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Un año después del victorioso referendum del pueblo griego contra las políticas de austeridad (el 5 de Julio del 2015) y la humillante traición del partido izquierdista SYRIZA (En Agosto del 2015) una pregunta crucial surge por toda Europa:
¿Cuál es la precondición para la derrota del neoliberalismo?
En otras palabras, ¿Por qué SYRIZA y los otros partidos políticos de la periferia europea no lograron crear una alternativa real? ¿Cuál es la meta que facilitará e contraataque del pueblo trabajador y la juventud, acabando con la larga crisis económica y política?
Antes de que SYRIZA ganara las primeras elecciones en Enero del 2015, había un intenso debate dentro de la Izquierda griega. Intelectuales, organizaciones políticas de movimientos de ex-parlamentarios izquierdistas y radicales probaban el rol catalizador de la UE en la implementación de esta política. Esta opinión nunca fue mayoritaria. SYRIZA marginalizó este concepto. Por el contrario, insistió que una mayoría parlamentaria clara era suficiente para persuadir a los europeos de que la austeridad era una muy mala idea, lo cual no funcionó. Todos saben la continuación…
La austeridad está trabajando perfectamente incluso bajo un supuesto gobierno de izquierda (como parece la continua merma en los salarios y pensiones a favor de los pagos de la deuda). Las manifestaciones durante el año pasado, dada la decepción política, han sido borradas de las calles y ya nadie desafía públicamente a las políticas de la Troika (FMI, BCE y la Comisión Europea). No es accidental que las escenas de batalla entre la policía griega y los manifestantes que gritaban contra la Troika en el nuevo filme de aventura de Jason Brown no hayan sido filmadas en Atenas sino en Tenerife, España…
En el mundo real, las ilusiones de SYRIZA fueron demolidas por la UE. El Banco Central Europeo detuvo la provisión de liquidez para los bancos griegos, impuso controles de capital y unas cuantas semanas después SYRIZA repetía que si queríamos evitar una bancarrota debemos aceptar un nuevo memorándum. Una vez más el pueblo griego tuvo que responder a la extorsión de “bancarrota o Memorándum”.
Bajo esta experiencia podemos argumentar que la derrota del movimiento popular contra la austeridad ha ocurrido cuando habíamos derrotado el objetivo de la lucha contra la UE y el Euro. La traición de Agosto del 2015 había sido presagiada dos años antes.
Los de SYRIZA fácilmente predijeron que la capitulación demostraría también que la dirección de la UE no es tema de resultados electorales. La Unión Europea no es una institución que cambie sus contenidos según las urnas electorales. A cada vez en las elecciones del Parlamento Europeo el porcentaje de participación es más bajo. Los números son chocantes:
El pueblo europeo da la espalda porque entienden que Bruselas tiene su propia agenda y no da importancia a las opiniones e intereses de la gente. Por ejemplo los temas más importantes son decididos en la Comisión, la cual no es elegida y no tiene obligación de rendir cuentas. El Parlamento Europeo tiene un rol decorativo. De hecho no son tan raros los casos donde el Parlamento decide a favor de relaciones laborales más flexibles o medidas de austeridad más estrictas (i.e. “pack de seis” y “pack de dos”), mostrando cuán falsa es la noción de que el PE puede hacerle contrapeso a la Comisión Europea.
Sin embargo, sabemos que hay una larga distancia al final de la historia. Las políticas de austeridad draconiana genera nuevas contradicciones y es un tema de cuándo, y no “si”, renacerá un nuevo movimiento masivo contra la pobreza de los memorándums, privatizaciones y recortes en gastos públicos.
Dos son las precondiciones sine qua non si queremos que este movimiento no reproduzca las enfermedades infantiles del pasado: La demanda de una doble salida del euro y la UE y la Asambea Constituyente como un medio de ruptura con el pasado del actual sistema político.
Es debido a los siguientes motivos que la salida doble de la actual moneda y de la Unión Europea es necesaria para derrotar al neoliberalismo:
- La recuperación de una soberanía monetaria es necesaria para recobrar la soberanía económica. Hasta ahora, el BCE decide las cantidades de dinero en circulación y las tasas de interés. Dada la asimetría de las economías europeas, estas decisiones son tomadas según los intereses de Alemania. Como resultado, estos últimos años Alemania, junto con otros países del centro de la Eurozona, como los Países Bajos, disfruta de unos excedentes crecientes en su capital y actual cuenta, que se encuentran opuestos a los déficits de la periferia de la Eurozona.
- La salida de la Unión Europea es condición previa a implementar una economía política expansiva, dando aumentos en salarios y pensiones (lo cual es la prueba más segura de la progresividad de una economía política) y expandiendo el espacio público. La salida, por supuesto, no es un golpe al neoliberalismo per se, como lo demuestra el Reino Unido, donde el Brexit fue incitado por la clase dominante como un medio de enfrentar el peligro de un cuarto Reich alemán. La lección del Reino Unido no es seguir a Berlín, como hace la Izquierda Europea, sino construir una verdadera alternativa, un lexit (left exit) por todo el continente Europeo.
La demanda de una Asamblea Constituyente, la cual es la segunda condición previa, significa el final del viejo orden político y el reinicio del sistema político. Tal vez, por este motivo, SYRIZA y el partido de ultraderecha Griegos Independientes, que participa en el gobierno, como confirmación de la naturaleza oportunista de este gobierno, nunca apoyaron y nunca adoptaron esta demanda antes de su victoria electoral. Su distancia puede ser fácilmente explicada viendo el año pasado. La pseudo-izquierda nunca quiso contabilidad, porque el pueblo griego ahora chequearía la consistencia de su actuar político contra las promesas pre-electorales y el gobierno debería respetar o renunciar a tales promesas.
En consecuencia, la Asamblea Constituyente, como se discute en el 8vo Congreso Internacional Poder Constituyente en Chile, donde fue probado por primera vez el más venenoso experimento económico del neoliberalismo, debería y puede desenredar este nudo gordiano entre la actual retirada democrática y la institucionalización-constitucionalización de las estrictas políticas de austeridad.
Poder al pueblo para derrocar los cortes en gastos públicos, reducción de salarios, elasticidad laboral, y el nuevo totalitarismo que está emergiendo para escudar estas odiadas políticas económicas. Ésta es la lección del país donde el ya mencionado venenoso experimento económico lleva siendo probado por los últimos seis años.
Felicidades a todos quienes trabajaron para este congreso y gracias por su atención.
VIII Congreso internacional poder constituyente, Una via para enfrentar la crisis mundial, Chile
A crucial question that emerges especially in periods of big dilemmas is whether the Left can support an idea that does not have peoples’ support. In other words: Can the legitimacy of the Left be based upon opinion polls?
This question is not only theoretical. For instance, does the Greek Left have the right to open the discussion and demand the exit from the Eurozone and EU?
My opinion is yes, the Greek Left has this right, but under a very strict condition: Its demands and broader analysis has to be originated from the working class and the interests of the majority, with the ultimate goal to reflect the interests of the whole European working class. Furthermore, its demand for exit from the EU and the Eurozone must be in conflict with the interests of the ruling class. It is not difficult to prove that as time goes by the EU is increasingly becoming the spearhead of the capital. Measures that the governments cannot impose alone are being voted in the parliaments by the form of EU mandates (Stability Pact, Report of 5 presidents, et. al.). Even, in the extreme case where people vote against austerity, the participation in the EZ and the EU does not allow the implementation of the popular will (this is what happened in Greece in 2015) and ultimately the principal dilemma “in favor or against the austerity” becomes “memoranda or Grexit”, catching the Left unprepared to give the appropriate response. This shows that in order to defend peoples’ interests you must question the role of the European institutions. But a position like this does not look so attractive…
Today, the most unpopular attitude is that of challenging capitalism and promoting socialist and revolutionary ideas. However, despite this reality, the leftwing parties worldwide continue to propagandize the transgression of capitalism, struggling to alter peoples’ opinion.
It is no doubt true, that the majority of people seem to reject the idea of exit from the Eurozone and the EU, due to the “terrorist” dilemmas posed by the mainstream media and political parties, which present the attack of the capital (from flexibility of labor relations to political freedom) as a European directive and social modernization, concealing its social content. In other words, they promote it as something that cannot be questioned. The Left has its own share of responsibility on this veil of silence because it failed to open the discussion, under its own terms, about the character of the EU and the common currency. Its inefficiency is much more striking if we compare it with the inveterate enmity of the Latin American Left against any kind of US-led economic integration in the American continent.
Furthermore, we can doubt or we can be very skeptical about this matter. The opinion polls, which present people being in favor of euro and EU, are the same opinion polls that have record epic failures during the elections of every European country. On the contrary, in many occasions when European people where asked about concrete issues of EU integration, they have rejected them. This happened in Ireland (2008), France (2005), Sweden (2003) and Denmark (1992, 2000).
In any case, the representation of class interests is not a beauty contest. The Left will be judged for its incapability to reveal the underlying social relations and political links as the means to analyze and change a complex situation. This task was never an easy job or a matter of public relations.
The artice was initially published on: http://stocktaking-scenarios.blog.rosalux.de/2016/01/09/leonidas-vatikiotis-the-left-and-opinion-polls/
When the mild arguments about the “people’s house” and the EU’s ability to transform fall apart, the neoliberal/Memoranda bloc resorts to the only argument left: breaking with the EU equals to returning to the “cave age”.
by Leonidas Vatikiotis
It is worthwhile to attempt an outline of the day after the rupture, in other words, the loan payment default, the unilateral sovereign debt write-off, and the exit from the Eurozone and the European Union. At this point, it is important to note the huge methodological issue arising from trying to solve a future’s equation using parameters of the present, knowing that they will dramatically change after such a rupture. But it is also important to note that the effect of such a change will be mainly positive. Thus, although the conflict with the capital will deprive society of valuable resources (e.g. the net inflow of €6 billion due to Greece’s dealings with the EU in 2015), it will put a halt to the inconceivable destruction of production forces that is currently underway and tends to become endemic (as shown, among others, by the fact that unemployment is stable at 26% and the idle production capacity has reached 34% in the industry).
There are seven sectors that will be affected already the next day after the rupture and are very significant for the people’s incomes but also for the economy: the currency, the funding of the imports and deficits of the state budget, the banks, the alimentation, the energy, and the medicines.
The exchange rate of the new currency in the first period after the rupture will be based on a fixed one-to-one exchange rate to the euro, despite the fact that the exchange rate corresponding to the structure of the Greek economy is lower even than the existing exchange rate of the euro, which is ideally “soft” enough -thanks to the presence of the south European countries in the Eurozone- to allow Germany to export but far too “hard” for the periphery.
The pegging to the euro will be a political decision aiming at preventing the launch of punitive speculative attacks on the new drachma and the repeated chocks to the daily trading practices. Similar practices of pegging to another currency are not followed only by “closed economies”, but also by highly internationalized ones such as Hong Kong. The effect of devaluation on people’s incomes can be counterbalanced by proportional salary increases. The effect on prices can be kept under control, as Greek economists have shown. In other words, there will not be uncontrollable inflation. Besides, such a danger can only be taken as a joke in an economy that suffers from deflation. To tackle deflation within the Eurozone, 60 billion euros are spent each month through the Quantitative Easing Program. Moreover, loans that have been taken in euro will be converted by law into the new currency.
Debt write-off and exit from the euro-EU
will improve and not lower the standard of living
In 2014, the trade deficit (excluding shipping and fuel) amounted to €8.13 billion (compared to €16,04bn in 2010). This deficit can be closed by the travel services balance surplus that in 2014 rose to €11.32 billion (€13,39bn of revenues minus €2,07bn of payments). The small presence of vertically integrated tourist activities controlled by multinationals -although their penetration in the tourist sector has been increasing in the last years- allows a government to provide appropriate motivation in order to collect this money. In addition, clearing (non-monetary forms of exchange trade) can make up for the need for foreign currency, while “smart” measures to promote imports like those successfully applied by Argentina (ensuring that every importer will export a specific percentage of the value of their imports) can reduce the need for foreign currency and boost exports.
For the lovers of the Memoranda who claim that they created surpluses, there are no budget deficits to be covered. But for those who believe that giving new life to the dilapidated social structures should be a priority, there is the possibility of printing new money, which should of course be limited. In addition, there is the option of domestic borrowing, which can be used as a means of income redistribution and reinforcing low incomes, showing that not all of forms of debt are reproachable. To some extent, this was also the case when the Greek state was covering its financing needs by publishing treasury bills addressed to savers, even during the ’90s. It is remarkable that in 1998, 80% of state borrowing was internal and 70% of this borrowing was short-term and thus low-risk. The Maastricht Treaty eliminated this possibility in favor of the banks (which, in this way, got rid of competition) and especially the financial giants that took over state lending. The safety net provided by domestic borrowing is made clear in the case of Japan, where although the sovereign debt is extremely high (246,1% of GDP in 2015), its creditworthiness has not been downgraded by the credit rating agencies exactly because borrowing is domestic and can thus be subjected to many silent restructurings. The threat that domestic borrowing poses to the international speculators was also made clear when PSI took place in February 2012, when nothing was done to protect bondholders. The IMF and credit rating agencies wanted to abolish this possibility once and for all. On the contrary, a government that would want to reinstate the market of domestic borrowing should fully compensate the bondholders who suffered losses in 2012 and perhaps also set a ceiling of, let’s say 100.000 euros, in order to hinder very high incomes.
Nationalizing banks will relieve society from the burden of their prolonged death. Despite the 211 billion they have received since 2008 in the form of subsidies and guarantees, banks today are in a much worse state, as reflected in the loans to deposits ratio: from an admirable balance in 2000 (€108,23bn of loans to €109,23bn of deposits or 99%) to an enormous asymmetry in 2009 (€300,32bn of loans to €237,53bn of deposits or 126%), which has become even worse in January 2015 (€214bn of loans to €147bn of deposits or 146%, with the non-performing loans to have climbed up to €78bn) and is further deteriorating due to the bank run caused by the policy of suffocation of the ECB.
As far as food products are concerned, according to a research by the Panhellenic Confederation of Unions of Agricultural Cooperatives (published in 2012) that examines 41 basic rural food products – both plant- and animal-based – for the year 2011, there is sufficiency (production in relation to consumption, with consumption being defined as the amount of production plus imports minus exports) at the hopeful level of 95%. Taking a better look at the figures, however, one can see that the highest sufficiency is observed in not-basic products (edible olives 996%, raisins 275%, sea products 221%, oranges 191% and kiwis 180%) whereas the lowest sufficiency is observed in almost basic products (sugar 14%, beef 29%, lentils 33%, soft grain 33% and pork 36%). It is important to note that the production of sugar is indicative of the damage caused in the rural production by the Common Agricultural Policy and the EU directives, which led to the closure of the factories of the Greek Sugar Industry in favour of German exporters. In this way, Greece moved from being a net exporter to a net importer of sugar. There are similar examples in livestock production as well. The ability of a country to fill this gap if a shift of policy is decided was proved in 2010 when Russia massively bought young milk cows from Western Europe, succeeding in gaining sufficiency within two years.
As far as solid fuels are concerned, the market is characterised by oversupply, with a total installed power of 17.500 MW and a highest demand of 7.000 MW. Same as the food production, if it was not for the EU directives within the framework of the so-called “liberalisation”, much cheaper electricity power could be generated, for example by putting the brakes on the scandalous funding of the private sector of the Renewable Energy Resources, by allowing the expansion of the Public Power Corporation S.A., etc. As far as liquid fuels are concerned, the strategic cooperation of Greece with Russia and the choice of Iran as supplier -instead of the American protectorates- can secure the provision of much cheaper liquid fuels.
Finally, although the country’s 27 pharmaceutical industries are exporting to 80 countries, they only cover 18% of the domestic medicine demand, with the rest of it being covered by multinationals. Domestic medicine producers have repeatedly denounced the scandalous advantage given to the multinationals in the years of austerity and have claimed that they are able to provide for the 70% of the primary health care and the 50% of the hospital care with quality and low cost medicines as long as prescriptions are written differently…
In conclusion, with regard to food products, energy and medicines, but also other sectors, a revolutionary rupture will release unimaginable progressive social forces, which are now being amputated simply because no bourgeois government can implement the aforementioned measures, and will allow society to enter a new ‘golden age’.
Την μετάφραση έκανε η ReINFORM (πολιτική ομάδα Ελλήνων που ζουν στην Ολλανδία), http://www.reinform.nl
It is not only the new austerity measures, which among others include VAT increase, reduction of pensions, reintroduction of the zero deficit clause, Sunday shop opening and implementation of the liberalization measures included in the OECD’s famous toolkit! The deeply unpopular agreement, signed by Tsipras government in the early hours of July 13th, after 17 hours negotiations between the eurozone Heads of State, (here is the full text) introduces for the first time commitments that guarantee the impoverishment of workers in perpetuity and even attempts to eliminate syndicalism, turning Greece into a second or third class capitalist country for the benefit of the German Fourth Reich! Four specific measures make the difference compared to the previous memoranda. More specifically:
First, the “introduction of quasi-automatic spending cuts in case of deviations from ambitious primary surplus ” -which is one of the four measures that ought to be voted by Wednesday, July 15-, eliminates the possibility of divergence from the targets set. Practically, this means that by the time there is a deviation from the forecasts, a school, a clinic of the National Hospital of Nicaea will be shut down or a whole sector will be sacked in order to reduce the costs and achieve the surplus which will service the debt and satisfy the creditors.
Secondly, another safety valve is also included in the privatization program so that the overambitious target of 50 billion EUR revenue is reached and not just remain on paper. The prospect that the 50% or 25 bn. EUR will be returned to the ESM for the recapitalization of the banks and from the remaining 25 bn. euro half will be given away for reducing the debt and the rest for investments, connects the sellout of public property with real interests, paving the way to even convey to the banks public companies and real estate for privatization so that the selling off to achieve the best possible terms and on their own responsibility. But it needs to be done… and not cancelled in practice as happened in the past.
The tremendous implications of the 50 billion EUR privatization program, which also includes the selling off of the Independent Transmission Operator (ITSO) are revealed if we compare the target of 50 billion euros with the revenues from the so far privatizations. For instance, the 2015 government budget reports that in 2013 there were received only 86 million euros, in 2014 230 million, while for this year the (inflated as usual) budget estimate was 474 million euro. The loot that will follow, with the sellout of all traces of public property (Municipalities, Universities, public entities), will be sweeping, in order to manage to gather such a large amount, as the best “pieces” of public property (OTE Olympic Airways etc.) have already been sold.
Third, the “program under the auspices of the European Commission, for de-politicizing the public administration” will attempt to eliminate trade unionism in the public sector and – something far more important – reform the public administration, by abolishing current hierarchies and launching a new generation of managers in the state machine, fully subjugated to the limited sovereignty regime that the new, third, Memorandum de facto establishes, with predictions such as the “unilateral” amend of “roll-back” legislation adopted in 2015. In practice, this means annulment of any populist law: from the reinstatement of the cleaning ladies to the school guards … and it also remains to see if they will include the opening of ERT. Therefore, the strong resistance of the state machine -that was put forward since 2010- will not only surrender to the demands of Memoranda but also, Troika returns reinforced, with its own people in every key position, ready to encapsulate and implement even and the most reactionary measures, by violating laws and ethics. The arbitrariness of Georgiou in ELSTAT, which becomes further independent, is indicative of the morals they wish to impose on public administration and services.
Fourth, the political targeting of the left Memorandum signed by Tsipras is reflected on the commitment for “rigorous review and modernisation of collective bargaining, labor mobilisations and collective redundancies.” No longer do they target the collective-bargaining rights and strikes, but also the protests themselves. “First time left”… first time that the right to protest is put into question!
Furthermore, even the enactment of these measures by 15 and July 22, as explicitly described, does not prejudice the happy ending for the government’s negotiations. Clear statements such as “the opening of negotiations do not prejudice any potential final agreement” or “the Greek offer of reform measures needs to be seriously strengthened to take into account the strongly deteriorated economic and fiscal position of the country during the last year”, guarantee that we are at the beginning of a long and painful process, involving continuous adoption of unpopular laws, that will ensure the approve of the new 82-86 bn. euro loan and the release of the instalments, as happened in the previous five years.While with other humiliating formalities like “the dangers of non-rapid conclusion of the negotiations fully borne Greece”gives the creditors the right to ask for … their mother and father, whenever they wish, from any government, obliging Greece to immediately comply and without objections.
Moreover, the fact that the banks will not open (as explicitly stated by the term “rapid decision on the new program is a condition to allow banks toreopen”)implies that the EU will keep sending ultimatums until its requirements are met in full, such as “decisive action for non-performing loans”, which means that thousands of houses, even first residences will soon go under the hammer… Even if this is about a blackmail that was explicitly rejected by the grand ‘No’ of the Greek people on the a referendum of July 5th.
The third memorandum, which signals the complete humiliation of SYRIZA, puts the last nail in the coffin of the request the public debt cancellation, as claimed by the people and was grounded by the recent findings of the Parliament’s Truth Committee on Public Debt. The clear reference on the penultimate page of the decision that “the Euro Summit stresses that nominal haircuts on the debt cannot be undertaken” in conjunction with the reference”the Greek authorities reiterate their unequivocal commitment to honour their financial obligations to all their creditors fully and in a timely manner”, import -fully and completely- the current government of Alexis Tsipras to the camp of the enemies of the people and society, who from 2010 until today use the debt in order to circumvent rights and conquests of decades!
Translation: Foula Farmakides
(Translation: Foula Farmakidi)
Τhere is a plethora of proposals for the public debt issue made by many executives of SYRIZA. However, the common denominator of all the suggestions made by the frontline executives (Dragasakis, Stathakis) -who tomorrow will take over the responsible and critical ministries and today express the majority view of SYRIZA-, is the understatement of the official position of SYRIZA, which was voted in their founding congress, about the cancelation of the greatest part of the public debt. In this direction, Mr. George Stathakis (MP of the party), ruled out any possibilities for unilateral actions during negotiations. A statement that equals to an advance, voluntary and unilateral resignation even from the right of blackmail -a tool widely used by the creditors-, while at the same time paves the way to the acceptance of the terms of the lenders, that will be manifest as a joint decision. However, the interview of Mr. Yiannis Dragasakis in the new Real News newspaper, on Sunday 28 October, brought new facts on the debate. Y. Dragasakis the Deputy Minister of national economy in the “ecumenical” Government of X. Zolota (1989-1990), which paved the way for the government of abhorrent Mr. Mitsotakis, (the prime minister who launched Thatcher and Reagan’s policy in Greece), proposed as an alternative the proposal made in January 2014 by the economists Pierre Paris and Charles Wyplosz, with the title “Politically Acceptable Debt Restructuring in the Eurozone”, widely known with the acronym PADRE. To dispel any false expectations that this is a radical position, all we need to mention is that it was originally proposed as a solution to the Greek debt issue, in Philip Sahinidis speech, Deputy Minister, Alternate Minister and Minister of Finance and Government Minister for Finance in Papandreou and Papademos governements. In other words, he is the man who bears personal responsibility for the bankruptcy of the Greek social security funds, who lost 14 billion euros because of the restructuring of February 2012, as well as for the destruction of thousands of bondholders who saw their life savings evaporate overnight. Ιn fact, the speech of the Minister who managed the catastrophic PSI, took place in a conference last July, organized by the most failed Minister of Education since the establishment of the Greek State, Anna Diamantopoulou, who amid the neoliberal estrus of the time, experimented even with the abolition of free textbooks, leaving the students without books.
This proposal is reintroduced by John Dragasakis, who stated word by word that “instead of a haircut there could be a “withdrawal” of most part of the debt, that is, to withdraw a part of the debt from the markets or the institutions that currently hold it and keep it “frozen” within the ECB. This proposal has been articulated by many European economists and scientific institutions, with most recent example the position formulated by the prominent economists, Pierre Paris and Charles Wyplosz”. However, that this proposal does not amount to a haircut, but with the definitive burial of the target of debt cancellation, and, ultimately, with payment of the debt.
The proposal of the economists Pierre Paris and Charles Wyplosz for “freezing” the debt means postponing the payment in the next generation and not cancellation. But most importantly, strict conditions for its application mean even greater austerity. More specifically, the authors ask for more tightening of the Fiscal Pact!
The proposal of Paris-Wyplosz is a solution to the sovereign debt crisis that the Eurozone faces. The PADRE project starts from the observation that several Eurozone countries are faced with unsustainable debt. The content that is given to “unsustainable” is not related to bankruptcy, but with the following strict restrictions that debt generates: First, it is an obstacle to development. In fact, the authors invoke a research of Reinhart and Rogoff (2010) that concludes that a debt of over 90% causes a decrease in growth rates by 1% annually. According to their research, this rule applies to Japan and Italy, but in no way, is it confirmed by the growth rates of the Greek economy, during the decades of 90’s and 2000’s… The second reason why we must reduce the debt is related with the need to develop a margin for interventions so that the governments can intervene anti-cyclically during recessions. The third reason why the soaring public debt is undesirable, is associated with the high cost of its service. Their reference to the “diabolic loop” between the public debt and the banking system is of great significance. The reason behind its creation lies in the absence of “lender of last resort”, such as the central banks around the world… but not in the Eurozone. The absence of such function from the Eurozone’s statute, led the states to turn to commercial banks for borrowing and the bankrupted -from over-borrowing- commercial banks to the states for rescue, causing a prolonged economic crisis and the impoverishment of the people.
A development that of course would have been prevented if the member – states reserved their right to print money and in particular national currency. That is, if they had not waived this right, by assigning it to the bond markets which turned the states into pariahs. Thus, the Eurozone became an autonomous factor of aggravation and complication of fiscal crisis. A conclusion that shows how problematic is any solution within the Eurozone.
The debt will be paid, simply, by …next generations!
The architects of the PADRE project, from the very beginning of their paper, clarify that in post-war Europe there may not be any previous debt restructuring (until 2012), however, in the international economy it is the norm rather than the exception. More specifically, they mention that from 1820 to 2012 there were 251 defaults of states, while since the Second World War there have been 425 debt renegotiations within the Paris Club, which usually included some short of debt reduction. In fact, by standardizing the implications in the states, based on empirical data, the exclusion from the markets lasts between 4-8 years and the rise of interest rates range from 2.5% to 4%. A tolerable cost, we conclude …
Paris and Wyplosz declare that their proposal, contrary to what happens in such cases, does not cause any cost to taxpayers or other Eurozone member-states, governments and institutions such as the European Central Bank and the European Stability Mechanism (ESM ), nor to the banks. That is, there is no redistribution or shifting weights whatsoever. “The only remaining solution is to impose the unavoidable losses on future taxpayers, which does not redistribute income at all. Indeed, in the absence of a default, future taxpayers will pay current debts. The common practice of rolling over maturing bonds means that the debt climb-down can be spread over a very long horizon” (page 12). In fact, in order to ensure the absence of redistribution or shifting weights, the solution will cover all Eurozone Member States, and not just some of them.
Their proposal is better understood with the help of an example that the authors themselves have processed. At the end of 2013, the total public debt of the Eurozone states amounted to € 9.18 trillion or 95.5% of the GDP of Eurozone, with the lowest debt as a percentage of GDP to belong in Estonia (10%) and the largest in Greece (176.2%). A debt restructuring of half of the debt (4.59 bn. Euros) would be allocated to each of the 18 Eurozone member states according to their participation in the ECB’s capital. That is, their share (totaling 1) is multiplied by 4.59 trillion euro. For instance, Germany (participating in the ECB’s capital with a share of 26.86%) will see its debt reduced by € 1.23 trillion or by 45.1% of GDP, i.e. after the restructuring it will become € 944 bn. or 34.5% of GDP. Greece (participating in the ECB’s capital by 2.79%) will see its debt reduced by € 128 bn or 70.1% of GDP, meaning that after the restructuring it will reach 194 bn. or 106.2% of GDP. Following this process, Greece is brought out once again as the champion of debt, while on the other end of the spectrum we see countries with negative public debt, both in size and in percentage. E.g. Estonia’s debt will now be -10 bn. or -53.3% of GDP …
The withdrawal of the public debt is proposed to be implemented with the help of the ECB, which will issue bonds that will expire in the distant future and will be considered risk-free as they are issued by the Central Bank. Their issue, however, will have a cost which based on a rate of 3.5% is estimated at €161 billion per year or 1.7% of Eurozone’s GDP. Compared to any indicator, the amount is objectively enormous: To the average profits distributed by the ECB to its shareholders and amounted to 1.1 billion euro (on average) per year between 2008-2012, with the funds of the Eurosystem (ECB and National Central Banks), which in December 2013 amounted to 90 billion euro, even with the profits of the U.S Federal Reserve (which is much more profitable than the ECB) that in 2012 totaled 88.4 billion USD. The authors of the study estimate that under certain strict conditions the cost of “parking” the debt for the future generations to pay, could be covered in the future by the profits of the ECB.
According to the authors, the European Stability Mechanism or any other successor scheme could be in place of the ECB, as the total subscribed capital is only €700 billion, with effective lending capacity of €500 billion, and paid-in capital €80 billion, or nearly 10% of the necessary funds (4.6 trillion. euro). At the end of their study, they present other alternatives such as: the restructuring of a smaller part of the Eurozone debt (25% rather than 50%) which however leaves Greece with a debt of € 258 bn. or 141.2% of GDP and two other countries with public debt of over 100% of GDP: Italy with 106.7% and Ireland with 102.3% of GDP. Another alternative given the uneven restructuring between the member states, but this is thought politically impossible as it would be considered as transfer, etc.
Austerity is a strict condition!
THE AUTHORS CONSIDER THE FISCAL PACT AS VERY FLEXIBLE
“There is no doubt that a debt restructuring involves a serious moral hazard, especially if it is carried out by a multinational institution, such as the ECB or ESM. Indeed, why not let the public debt rise again after the restructuring if one can reasonably expects that a new restructuring will be forthcoming”, the two economists (Paris and Wyplosz) wonder. They give two answers. First, “a covenant that allows the ECB – or another agency – to swap back the perpetuities that it holds into bonds that would be disposed of and sold back to the financial markets, in gradually increasing installments. The intention is to turn market pressure on governments that do not abide by strict fiscal discipline principles”. But they don’t suggest just that…
“If rapid market sanctions cannot be fully relied upon to eliminate the moral hazard, we need to turn to an institutional approach. Unfortunately the Treaty on Stability Coordination and Governance (TSCG) is vague in many respects. Both the debt brake arrangement and the constitutional requirements are “if possible” obligations. In many countries, its translation into national legislation has led to much softer rules, often under the cover of excessive complexity and few countries have made it a constitutional requirement. Fiscal discipline has not yet effectively renationalized. One possibility is to make debt restructuring conditional on the adoption of the complete debt brake solution and its inscription in the national Constitution. This would make any fiscal indiscipline illegal”!
Based on the above, it is clear that the restructuring of the public debt does not come on its own. An integral to part of the PADRE solution is the application of even more strict austerity policies than the ones imposed today. The fact that Paris and Wyplosz find the Fiscal Pact of 2012 insufficient is very indicative.
Therefore, even if the solution of the two economists was beneficial, it should be rejected just for this premise, since the problem of the Eurozone today is not the public debt. Public debt (like the inflation in the 1980s) is only the excuse. The problem today, speaking from the perspective of the social majority, lies in the increase of salaries, wages, pensions and social benefits in health, education and social security. The importance of the cancellation of a large part of the debt (e.g. Troika’s debt which amounts to 68.4% of total debt), if not all, is related to the development of the conditions that will enable the exercise of redistributive policy. As long as the debt is serviced and the amounts shown in the table are paid every year, there is no room for improving the living conditions of the workers. The restructuring and the cancellation is not an end in itself. Thus, even the best solution for the public debt that would however have as a prerequisite the austerity policy, ought to be rejected by the Left. Most importantly: such a solution is not a left solution.
The “Greek problem” remains
ZERO COUPON PERPETUITIES PERPETUATE DEBT ENSLAVEMENT
The proposal of Paris-Wyplosz is full of contradictions because of their effort to respect the political balances. As a result, it is a proposal that does not resolve the problem of public debt, but it simply shifts it to the next generation or even to future generations, thereby turning the over-indebtedness in a stable condition. The only hope that creates is that in the meantime it will generate those growth conditions that will allow easier repayments in the future. However, there is no indication that growth is just around the corner and all it waits is for the debt to disappear. Instead, everything suggests that the impending growth is not only unstable, but also reactive, with soaring unemployment and wages on 481 Euros.
However, there are many other reasons that make the proposal of Paris and Wyplosz impractical, if not reactionary, which leads to the conclusion that the only way to reduce the debt is by cancelling it with unilateral actions.
First, by seeking a balanced solution, they underestimate the asymmetries and contradictions of the Eurozone, who are responsible for the fiscal crisis in the periphery and not in the whole Eurozone. Behind the paradox of the negative debt in certain countries after the restructuring, lies the fact that a balanced solution does not relate to the whole Eurozone. Germany has no interest to accept it. Much more because they know that public debt is an ideal tool for pressuring other member states of the Eurozone for anti-labor reforms. Why lose this privilege? The ineffective nature of this solution is evident in the fact that although it reduces debt to countries that have no such concern, in the case of Greece not only leaves debt at very high level, but does not even eliminate the need of cancelling part of the debt. This is clearly stated in their main scenario, of the restructuring of 50% of the debt: “With a ratio of 106.2%, Greece remains in the danger zone, which may justify the special treatment (official section involvement, or OSI) likely to be decided upon in 2014”. That is, they preconceive the cancellation of part of the official debt – that is owed to IMF, EFSF, ESM and member – states of Eurozone – but those who invoke it pretend not to see the reference…
Also, they underestimate the cost of the proposal. The solutions that the two economists suggest, through the profits of the ECB from seigniorage, is wishful thinking, as in order to eliminate the cost, strict conditions should be applied.
Moreover, although it is a solution that fits in bond debt, it is totally inapplicable in ‘official’ debts, like those of the four countries that have been borrowed from the Troika (Greece, Ireland, Portugal, Cyprus). For instance, the IMF which demands to be repaid in absolute priority, it is impossible to accept to be paid off with perpetuities.
Finally, it is a socially unjust solution to the extent that the perpetrators of the debt continue to shift the cost of servicing to the backs of the people. Thus, Germany, for instance, who rushed into nationalizing the debt, in order to shield the German banks that were exposed to the Greek debt, turned the German taxpayers into human shield and will never pay for the economic crime that committed against people of Europe!