Greece is placed in the focus of world attention. Each day, the public opinion is shocked withinformation presenting its worsening economic, financial and social situation and the possible effects in the background of Europe`s deterioration and a world crisis that is not overcome.
To describe and justify what happens it is often noted that "Greece is the new Argentina” (1) It can well be only a light and easy comparison to the paradigmatic economic and social crisis at the beginning of XXI century. In fact, should be much more: an essential reference for the current critical debate in Greek society and of all countries in crisis on the causes and responsibilities of a disaster, and especially useful to refer the teachings which should provide the recent experience of very similar giant disintegration of a peripheral country as mine, even being due course to consider differences and particularities,
The publication of this book “ Breaking up? A Route out of the Eurozone Crisis” is of great importance at this so critical moment for Europe. It is immediately apparent the commitment of the authors for not being neutral and distant specialists who write only for connoisseurs. Their work and contributions of exceptional quality respond to the challenges facing today a troubled society that requires with its outcry and mobilization immediate responses and proposals. Its reading is highly recommended for all participants in social movements and concerned citizens
As it can be observed in the report, Greece is in a dramatic situation comparable to that experienced by Argentina in 2001 when it plunged a rigid external monetary system , the so-called "convertibility" which established a direct peg to the U.S. dollar (1 Argentine peso = 1 USD) and had been in place for over a decade. The Greek crisis has common references in the disruption of both the balance of payments and fiscal accounts, the inability to generate its own monetary policies, high levels of volatility due to the maintenance of deregulated financial markets, and the major expression of structural imbalances explosively embodied in the accumulated gigantic growth of national debt (2).
. Argentina suffered the same consequences of increased asymmetries with indiscriminate liberalization policies than those seen in Greece and other less developed countries since joining the European Union. The fragile economies are at the mercy of overwhelming competition from more advanced countries, with consequent imbalances that are funded by a period with growing public and private debt, just until the cycle becomes uncontrollable (3).
As has been repeatedly observed lately in Greece, Argentina also went through successive agreements to avoid default . In each case, the failure to comply led to increasing demands for adjustments by financial actors and multilateral lending agencies . As nowadays in the streets of Athens, Lisbon, Reykjavík, Dublin, Madrid and Rome, "country risk" became a topic of everyday conversation in the population, even though mostly of course do not have assets or direct relationship with major operations and financial positions at stake.
The ideological context also has similarities. In both cases more liberal-conservative governments (Karamnlis in Greece, Menem in Argentina) who had carried out reforms of openness, deregulation and privatization were replaced by administrations (Papandreou in Greece and de la Rua in Argentina) , stating initial promises for Keynesian-liberal pro-active public policies and a more active State presence to solve the needs of those who have less, followed the path of increasing adjustments and ended in the most popular disrepute and neglect by the national ruling classes and international.
Also it is present a remarkable common intention of blaming people for the mess. Argentines are very familiar with the arguments of elites and their spokesmen heard today about "the lack of contraction to the work of the population" - and "the excesses of social demands" for budget deficit. It is fully comparable to the occultation that the deteriorating conditions of popular sectors have not been the causes, but the perks and concessions to financial and economic sectors, in a real socialization of private losses enormous to the public sector, which led the country into bankruptcy.
Significantly, as a repeated recursive behavior , the same spokesmen of neoliberal policies in Argentina and Greece that claimed for the withdrawal of state intervention in the economy including basic social services- - in the name of "confidence in the signals and market efficiency", changed abruptly when the crisis came to claim without shame for shelter and urgente close-book public protection in closed book to "restore confidence" and prevent "the greatest damage that could cause them to fail," officials and operators who had a central role in the design and support to pre-crisis policies, Officials and advisers who had a central role in the design and support to pre-crisis policies, began to appear as pristine "technocrats" without commitment or connection whatsoever with former governments and discredited political parties, which they had in fact advised, to boost more regressive adjustments
The language used today to justify that the only alternative for all countries in crisis is to apply to whatever extent severe deflationary adjustments as to gain a diffuse "investors confidence" is old , worn and repeated
The most dramatic similarity in the crisis has been the justification for increasingly severe adjustments to ensure monetary stability and "conform to the markets." As in Greece today in Argentina wages and pensions were reduced , taxes were increased, and basic social expenditures narrowe - just when they wre more needed.- to make the situation unbearable
However, by so much confusion and disruption, there is something much more important in common between these societies so distant and so different histories as Greece and Argentina. The main similarity is verified in the field of popular mobilization and democratic assertive claims. Both countries have a rich history of social struggles. The uprising of December 2001 was heir to the Cordobazo (1969), the general strike (1975), strikes against inflation (80) and the protests against unemployment (90s). In the battles waged by the Greek people is this the legacy of civil war (1944-49), the resistance against dictatorship (1973) and mobilization of youth activities (2008)(4).
LESSONS, PECULIARITIES AND ALTERNATIVES.
Today takes place in Europe that has often been observed in Latin America: the need for creditors to ever-greater profit at the risk of instability. Meanwhile huge profits are made using the leverage of state support and central banks do business with huge potential refinancing and speculative trading of debt securities and devalued assets . Obligations, liabilities and bad debts are transferred to the public sector while simultaneously a wave of private capital flight from the peripheral countries empty their reserves.
The changing situation of Europe is vertiginous and requires immediate responses. Learning from previous experience of a country like Argentina, which was forced into default. and despite ominous forecasts of a disaster its economy has recovered in recent years with one of the highest growth rates in the world can be useful if similarities but also differences are recognized :
* Argentina could be referred as an isolated case and not, as now Greece, part of a major crisis in Europe and a highly unstable global situation in parallel with a political and cultural climate more critical towards "capitalism as it is".
* Peripheral European countries have much more intertwined economies . While thus the interests and pressures are much more severe, new roads would provide an independent perspective and model for the essential change of direction demanded by a region with growing economic and social dislocations.
*Although Argentina has a different endowment of natural resources which allowed it to take advantage in the post-crisis period of booming exports of raw materials to China and other emerging Asian countries, European countries have a key geopoplitical significance and distintive cultural and political traditions
Alternatives today are not easy. Anyway, is much higher the cost of maintaining the "status quo" to accept its historic collapse adjustments and increasing prostration, than the alternative option to say no and decide and define changes according to its national interests, needs and priorities. These must meet basic democratic questions: who should pay for the crisis? Which should be the priorities - including policies, resources and expenditure, for an alternative economic program? To establish strategies, steps and measures will mean to address a lot of technical obstacles, but without doubt the most important hurdles will be political, especially to reverse the resignation of those who argue because of vested interests , confusion or demoralization that peripheral Europe countries as Greece have no other alternative than to accept "more of the same".
Greece, must be prepared and take steps with the advantage of learning from other historical experiences. The rebellion of Argentina in 2001/2002, which ended a very decadent period, positively demystified the conception, also present today in all Europe , that there are no alternatives to systemic disaster than the adjustment against society justified through the maintenance of monetary rigidity.
However, Greece should not make from scratch errors and flaws that could not be covered or understood by the great social movement in Argentina. This was very important and ended a terrible period but the results were partial and limited. The precipitation of events allowed the continuation of "bailouts" to banks and economic and financial groups broke while public finances and the country’s reserves were emptied by the flight of capital. The massive devaluation on inflation was transmitted without considered the situation of the most vulnerable. Above all, there was the huge deficit that alternative economic proposals only began to be discussed with the default and the collapse of the US dollar dependent monetary jacket of “convertibility”.
For now, it would be desirable that European social movements, surpass Argentina’s process deficits through :
1. Affirming and expanding a powerful democratic movement for the audit of public debt to clarify responsibilities and embezzlements covered up to now by banking secrecy and high level agreements5. .Actual trend that renegotiations are carried through the exclusive initiative, control and priority conformity of banks, European bureaucrats and multilateral agencies must be urgently reversed.
2. Not allowing the isolation of Greece and other countries close to the precipice. A permanent worsening situation, including probable defaults, require not chauvinist standings if common proposals and actions of all those beaten severely by the crisis . Hence the central importance of solidarity and common action.
3. Advancing without delay in the study, discussion and presentation of proposals / alternative programs on key issues (currency, budget, financial system, tax reform, production, employment, European integration, etc). It is not enough just to criticize what happens or to question capitalist economic programs or proposals solely on simplistic slogans . To demonstrate the infeasibility or regressivity of plans and measures proposed by the "troika" or national governments strong cultural and political alternatives must be discussed and raised with the utmost seriousness and consistency, answering a logical question: what would you do instead?
It is well known that economic crisis, especially when they are very severe, can lead to disrupt the social fabric in "save me first " attitudes. Thus, in the absence counterweights to prevent economic, financial, political and social dislocations the consequences can be enormously regressive. These are very hard and complex times, and challenges must be inevitably faced.
Readers will find that the authors of this book just aim to provide an small contribution to open the ground for much needed more analysis and discussions in social movements. Neither more nor less, but essential to give rise to hope.
Buenos Aires, February 2012
BREAKING UP? A ROUTE OUT OF THE EUROZONE CRISIS.
C. Lapavitsas, A. Kalternbrunner, D. Lindo, J. Meadway, J. Michell, J.P. Painceira, E. Pires, J. Powell, A. Stenfors, N.Teles, L. Vatikiotis.
1. The Eurozone crisis is part of the global turmoil that began in 2007 as a US real estate crisis, became a global banking crisis, turned into a global recession, and
thus gave rise to a sovereign debt crisis. At the end of 2011 there is a risk of returning to a banking crisis in Europe and elsewhere. At the heart of bank weakness
lies private and public debt accumulated during the period of intense financialisation in the 2000s.
2. The euro is a form of international reserve currency created by a group of European states to secure advantages for European banks and large enterprises in the context of financialisation. The euro has attempted to compete against the dollar but without a correspondingly powerful state to back it up. Its fundamental weakness is that it relies on an alliance of disparate states representing economies of
3. The euro has acted as mediator in Europe of the global crisis that began in 2007. The European Monetary Union (EMU) has created a split between core and periphery, and relations between the two are hierarchical and discriminatory. The periphery has lost competitiveness in the 2000s, therefore developing current account deficits with the core and accumulating large debts to the financial
institutions of the core. The result has been that Germany has emerged as the economic master of the Eurozone.
4. Eurozone policy to confront the crisis has been profoundly neoliberal: cutting public expenditure, raising indirect taxes, reducing wages, further liberalising
markets and privatising public property. Corresponding institutional changes within the EMU - above all for the
European Central Bank (ECB) and the European Financial Stabilisation Facility (EFSF) - have entrenched the dominance
of the core, particularly of Germany. More broadly, policies are threatening to shift the balance of economic, social and political power in favour of capital and against labour across Europe.
5. Austerity is contradictory because it leads to recession thus worsening the burden of debt and further imperilling banks and the monetary union itself. This contradiction is compounded by the nature of the EMU as an alliance of disparate states with diverging competitiveness. As a result, the EMU currently faces a sharp dilemma: either to create state mechanisms that could enforce policies
raising the competitiveness of the periphery, or to undergo a rupture.
6. The credit of the ECB has been arbitrarily deployed to protect the interests of large banks, bondholders and enterprises, even by-passing the ECB’s own statutes.
Social power has been undemocratically appropriated by an elitist institution subsequently to be placed at the service of large capital in Europe. But the capacity of the ECB to relieve the pressures of crisis is limited because it is has been asked to play a fiscal role for which it was not designed. Moreover, the EMU is hampered by the absence of a state to back up its liabilities and solvency.
7. The EFSF is similarly hampered by the absence of a state authority that could reliably support an expansion of its lending powers. More than that, the ability of the
EFSF to recapitalise banks is limited by the national character of banks in Europe. Banks remain closely attached to their nation states. An alliance of disparate states
cannot easily raise funds jointly to rescue the national banks of one of its members. It is hardly credible that Germany could, for instance, rescue French or Spanish
banks without a commensurate return.
8. The association of nation states with their domestic banks has become more pronounced in the course of the crisis. Banks have been acquiring the public debt of
their own states; they have also been depositing spare liquidity with their own National Central Banks (NCBs); they have, finally, relied increasingly on Emergency Liquidity Assistance (ELA) provided by their own NCB. The result is that banks and nation states now face a heightened danger of joint default. The emerging choice for peripheral states is particularly stark: either fully nationalise banks, or lose control over them.
9. The persistence of the split between core and periphery, the absence of effective institutional change for the EMU, the pressures of austerity and the threat to banks
are creating harsh conditions for peripheral countries. Future prospects are bleak,including low growth, high unemployment and worsening burden of debt. The ability
of peripheral countries to remain within the EMU is in doubt, and the most likely candidate for exit is Greece.
10. Greece is manifestly unable either to service its public debt, or to comply with the conditionality of the rescue plans, making default inevitable. However, default led
by the creditors and occurring within the confines of the EMU (so-called orderly default) would not be in the best interests of the country. It would probably lead to loss
of control over domestic banks; it would not lift austerity; it would keep the country within the competitive vice of the euro. The social costs would be great. The country would also lose some of its sovereignty as fiscal policy would come under the explicit control of the core. The prospect of eventual exit from the EMU would remain.
11. Default ought to be debtor-led, sovereign and democratic, leading to deep cancellation of debt. Debtor-led default would probably precipitate exit from the EMU.
Quitting the euro would offer additional options for dealing with public debt since the state could re-denominate its entire debt in the new currency. Exit would further
allow the state more scope to rescue banks through nationalisation and provision of domestic liquidity once command over monetary policy would have been restored. Nonetheless, exit would also create fresh problems for banks as some assets and liabilities would remain denominated in euro. The outcome would probably be the shrinking of Greek banks over time. Exit, finally, would disrupt monetary
circulation and cause problems of foreign exchange as the new currency would depreciate. Still, the disruption of circulation is unlikely to be decisive, w hile depreciation
would present the opportunity of rapidly retrieving competitiveness. On balance, if Greece is to default, it should also exit the EMU.
12. Debtor-led default and exit are fraught with risk, and have costs attached to them. But the alternative is economic and social decline within the EMU that could still end up in chaotic and even costlier exit. In contrast, if default and exit were planned and executed by a decisive government, they could put the country on the path to recovery. For that it would be necessary to adopt a broad economic and social programme including capital controls, redistribution, industrial policy,and thorough restructuring of the state. The aim would be to change the balance of power in favour of labour, simultaneously putting the country on the path of
sustainable growth and high employment. Not least, national independence would also be protected.
13. More broadly, the Eurozone crisis brings to a close a period of confident economic and political integration in Europe. The ideology of Europeanism which promised solidarity and unity to European people, is in retreat as the core has demonisedthe periphery in the course of the crisis. The depth and severity of the crisis are eliciting intense social reaction against large banks and enterprises in the EU. The impasse reached by the EMU raises the possibility of more active economic and social intervention by the nation states of Europe in the foreseeable future.
14. The required restructuring of Europe as the EU and the EMU face decline could not be undertaken by neoliberal agents aiming to defend the interests of big business.
The restructuring should be democratic in content, relying on the forces of organised labour and civil society; it should draw on the theoretical tradition of political economy and heterodox economics; it should also tread a careful path between declining Europeanism and nascent nationalism. Above all, it should keep firmly in mind the old socialist dictum that European unity is possible only on thebasis of workers’ interests.
1. Among many others: Melander, Ingrid “Nightmare of disorderly default focuses minds on Greece” Reuters , January 27, 2012 ; Newbery, Charles, and Barrionuevo, Alexei “As Greece Ponders Default, Lessons From Argentina”, New York Times, June 23, 2011; Warner, Jeremy “Lessons of Argentina ignored in handling of Greece“ The Telgraph, July 4, 2011,
2. By late 2000, the total external and domestic Argentine public debt represented 45 percent of GDP (The externalpublic debt equalled 30 percent of GDP; the servicing of external public debt amounted to 2.4 percent of GDP and 23 percent of exports. The annual public and private external debt service amounted to 41 percent of total exports, and the total public and private external debt stock was equivalent to almost 5 times the annual exports.
3.Nicolini, Jose Luis (1993), “Adjustment and Growth with a Large Foreign Public Debt in a Semi-industrialized Country”, In: Economic Notes, Monte dei Paschi di Siena, Vol. 22, no. 3, pp. 505-511
4. Katz, Claudio. “Leccciones de Argentina para Grecia” Julio 2011, published in http://katz.lahaine.org