living standards, which in effect meant enormous cuts in wages and pensions. In essence, the German-IMF deal on the table was that Greece would be reduced to a status comparable to its northern Balkan neighbors that are not EU members and do not have the high costs of living as does Greece.
The real issue in 2015 was whether the German-IMF led dogmatic neoliberals prevail or whether the reformers who believe that the German-imposed patron-client integration model in the EU is forcing Greece and the periphery members into neo-colonial status. Germany failed to conquer Europe by going to wars twice in the 20th century, but it is now trying to achieve the same result through the route of economic hegemony. However, it has very powerful allies in multinational banks and corporations of the entire Western World and this is why it is so powerful against those trying to maintain a bit of their national sovereignty in order to present the illusion of democracy to their citizens.
Prime Minister Alexis Tsipras (SYRIZA party) rejected the austerity package that the EU-IMF provided because it called for greater cuts in pensions, cuts in public sector spending targeting jobs, and higher indirect taxes, as well as a host of privatizations that included public utilities led by the electric company. These demands on the part of the EU-IMF did not operate on the assumption that Greek debt at 177% of GDP is not sustainable, that is, Greece cannot possibly meet creditor obligations, especially since they are frontloaded. On the contrary, these measures promise to deliver growth and development and a sustainable debt. These were the same promises the IMF and EU have been making from 2010 when the public debt was 110% of GDP , and despite a 50% haircut in 2012, it now stands at 177% with the prospect of going above 200% if austerity continues.
Throughout June 2015, the center-leftist Tsipras, whom Western media label “extreme leftist” because he is opposed to neoliberal policies and austerity, tried to compromise. Perhaps naively so because reformism on the part of periphery countries does not work going up against the core countries, Tsipras realized the pressure from creditors, domestic capitalists, media and political opposition from both the neoliberal parties – PASOSK, New Democracy and POTAMI – was immense against the background of ECB cutting off the money supply to Greek banks where depositors ran to take their money out.
The EU-IMF reaction was “no negotiations with Tsipras”, focusing instead on securing a vote against SYRIZA and in favor of austerity on Sunday, 5 July 2015. A YES vote for austerity would in effect mean at the very least a very weak SYRIZA government, and at most, Tsipras resigning and allowing a pro-IMF-EU caretaker regime to take over exactly as Germany demands. Four days before the referendum, the IMF issued a report essentially validating the SYRIZA that the debt is indeed unsustainable and that Greece will need an estimated $67 billion in the next three years, mostly to service the debt. However, the need for a new loan package would come with another “memorandum of understanding”, or simply put, another round of austerity measures much tougher than before. Regardless of the outcome of the vote, Greece will be integrated with the West, although SYRIZA tried to alter the patron-client integration model that has essentially reduced the country into a semi-colony no matter how much people wish to deny this very obvious reality.
During WWII, Germany invaded Greece, ravaged the country and was responsible for war crimes well documented. A Greek government report has asked that Germany address the matter of war reparations amounting to $300 billion, or about the size of the Greek public debt. Germany does not acknowledge there is an issue of war reparations, because if it did then that would mean the end of austerity and neoliberal policies. To enforcing the neo-colonial patron-client model of integration on Greece, Germany has no choice but to use the public debt as a catalyst.
In retrospect, it was very naïve of SYRIZA to believe that it could possibly alter the patron-client model of integration and revert to the inter-dependent model on which the EU was founded. If it simply used the issue just to win the election in January 2015, no doubt its more astute members must have known they would not very long in power by deceiving the public in exactly the same manner as the previous pro-austerity governments. Given the country’s sociopolitical polarization that reflects the socioeconomic one, SYRIZA could only survive if it forged a consensus with which the middle class and workers could accept. This proved an elusive goal built on lies no different than the neoliberal New Democracy and PASOK governments.
The reality is that the core countries of the EU enjoy enormous power to shape the model of integration, while the periphery ones simply go along and try to secure the best possible terms within that model. The result of forcing such a model of economic-political integration for Greece has in essence meant extreme sociopolitical polarization to the degree the country has not experienced since the Civil War of 1946-1949 when it was divided between Communist rebels and pro-Western elements demanding integration with the US during the Truman administration. The polarization has left workers, pensioners, and the middle class bewildered because they know regardless of the referendum result, their situation and that of the country as a whole, will not improve. They also know that the wealthy Greeks and foreign investors will grab investment opportunities as asset values continue to drop along with wages.
Beyond the very tragic issue of millions suffering lower living standards, and beyond the very real prospect of their continued suffering for a number of years under such conditions, there is the fear that other countries could also meet with a similar fate as Greece. The question for EU leaders must be to what degree is Greece and for matter all of the periphery (southern and eastern European countries) sovereign and to what degree do citizens have a voice in the illusion of a democratic process that really belongs to the banks and multinational corporations that the state represents?
Can a country so externally dependent as Greece enjoy national sovereignty at the same level as a more affluent country like Germany? Of course, there is the larger and more essential question of the degree to which a worker or a middle class professional in Germany or any core country feel that she/he is influential in the democratic process that serves almost exclusively financial and corporate interests. In the last analysis, national sovereignty is more about the struggle between the comprador bourgeoisie serving external interests while advancing their own, and the national bourgeoisie wishing to assert their influence. In the last analysis, Greece was a virtual semi-colony of the West ever since 1832, and it remains one today. The difference is that in the last four decades, the country developed a middle class and it raised living standards rapidly to lift itself from the “Third World” status it was in the 1950s. All of this is now lost, and it is very difficult for a country to drift backwards in this manner. Greece should be a lesson for all periphery countries for this is what capitalism has in store for them as well.
*Jon Kofas is a retired Professor . He has published many works including; Independence From America: Global Integration And Inequality, Under the Eagle’s Claw: Exceptionalism in Postwar U.S, Greek Relations and The Sword of Damocles, and The IMF, the World Bank, and U.S. Foreign Policy in Colombia and Chile, 1950-1970.
**is not responsible for any factual mistakes (if any) of this analysis. This analysis further is not necessarily representative of view. We’re happy to facilitate further evidence-based submissions on this topic. Please send us your submission at alochonaa@
Categories: Political Economy