Eurozone in crisis and The Greek Revival Plan
The new Greek and old German debts. History about debts and new Europe
The Federal Republic of Germany was collapsing under the weight of its debts in 1953 and seemed likely to drag other European nations down with it. Its creditors, including Greece, were concerned for their own safety and acknowledged something unsurprising to anyone but a modern neoliberal: that a policy of internal devaluation (reductions in salaries) does not guarantee that debts will be repaid, but the opposite.
At an extraordinary summit in London on 27 February 1953, 21 countries decided to reassess their demands to adjust to Germany’s ability to fulfil its obligations. They cut Germany’s nominal outstanding debt by 60% and granted it a five-year moratorium and a 30-year payback period. They also devised a development clause which meant Germany did not have to spend more than 5% of its export revenues on servicing its debt. Europe’s action effectively reversed the thrust of the 1919 Treaty of Versailles and laid the foundations for West Germany’s post-war recovery.
This is precisely what Greece’s Coalition of the Radical Left (Syriza) proposes now: drawing inspiration from one of the greatest visionary moments in post-war European history and going in the opposite direction to all the little Versailles Treaties that the German chancellor Angela Merkel, and her finance minister Wolfgang Schäuble, have imposed on Europe’s indebted nations.
The “rescue” plans for southern Europe have failed, only creating bottomless pits that contributors have been invited to fill with money. Finding a global, collective and definitive solution to the debt problem is pressing, and should not be overshadowed by attempts to secure the re-election of the German chancellor.
In these circumstances, Syriza’s proposal for a European conference on debt on the 1953 model represents, we believe, the only realistic solution capable of benefiting everyone: a global response to the credit crisis and the failure of Europe’s policies so far.
This is what we are asking for:
— a significant reduction in the nominal value of Greece’s outstanding public debt;
— a moratorium on servicing that debt, so that the money saved can be used to get the Greek economy back on its feet;
— a “development clause” to ensure that debt repayment doesn’t stifle economic recovery at birth; and
— the recapitalisation of Greece’s banks, without the cost of this being added to the public debt.
These measures should be supported by reforms that aim to achieve a more equitable distribution of wealth. Putting the debt crisis behind us means breaking with the past that caused it: working for social justice, equal rights, political and fiscal transparency — in other words, democracy. Such a project can only be carried out by a party that is independent from the financial oligarchy that is responsible for the crisis and seeks to preserve the status quo — the company bosses who have held the state hostage, the clique of ship owners who, up until 2013, haven’t paid taxes, media tycoons and bankrupt bankers with a finger in every pie. The 2012 annual report of the NGO Transparency International named Greece as Europe’s most corrupt country.
Eurozone in crisis
This proposal is the only solution, we believe, unless we wish to see an exponential increase in Europe’s ballooning public debt, which on average already exceeds 90% of GDP. This is what makes us optimistic: our proposal cannot be rejected, because the crisis is already eating away at the central core of the Eurozone. Procrastination will only increase the social and economic cost of the present situation, not just for Greece but also for Germany and the other Eurozone countries.
The Eurozone, which was inspired by neoliberal dogma, functioned like a straightforward monetary union for 12 years without any concomitant social or political dimension. The trade deficits of the south mirrored the profits of the north. Germany reacted by exporting its recipe for austerity, which worsened social inequality in southern countries and economic tensions in the Eurozone. A northern creditors/southern debtors axis has now emerged, a new division of labour orchestrated by the richest countries: the south will specialise in labour-intensive products and services at rock-bottom wages, while the north races for quality and innovation, with even higher salaries for a few.
The proposal put forward by Hans-Peter Keitel, president of the German Confederation of Industry, in an interview on Der Spiegel’s website, would turn Greece into a “special economic zone” (1); this reveals the true objective of the May memorandum (2). The measures in this document, with a writ that runs at least until 2020, have led to resounding failure, and this has now been recognised by the IMF. For its architects, the agreement has the advantage of imposing economic control on Greece, reducing it to the level of a financial colony of the Eurozone.
The cancellation of the memorandum is therefore a vital first step towards ending the crisis: it’s the medicine that is toxic, not just the dose, as some have suggested.
Questions also need to be asked about the other causes of the Greek financial crisis. The factors that lead to the squandering of public money have not changed: for example, the highest price for road construction per kilometre in Europe, and the privatisation of the motorways under the guise of “prepayment” for new routes, whose construction has been suspended.
Cronyism or corruption
Worsening inequalities cannot be regarded as a mere secondary effect of the financial crisis. The Greek financial system reflects the cronyism uniting the elites. It is riddled with exemptions and get-out clauses tailored to the needs of the oligarchy. The informal pact that, since the dictatorship has entwined the interests of the bosses and the twin-headed New Democracy-Pasok monster, has ensured its perpetuation. This is one of the reasons why the state has given up on obtaining the resources it needs from taxation and has instead opted for continual reduction of wages and pensions.
But the political establishment — which only just scraped through the elections on 17 June (3) by stirring up fears of Greece’s possible exit from the Eurozone — only survives thanks to the life-support system that is corruption. The difficult task of ending the collusion between political and economic interests — a challenge that Greece does not face alone — will be a priority for a popular government led by Syriza.
We are therefore calling for a moratorium on the servicing of our debt in order to transform Greece. Without this, any new attempt to restore financial health will only make Sisyphuses of us all, doomed to failure. But this time the drama will affect all of Europe.
Source: ZNET. Original article and text is here.