ATHENS – Greece’s public debt
has been put back on Europe’s agenda. Indeed, this was perhaps the Greek
government’s main achievement during its agonizing five-month standoff with its
creditors. After years of “extend and pretend,” today almost everyone agrees
that debt restructuring is essential. Most important, this is true not just for Greece.
In February, I presented to
the Eurogroup (which convenes the finance ministers of eurozone member states)
a menu of options, including GDP-indexed bonds, which Charles Goodhart recently endorsed in the Financial Times, perpetual bonds
to settle the legacy debt on the European Central Bank’s books, and so forth.
One hopes that the ground is now better prepared for such proposals to take
root, before Greece sinks further into the quicksand of insolvency.
But the more interesting
question is what all of this means for the eurozone as a whole. The prescient
calls from Joseph
Stiglitz, Jeffrey Sachs, and many others for a different approach to
sovereign debt in general need to be modified to fit the particular characteristics
of the eurozone’s crisis.
The eurozone is unique among
currency areas: Its central bank lacks a state to support its decisions, while
its member states lack a central bank to support them in difficult times.
Europe’s leaders have tried to fill this institutional lacuna with complex,
non-credible rules that often fail to bind, and that, despite this failure, end
up suffocating member states in need.
One such rule is the
Maastricht Treaty’s cap on member states’ public debt at 60% of GDP. Another is
the treaty’s “no bailout” clause. Most member states, including Germany, have
violated the first rule, surreptitiously or not, while for several the second
rule has been overwhelmed by expensive financing packages.
The problem with debt
restructuring in the eurozone is that it is essential and, at the same time,
inconsistent with the implicit constitution underpinning the monetary union.
When economics clashes with an institution’s rules, policymakers must either
find creative ways to amend the rules or watch their creation collapse.
Here, then, is an idea (part
of A Modest Proposal for Resolving the Euro Crisis,
co-authored by Stuart Holland, and James K. Galbraith) aimed at re-calibrating
the rules, enhancing their spirit, and addressing the underlying economic problem.
In brief, the ECB could
announce tomorrow morning that, henceforth, it will undertake a debt-conversion
program for any member state that wishes to participate. The ECB will service
(as opposed to purchase) a portion of every maturing government bond
corresponding to the percentage of the member state’s public debt that is
allowed by the Maastricht rules. Thus, in the case of member states with
debt-to-GDP ratios of, say, 120% and 90%, the ECB would service, respectively,
50% and 66.7% of every maturing government bond.
To fund these redemptions on
behalf of some member states, the ECB would issue bonds in its own name,
guaranteed solely by the ECB, but repaid, in full, by the member state. Upon
the issue of such an ECB bond, the ECB would simultaneously open a debit
account for the member state on whose behalf it issued the bond.
The member state would then be
legally obliged to make deposits into that account to cover the ECB bonds’ coupons
and principal. Moreover, the member state’s liability to the ECB would enjoy
super-seniority status and be insured by the European Stability Mechanism
against the risk of a hard default.
Such a debt-conversion program
would offer five benefits. For starters, unlike the ECB’s current quantitative
easing, it would involve no debt monetization. Thus, it would run no risk of
inflating asset price bubbles.
Second, the program would
cause a large drop in the eurozone’s aggregate interest payments. The
Maastricht-compliant part of its members’ sovereign debt would be restructured
with longer maturities (equal to the maturity of the ECB bonds) and at the
ultra-low interest rates that only the ECB can fetch in international capital
markets.
Third, Germany’s long-term
interest rates would be unaffected, because Germany would neither be
guaranteeing the debt-conversion scheme nor backing the ECB’s bond issues.
Fourth, the spirit of the
Maastricht rule on public debt would be reinforced, and moral hazard would be
reduced. After all, the program would boost significantly the interest-rate
spread between Maastricht-compliant debt and the debt that remains in the
member states’ hands (which they previously were not permitted to accumulate).
Finally, GDP-indexed bonds and
other tools for dealing sensibly with unsustainable debt could be applied
exclusively to member states’ debt not covered by the program and in line with
international best practices for sovereign-debt management.
The obvious solution to the
euro crisis would be a federal solution. But federation has been made less, not
more, likely by a crisis that tragically set one proud nation against another.
Indeed, any political union
that the Eurogroup would endorse today would be disciplinarian and ineffective.
Meanwhile, the debt restructuring for which the eurozone – not just Greece – is
crying out is unlikely to be politically acceptable in the current climate.
But there are ways in which
debt could be sensibly restructured without any cost to taxpayers and in a
manner that brings Europeans closer together. One such step is the
debt-conversion program proposed here. Taking it would help to heal Europe’s
wounds and clear the ground for the debate that the European Union needs about
the kind of political union that Europeans deserve.
When my short essay on Greece after the
referendum “The
Courage of Hopelessness” was republished by In These Times, its title was changed into “How
Alexis Tsipras and Syriza Outmaneuvered Angela Merkel and the Eurocrats”.
Although I effectively think that accepting the EU terms was not a simple
defeat, I am far from such an optimist view. The reversal of the NO of
referendum to the YES to Brussels was a genuine devastating shock, a shattering
painful catastrophe. More precisely, it was an apocalypse in both senses of the
term, the usual one (catastrophe) and the original literal one (disclosure,
revelation): the basic antagonism, deadlock, of the situation was clearly
disclosed.
Many Leftist commentators (Habermas included)
got it wrong when they read the conflict between the EU and Greece as the
conflict between technocracy and politics: the EU treatment of Greece is not
technocracy but politics at its purest, a politics which even runs against
economic interests (as it was clearly stated by IMF, a true representative of
cold economic rationality, which declared the bailout plan unworkable). If anything,
it was Greece which stood for economic rationality and EU which stood for
politico-ideological passion. After the Greek banks and stock exchange
reopened, there was a tremendous flight of capital and fall of stocks which
were not primarily a sign of the distrust of the Syriza government but of the
distrust of the imposed EU measures – a clear brutal message that (as we are
used to put it in today’s animistic terms) capital itself does not believe in
the EU bailout plan. (And, incidentally, most of the money given to Greece goes
to the Western private banks, which means that Germany and other EU superpowers
are spending taxpayers’ money to save their own banks which made the mistake of
giving bad loans. Not to mention the fact that Germany profited tremendously
from the escape of the Greek capital from Greece to Germany.)
When Varoufakis justified his vote against the
measures imposed by Bruxelles, he compared the deal to the Versailles treaty
which was unjust and harboured a new war. Although his parallel is correct, I
would prefer another one, with the Brest-Litovsk treaty between Soviet Russia
and Germany at the beginning of 1918, in which, to the consternation of many of
its partisans, the Bolshevik government ceded to Germany’s outrageous demands –
true, they retreated, but this gave them a breathing space to fortify their
power and wait. And the same goes for Greece today: we are not at the end, the
Greek retreat is not the last word for the simple reason that the crisis will
hit again, in a couple of years if not earlier, and not only in Greece. The
task of the Syriza government is to get ready for that moment, to patiently
occupy positions and plan options. Keeping political power in these impossible
conditions nonetheless provides a minimal space for preparing the ground for
future action and for political education.
Therein resides the paradox of the situation:
although the bailout plan will not work, one should not lose nerves and step
out but follow it till the next explosion – why? Because of the obvious
non-preparedness of Greece for the Grexit – there was no Plan B for how to do
this very difficult and complex operation. Till now, the Syriza government
operated without really controlling the state apparatus with its 2 million
employees: police and judiciary mostly belong to the political Right,
administration is part and parcel of the corrupted clientelist machine, etc -
and it is precisely this vast state machinery that one will have to rely on in
the case of the immense work of Grexit. (We should also bear in mind that
Grexit was the enemy’s plan (there are even rumours that Schauble offered €50bn
to Greece if it leaves the Eurozone). What makes the Syriza government so
troubling is precisely the fact that it
is the government of a country inside the Eurozone: “the vehemence with
which it has been opposed is due precisely to Greece’s existence within the
Eurozone. Who would really care, come to power in a little country with drachma
as its currency?”)
What manoeuvring space does the Syriza
government have when it is reduced to enacting the politics of its enemy?
Should it step down and call new elections rather than enact the policy that is
directly opposed to one’s programme? Such a move is all too easy, it is
ultimately a new version of what Hegel called the Beautiful Soul. As Etienne
Balibar put it, Syriza needs most of all to gain time, and the EU powers
are doing everything they can to deprive Syriza of time – they try to push
Syriza into a corner, enforcing a fast decision: either total capitulation
(stepdown) or Grexit. Time for what? Not only for preparing itself for the next
crisis. We should always bear in mind that the basic task of the Syriza
government is neither Euro nor the settling of accounts with the EU but, above
all, the radical reorganisation of Greece’s
long term corrupt social and political institutions: “Syriza’s
extraordinary problem – which would not be faced by any other political party
in government – was to alter internal
institutional frameworks under conditions of external
institutional assault” (like Germany itself did it in early 1800 under French
occupation).
The problem Greece is confronting now is the
one of the “Left
governmentability”: the hard reality of what it means for the radical Left
to govern in the world of global capital. What options has the government? The
obvious candidates – simple social-democratization, state-socialism, withdrawal
from state and reliance on social movements – are obviously not enough. The
true novelty of the Syriza government is that it is a governmental event – the
first time that a western radical Left (not the old style Communist one) took
state power. The entire rhetorics, so beloved by the New Left, of acting at a
distance from state, has to be abandoned: one has to heroically assume full
responsibility for the welfare of the entire people and leave behind the basic
Leftist “critical” attitude of finding a perverse satisfaction in providing
sophisticated explanations of why things had to take a wrong turn.
The choice the Syriza government was facing is
an actual difficult choice which should be dealt with in brutal pragmatic
terms, it is not a big principled choice between the true act and opportunistic
betrayal. The accusations of the Syriza government’s “betrayal” are made to
avoid the true big question: how to confront capital in its today’s shape? How
to govern, how to run a state, “with people”? It is all
too easy to say that Syriza is not just a government party but has its
roots in popular mobilisation and social movements: Syriza “is a loose,
self-contradictory, and internally antagonistic coalition of leftist thought
and practice, very much dependent on the capacity of social movements of all
kinds, thoroughly decentralised and driven by the activism of solidarity
networks in a broad sphere of action across class lines of conflict, gender and
sexuality activism, immigration issues, anti-globalisation movements, civil and
human rights advocacy, etc”. However, the question remains: how does or should
this reliance on popular self-organisation affect running a government?
In his “Greece Has Been Betrayed”, Tariq Ali wrote: “At
the beginning of the month they were celebrating the ‘No’ vote. They were
prepared to make more sacrifices, to risk life outside the Eurozone. Syriza
turned its back on them. The date 12 July 2015, when Tsipras agreed to the EU’s
terms, will become as infamous as 21 April 1967. The tanks have been replaced
by banks, as Varoufakis put it after he was made finance minister.” I consider
this parallel between 2015 and 1967 convincing but simultaneously profoundly
deceiving. Yes, tanks does rhyme with banks, which means: Greece is now de
facto under financial occupation, with strongly reduced sovereignty, all
government proposals have to be approved by “troika” before they are submitted
to parliament, not only financial decisions but even data are under foreign
control (Varoufakis didn’t have access to the data of his own ministry – he is
now accused of treason for trying to do it), and, to add insult to injury,
insofar as the democratically elected government obeys these rules, it
voluntarily provides a democratic mask to this financial dictate. (As to the
recent charges against Varoufakis for treason, they display obscenity it its
purest: while billions disappeared in the last decades, and the state
manufactured fabricated financial reports, the only person charged was the
journalist who rendered public the names of the owners of illegal foreign bank
accounts – but Varoufakis was now instantly charged on ridiculous pretext. If
there is an authentic hero in the entire Greek crisis story, it is Varoufakis.)
Should then Grexit be risked? We are
confronting here la tentation
evenementielle, the evental temptation – the temptation, in a
difficult situation, to accomplish the crazy act, to do the impossible, to take
the risk and step out whatever the costs, with the underlying logic is that
“things cannot be worse than they are now.” The catch is that they certainly can get much worse, up to
exploding into a full social and humanitarian crisis. The key question is: was
there really an objective possibility of a proper emancipatory act of drawing
all politico-economic consequences from the NO of referendum? When Badiou talks
about an emancipatory Event, he always emphasises that an occurrence is not an
Event in itself – it only becomes one retroactively, through its consequences,
through the hard and patient “work of love” of those who fight for it, who
practice fidelity to it. One should thus abandon (“deconstruct”, even) the
topic of the opposition between “normal” run of things and the “state of
exception” characterised by the fidelity to an Event which disrupts the
“normal” run of things. In a “normal” run of things life just goes on,
following its inertia, we are immersed in our daily cares and rituals, and then
something happens, and evental Awakening, a secular version of a miracle
(social emancipatory explosion, traumatic love encounter…); if we opt for the
fidelity to this event, our entire life changes, we are engaged in the “work of
love” and endeavor to inscribe the Event into our reality; at some point, then,
the evental sequence is exhausted and we return to the normal« flow of things…
But what if the true power of an Event should be measured precisely by its
disappearance, when the Event is erased in its result, in the change in
“normal” life? Let's take a socio-political Event: what remains of it in its
aftermath when its ecstatic energy is exhausted and things return to
“normality” - how is this “normality” different from the pre-evental one?
So, back to Greece, it is easy to count on the
heroic gesture of promising blood, sweat, and tears, to repeat the mantra that
authentic politics means one should not remain within the confines of the
possible but to risk the impossible – but what would this imply in the case of
Grexit? First, let's not forget that the referendum was neither about Euro (75
per cent of Greeks prefer to stay in Euro) nor about staying in the EU or not.
The question was: “Do you want this situation to continue or not?” Which means
that the result also cannot be read as a sign that the Greek people are ready
to endure sacrifices and more suffering in order to assert their sovereignty.
The NO was a NO to their continuing situation, which was the situation of
austerity, poverty, etc. It was a demand for better life, not a readiness for
more suffering and sacrifice. (Generally, the motif of “readiness for immense
suffering” is extremely problematic.) Second, in the case of Grexit, would the
Greek state not be compelled to enforce a series of measures (nationalisation
of banks, higher taxes, etc.) which are simply a revival of the old
national-sovereignty-state-socialist economic politics? Nothing against such
politics, but would it work in the specific conditions of today’s Greece, with
its inefficient state apparatus and as a part of global economy? Here are the
three main points of the Left
Platform anti-austerity plan, listing a series of “absolutely manageable”
measures:
1.The radical reorganisation of the banking
system, its nationalisation under social control, and its reorientation towards
growth.
2.The complete rejection of fiscal austerity
(primary surpluses and balanced budgets) in order to effectively address the
humanitarian crisis, cover social needs, reconstruct the social state, and take
the economy out of the vicious circle of recession.
3.The implementation of the beginning procedures
leading to exit from the euro and to the cancellation of the major part of the
debt. There are absolutely manageable choices that can lead to a new economic
model oriented towards production, growth, and the change in the social balance
of forces to the benefit of the working class and the people.
Plus two additional specifications:
The elaboration of a development plan based on
public investment, which will however also allow in parallel private
investment. Greece needs a new and productive relationship between the public
and private sectors to enter a path to sustainable development. The realisation
of this project will become possible once liquidity is reestablished, combined
with national saving.
Regaining control of the domestic market from
imported products will revitalise and enhance the role of small and
medium-sized enterprises, which remain the backbone of the Greek economy. At
the same time exports will be stimulated by the introduction of a national
currency.”
It is difficult to see in all this anything
more than the usual set of state-interventionist measures: return to national
currency, printing money, financing big public works, supporting domestic
industry… Such measures, if properly calibrated, may work – but would they work
in today’s Greece, with an enormous foreign debt of private individuals and
companies (which cannot be cancelled), with an economy fully integrated into
and dependent on Western Europe, relying on food, industrial and medical
imports? In other words, where, in what outside, would Greece find itself? In
an outside of Belarus and Cuba? As Paul Krugman recently wrote, one has to
admit that nobody really knows what the consequences of the Grexit would be –
it’s an uncharted territory. But
one thing is nonetheless clear: “Grexit is a name for none other than a
politics of national independence”, so no wonder that some partisans of the
Left Platform even resort to the extremely problematic and (for me) totally
inacceptable self-characterisation “national populism”. (Incidentally, one has
to reject both optimist myths, the Left Platform myth that there is a clear
rational way to do Grexit and bring new prosperity, as well as the obverse myth
(advocated by, among others, Jeffrey Frankel) that, by faithfully enforcing the
bailout plan, Tsipras
can become a new Lula.)
So the choice now is not simply “Grexit or
capitulation”: the Syriza government finds itself in a unique situation,
obliged to do what it is opposed to. To persist in such a difficult situation
and not to leave the field is true courage. The enemy of the Syriza government
is now not primarily the Left Platform but those who take “sincerely” the
defeat and really want to play the EU card. The true miracle of the situation,
and one of the few sources of modest hope, is that, in spite of the capitulation
to Bruxelles, it seems that around 70 per cent of Greek voters still support
the Syriza government – the explanation is that the majority perceives the
Syriza government as doing the right think in an impossible situation.
There is no clear a priori answer here, any
decision can only be retroactively justified by its consequences. There is a
risk that the Syriza capitulation will turn out to be just that and nothing
more, enabling the full reintegration of Greece into EU as a humble bankrupt
member, in the same way that there is a risk of Grexit turning into a large
scale catastrophe. What one should fear is not only the prospect of the further
suffering of the Greek people, but also the prospect of another fiasco which
will discredit the Left for years to come, while the surviving Leftists will
argue how their defeat proves yet again the perfidiousness of the capitalist
system…
