WeeklyWorker

30.04.2015
Yanis Varoufakis: does his departure herald a rotten deal?

Crunch time approaches

Does Syriza have a plan B, wonders Eddie Ford, and is it viable?

Watching events unfold in Greece is like observing a slow-motion crash: with every week that goes by we are waiting for the final crunch.

According to heavily reported accounts of the April 24 meeting in Riga, euro zone finance ministers at one point had their heads in their hands whilst Yanis Varoufakis, the Greek finance minister and very ‘erratic Marxist’, lectured them yet again about the evils of austerity - and, of course, the virtues of Keynesianism. Further incurring their displeasure, in between sessions, he tweeted: “I welcomed their hatred” - quoting from Franklin D Roosevelt’s famous 1936 Madison Square Garden speech, in which he pledged to continue the New Deal and attacked the “old enemies of peace” who were profiteering from the great depression.

Even worse, apparently, he failed to attend the official euro group dinner - an affront too far. Tempers extremely frayed, a senior official complained that it had become “impossible” to do business with Varoufakis - and that “any sympathy” for Athens was eroded by the “failure to draft concrete proposals”. The Greek government is not playing ball.

But, in a move that took some by surprise, Varoufakis on April 27 was replaced as leader of the negotiating team by Euclid Tsakalotos, the deputy foreign minister for international economic affairs - who was privately educated at St Pauls in London and went to Oxford University (where he belonged to the student wing of Greece’s Eurocommunist party, KKE Interior).1 This is a possible indication that the Greek government is on the verge of capitulating to the ‘institutions’ in the form of the European Commission, International Monetary Fund and European Central Bank - though Varoufakis strenuously denies that he has been sidelined. Meanwhile Alexis Tsipras has called him an “important asset” for the Syriza-led administration. Indeed, various government insiders have told the press that the move was not much more than “window-dressing” aimed at placating the irritable head of the euro group, Jeroen Dijsselbloem, and the increasingly unhappy ECB. As for Tsakalotos himself, he claims to be adamantly opposed to any “further” austerity measures and guided by the concepts of “participatory democracy” and the “anti-globalisation movement”.

However, EU officials have taken comfort from this reshuffle - common sense will reign again. The new negotiating team was described as “moderate” and “sensible”, with the greater involvement of Giorgos Houliarakis being particularly welcome. He is widely viewed as a key ally of the more pragmatically inclined deputy prime minister, Yannis Dragasakis, former deputy speaker of parliament and a member of the KKE’s central committee until 1991, when he resigned to join Synaspismos (Syriza’s largest component). Houliarakis has been involved in talks with the so-called ‘Brussels group’ of financial technocrats doing most of the spadework on the conditions for resuming lending to Greece.

Tsakalotos is expected, alongside Varoufakis, to represent Greece at the next euro group meeting of finance ministers on May 11. This is widely seen as a make-or-break date for the Athens government to persuade the institutions to unlock €7.2 billion in bailout funds and open the way for talks on a third bailout package - something that Syriza specifically ruled out during its election campaign, of course, fighting instead for a partial debt write-off (originally it had called for the repudiation of the entire debt). Then the next day, on May 12, Athens has to meet a debt payment of €780 million to the IMF.

The markets were slightly cheered up as well by Varoufakis’s demotion, if that was what it was. After the announcement, Greek shares rallied, with the Athens stock exchange closing the day up 4.4%. Two-year bond yields also fell to a two-week low of 23.55%., though obviously still dangerously high. But far less good news came when Greece’s central bank released figures on April 29 showing that bank deposits fell to a 10-year low in March, as savers continued to worry about the country’s finances and the continuing impasse over releasing bailout funds. They dropped 1.36% to €138.55 billion, the sixth monthly fall in a row, albeit at a slower pace than in February. In response, the ECB raised the amount of ‘emergency liquidity assistance’ available to Greek banks - lifting the cap by €1.4 billion to €76.9 billion, after a similar increase last week.2 The bank’s governing council did signal, however, that access to such funds may become more problematic if bailout talks remain deadlocked.

In another possible sign that the government is preparing a compromise, the Tsipras administration has pledged to present reform proposals to legislators by April 30 in a bid to facilitate talks. But the bill is not expected to offer major new concessions, beyond those already discussed with creditors. It does include measures to clamp down on corruption and tax evasion by “boosting the independence” of the revenue collecting authorities. For instance, tourists on popular Greek islands will be required to use a credit card for transactions over €70 in an attempt to tackle tax evasion. Other “fiscal management” reforms will include a new tax on television broadcasting rights and TV advertisements. One official said Athens would “push back” plans to raise the minimum wage, but Greece’s deputy labour minister has said that the government will not agree to demands for further pension cuts - something else demanded by EU officials.

Asphyxiation

But time is rapidly running out to make some sort of deal with the institutions. Tsipras has said he is “confident” about reaching an “interim agreement” by May 9. On April 28 he ruled out defaulting on the €780 million loan repayment to the IMF, but the plain reality is that Athens is struggling to pay a €1.7 billion wages and pensions bill due at the end of the week, and at the time of writing it is not entirely certain that the bill will be met - or how. Indeed, with cash reserves running out fast and bankruptcy looming, it is far from impossible that the government will prioritise paying pensions and salaries over debts to the IMF and the ECB.

At the beginning of the week, Tsipras hit out at both the institutions and his political opponents. Some of his sharpest comments were reserved for the previous government and unnamed forces in Europe, which he accused of laying a “trap” for his government - they “derive pleasure from the prospect of a failure in the talks”, he said, remarking that Syriza took over a “minefield” when it came to power in January. The new government inherited a situation of “financial asphyxiation”. He is obviously right.

He singled out the ECB for special criticism. Greece’s pressing liquidity problem, he stated, had been exacerbated by the bank’s “politically and ethically unorthodox” decision to limit the issuing of short-term government debt. In this way, he argued, Greece lost its ability to refinance an additional €6 billion: ie, the banks were prevented from financing the government. In another jibe against EU officials, he said his government made a mistake by accepting a verbal rather than written commitment from Dijsselbloem that the ECB decision would be reversed once Greece got a deal to extend its bailout.

Responding the next day, Dijsselbloem said Athens should not have been surprised by the ECB’s move. In his opinion, the Greek government “gambled” that, as part of the negotiation process, the ECB would “open its cashier windows” and “relax the rules”. No way. There will be no “easy access” to ECB cash until there is a “solid agreement” with the euro group. Athens has been told this “time and time again”, he emphasised. Dijsselbloem also reiterated his long-held position that Greece would need new loans to stay afloat. Without further financial assistance, the country “won’t make it”, he insisted - “that’s the reality”.3 It is hard to disagree. Germany, needless to say, has made it abundantly clear that Athens has to provide a detailed list of reforms if it is to have any chance of getting its hands on any more bailout money.

Now, you might have expected the institutions to respond more generously, whether on a gut humanitarian level or out of pragmatic geopolitical considerations, to prevent Athens pivoting eastwards - which it shows signs of doing. But, as the Weekly Worker has consistently argued, there was never any possibility that the Euro bureaucracy (especially Germany, the paymaster) would blink first. If they agreed to substantially ease the conditions of the Greek bailout, or even write off the debt, then Ireland, Portugal and Spain would immediately be asking for the same treatment - they would be mad not to. Then so would Italy, which is too big to bail out - even for Germany. Anyone who thought Greece would get a sympathetic hearing from the smaller euro states could not have been more wrong: the exact opposite has been the case. Countries like Lithuania, Estonia, Slovenia, etc are imposing onerous austerity because there is no alternative - or so they tell their own people. But if Greece were to get a break, even a comparatively small one, it would straightaway undermine the political and moral authority of those governments - perhaps their legitimacy altogether. Therefore it was only to be expected that they would be the most militant advocates of a tough line against Athens.

Clearly, the EU has a plan B if and when Greece exits from the euro - firewalls to protect from contagion. If some accounts are to be believed, German officials are remarkably sanguine about the impact that ‘Grexit’ would have on the rest of the euro zone, German taxpayers are liable for around €70 billion of Greece’s €240 billion of official debt - a manageable loss, it seems. Over the past five years, the EU has put €500 billion into the European Stability Mechanism for helping troubled banks or governments and the ECB has a bond-buying scheme for emergencies. According to one unnamed senior German official, Spain, Portugal and Ireland would be okay, as they have “done their homework”.4 When pressed, the same official said that if a ‘Grexit’ drove the financial markets to demand a premium before lending to another country, then Germany would reassure them by proposing more integrated euro zone policymaking.

Playing cat and mouse at a press briefing after the Riga meeting (or debacle), Wolfgang Schäuble, German finance minister, was asked what euro zone finance ministers would do if negotiations failed and Greece ran out of money. He replied: “You shouldn’t ask responsible politicians about alternatives” - adding that one “only needs to use one’s imagination to envisage what could happen” if Athens cannot meet its financial obligations.

Referendum

But more importantly still, does Syrizahave a plan B? After all, its leaders are not stupid. The financial press has been full of speculation about the reintroduction of the drachma or even the issuing of government-backed IOUs that by definition would be worthless within months, if not weeks. Another scenario, as commented upon last week in this paper, is that Tsipras will use his 70% popularity ratings to cynically split his party and do a deal with To Potami and the remnants of Pasok - maybe even elements of New Democracy - thus keeping Athens’s creditors happy, at least for the time being. But while such a plan might appeal to Washington, Berlin and Brussels, it is unlikely to appeal to Tsipras who has devoted many years of his life to building Syriza.

Yet we got the first distinct glimmers of a plan B when he defined his task as negotiating an accord that “won’t repeat the vicious circle of austerity, misery and pillage”. Though he ruled out a snap general election, we should not discount that possibility. Tsipras, has, however, said that if international lenders sought further austerity measures then a referendum would have to be called: “If the solution offered goes beyond our mandate, it will have to be endorsed by the people”. But he quickly told the listeners he was “certain” that point would not be reached - despite the difficulties, he thought, the “possibilities to win” in the negotiations are “large”. Dijsselbloem poured scorn on the very idea, saying Athens did not have the money or time to conduct a plebiscite. ND leader Antonis Samaras was blunt about Tsipras’s options: “An about-turn by the government or a referendum on the drachma.”

Of course, at this stage, we do not know what the wording of any referendum question would be - or what position Tsipras will be pushing for if it actually came to pass. It could be that the Syriza leadership will agitate for a compromise deal, or climb down in order to stay in the euro zone. On the other hand, Tsipras might decide to go with those on the left of the party who favour a complete break with the euro zone and implementing its full anti-austerity programme - which will certainly be the case, of course. Given the current circumstances, it is quite conceivable such a referendum would see a large or even overwhelming majority backing the view that the country’s plight is attributable to foreign bullying: ie, German interference. This kind of appeal to national pride would contain a kernel of truth, it goes without saying, but it would inevitably see Greece kicked out of the euro zone.

What then? The Greek government would have absolutely no choice but to preside over its own austerity regime and in all likelihood would be forced to go down the path that some in Syriza (most notably, Costas Lapavitsas) have been agitating for over a number of years: a national socialist autarky. This orientation would presumably involve doing deals with Vladimir Putin, leaving Nato, etc - trying to become a Mediterranean version of Cuba.

Marxists do not deny that this is a viable political option - at least in the short term - though the absence of mass communist parties in Italy or France makes it a much riskier proposition now than in the 1960s. But from the viewpoint of socialism an impoverished Greece is not viable at all. That is why we emphasise the necessity of coordinated action and organisation across the EU. A United States of Europe would have every chance of spreading the flame of revolution to Latin America, Asia and Africa and finally to North America.

eddie.ford@weeklyworker.co.uk

Notes

1. The Guardian April 28.

2. www.bloomberg.com/news/articles/2015-04-29/greek-banks-get-more-funds-as-ecb-weighs-tougher-collateral-rule.

3. http://uk.reuters.com/article/2015/04/29/us-eurozone-greece-dijsselbloem-idUKKBN0NJ1LW20150429.

4. ‘Germany is becoming relaxed about a Grexit - perhaps too relaxed’ The Guardian April 23.