Rupture with the EU: Α return to the “cave age” or a new “golden age”? (Prin newspaper, 30/5/2015)

flagWhen 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

The reactionary role of Eurozone and EU (Napoli, June, 29, 2012)

Current crisis of eurozone comes in parallel with the disclosure of its intrinsic class character. In this context there is no solution in favour of the working class interests into the Eurozone. Solutions that are proposed increase the contradictions and the social cost without promising the improvement of living level of the majority. At the other side every effort to surpass Eurozone and EU (by the formation of ALIAS and LIBERA as Vasapollo – Martuffi and Arriola describe or the return to national currencies) should have as precondition the implementation of a coherent and radical policy against the interests of capital and in favour of working class.

Formation of euro, before a decade, was the termination point and the rewarding of a long unification process that started in the first postwar years. At a first glance its aim was the promotion of a peaceful regulation of deeply competing economic and national contradictions. In reality tried to solve three different types of competition: between rivalry states, against the foreign competitors and especially theUSAand, the most serious against the working class. The current crisis of eurozone (which first of all is a capitalist crisis) marks a very special, unprecedented, balance of forces in each one of these wars.

In the most serious war, against the working class interests,BrusselsandFrankfurthave achieved till now a blow of historical significance to the working rights. Looking at the Eurostat announcements about the labor cost we could see that since 2010 against the general increasing tendency of labor cost there are 3 exemptions:Greece,IrelandandPortugal, the countries that have accepted till now the terms of Memorandum of Understanding which accompany the bail-outs. We could imagine what will happen in Spain and Cyprus soon, if they follow the example of the three first countries or what will happen toItaly after a few months. From many other examples, which reveal the strict class interests that serve the so-called “rescue mechanism”, I distinguish privatization plan. What is happened now in Greece could be compared only to what happened inRussiaat the beginning of the decade of 90’s. The sell-off of the whole public wealth: not only energy or water utilities but still land, mountains, islands!

In the roots of this barbarian policy, which will bring much more absolute and relative poverty of the people, there is a long-term, strategic characteristic of nowadays capitalism. Ernest Mandel, very successfully, had said that formation of EU was the response of European capitalism to the development of the productive forces. Perhaps, in 60’s, even the following decades, EU contributed positively in the development of productive forces. But now EU not only set obstacles in this progressive trend (that shows the huge revolutionary possibilities of our epoch) but amputates violently this dynamic. So EU, demanding social spending cuts, wages reductions and privatizations serves the interests of the whole capital against the liberating mission of the working class.

In this context, as a long term and not coincidental or easily reversible tendency, we should consider many more negative developments of last period like the constitutional coup d’ etat we had in Greece and Italy at November with the appointment of two bankers as prime ministers. It is obvious that EU could not be seen any more as guarantor of democratic liberties as many people believed especially in the countries which had military regimes till ‘70s.

Formation of euro was a decisive step in the international intra-capitalist competition. Deutsche mark was inadequate, “too small to gain” the battle against US dollar. Euro in the previous decade made gains in this battle in favour of German capital, not only financial but manufacturing too. A crucial role in this currency war in favour of euro played its exchange rate. Its overvalued non–competitive exchange rate helped investments portfolio managers to substitute dollar with a currency which was promising bigger gains. At the other side the most countries of the periphery of the Eurozone, because if this exchange rate, suffered a de-industrialization, which meant the loss of hundreds of thousands of working seats.

The supremacy of the common currency (comparing it to the D Mark and to the dollar today) couldn’t be seen separately from the loss of the monetary independence and especially of the weapon of the devaluations of the other European countries, namely:Ireland,Portugal,Spain,ItalyandGreece. Just these countries that now are at the brink of collapse and some of them after it. Today’s end was predictable if we were setting, a decade before, the following question: What will happen to a country addicted to devalue its currency every decade at a ratio of 10-15% when this country will see its currency to be appreciated against dollar by 70% during a decade? This happened toGreece,Ireland,Portugal, etc. All the other explanations of the crisis about generous welfare state or costly public sector inSouth Europeare ridiculous.

From a different point of view, sovereign debt crisis of peripheral countries of Eurozone is the sacrifice, the cost that Europeans paid in the context of the currency war between US and EU or, in real terms, between US dollar and euro. Germanynever could participate in this war without euro’s help. So, German’s gains from Eurozone are not only the merchandise exports through all over the Eurozone after the removal of devaluations risks or the multiplying effects that embodies in its economic structure from the economies of scales. It is too the current and future seigniorage gains from euro which are estimated even at 2-3 bn of euros[1] speaking about the future income which ECB could earn from seigniorage – related investments. Aspects of this escalating currency war is capital controls that Brazil and Argentina have announced as a means to halt the liquidity influx that caused the Quantitative Easing I and II of FED, the recent Japan and China’s agreement to stop using dollar in their bilateral transactions and many others. Common character of all these cases is a slow but stable reduction of dollar’s role. In this context, a strong euro, with increasing attractiveness and continuously (de facto) expanding to new countries and territories from East Europe and Balkans toAfrica andMiddle East constitutes a special means which facilitates the imperialist expansion of German against USA.

Crisis of Eurozone reveals a totally new balance of power among different states. I will use a term that inGreeceis used in every day life, knowing that causes shocks: German occupation, or more distinctively German economic occupation. Perhaps someone would say thatGreece(where the German Task Force which has been settled toAthensdecides even for the last detail of public expenses) is an extreme case. But there are many other indications which show that in the EU happens what was happening in the “Animal farm” of George Orwell: “some animals are a bit more equal than the others”. The most characteristic is the recent abandonment of the principle of unanimity during the decision making.

As a result, Eurozone crisis is transforming deeply the essence and the form of EU towards a more reactionary direction.

Which are the solutions in this phase?

From ruling class there are discussed basically two kinds of solutions. The first is more social-democratic including the collectivizing of the debt with the parallel issuance of euro-bonds at least for a part of the public debt. This isn’t a radical plan! For first time was proposed by Jeean Claude Juncker and Jiulio Tremonti… The most serious with this proposal is that doesn’t explain why Germany today could accept to bear such a weight, that is calculated from 20 till 25 billion bn. during a decade, for easing the borrowing cost of the indebted countries when has been proved that debt machine is an ideal excuse for the application of the neoliberal agenda. Even, supporters of this proposal underestimate the conditions whichGermanywould impose for the mutualization of the debt.

The most possible scenario, almost sure, at the current period is a solution which will mix new amounts of liquidity to the banks (like 1 trn. Euros that gave ECB in December of 2011 and January of 2012) with new austerity measures. In this course the contradictions will be increased with the expansion of the crisis to new countries. The recent 1 trn. Euros of ECB didn’t averted, only postponed the explosion of crisis inSpain, for 6 months. At the same time the implementation of new austerity measures, because of Stability Pact and Euro Plus Pact will increase the capital gains against the wages.

At the other side the only viable solution, which reflects working class interests, is the immediate exit from Eurozone and from EU. The propose for the formation of a coalition of countries like the Latin-American ALBA and a common currency between the countries of South Europe (ALIAS and LIBERA as propose Vasapollo, Martuffi and Arrriola) is an internationalist solution to the current Eurozone crisis. The most important is that this solution gives a safe and creative exit to the development of productive forces in our epoch. In this context is a response which respects and follows the tendencies of development of modern working class. If we want to serve this tendency we must, from now, describe the context of this coalition, so to distinguish it from alternative efforts of German economic fundamentalism who is thinking, for example, to split Eurozone in two different parts: N-euro and S-euro. A coalition of south-European countries, or more broadly from countries with comparable productivity level, should based in nationalized banks and industry, in controls to capital flights, in a modern industry policy aiming to boost employment or food sufficiency.

There are many points which are open to the discussion, the historical evolution and the development of class struggle. For example: Could a formation like this exclude the law of value, much more as it operates in international level? Is possible to have equal relations in international trade or what kind of countervailing measures could be adopted, recognizing law’s presence? …and many others…

As a conclusion I wanted to highlight the necessity to enrich our reflections and response with a strategic view, comparable with the challenges of our epoch, as they are described by the 3rd industrial revolution of additive manufacturing and the knowledge’s explosion. Analysis and proposals of Vasapollo, Martuffi and Arriola in the book “PIG’S Awakening” is a successful response to this challenge…