Lessons from the Greek CrisisPosted on
The deal, obviously it looks bad. No sense in spinning: It’s unconditional surrender. It is bad.
There’s no shortage of writing about how we got here. I do think that we — in the US and elsewhere — should resist the urge to criticize the Syriza government, even for what may seem, to us, like obvious mistakes. The difficulty of taking a position in opposition to “Europe” should not be underestimated. It’s one of the ironies of history that the prestige of social democracy, earned through genuine victories by and for working people, is now one of the most powerful weapons in the hands of those who would destroy it. For a sense of the constraints the Syriza government has operated under, I particularly recommend this interview with an unnamed senior advisor to Syriza, and this interview with Varoufakis.
Personally I don’t think I can be a useful contributor to the debate about Syriza’s strategy. I think those of us in the US should show solidarity with Greece but refrain from second-guessing the choices made by the government there. But we can try to better understand the situation, in support of those working to change it. So, 13 theses on the Greek crisis and the crisis next time.
These points are meant as starting points for further discussion. I will try to write about each of them in more detail, as I have time.
1. The euro system today is an instrument in the hands of European capital to roll back the gains of social democracy. On twitter, Marshall Steinbaum says, “That is why everyone supports the euro: as a route around their domestic political difficulties, ie, voting.” I think that’s right, I think the overriding goal of the system today is to create a set of apparently objective constraints that allow elected governments to take unpopular measures while saying “we had no choice, the markets require it.” I’ve written about this here and here.
2. A great myth of the euro is that it’s been good for Germans. It’s a puzzle, the kind of story that calls for dialectics, that Germany has both Europe’s strongest working class and most advanced social democracy, and its most rigidly conservative elite. For a while those forces were roughly balanced, but over the past generation German workers have done the worst, absolutely and relatively, of any country in Europe. The north-south divide in Europe perhaps analogizes to the racial divide in the US, so perhaps the same slogans apply: Black and white, unite and fight!
3. The euro is not a new gold standard. This is a tricky one — I feel a clear vision here requires one to first see how the euro is a new gold standard, and only then seeing how it isn’t one after all. Despite the dreams of its supporters (and fears of its opponents) the euro system does not provide an automatic constraint on the choices of elected governments. In the abstract, it looks more like Keynes’ proposals at Bretton Woods. Its actual functioning as the enforcement mechanism of neoliberalism, requires the active intervention of the authorities.
4. The European Central Bank is a political actor. You may think that the ECB has violated the norms of independent central banks, or you may think it has revealed their true content. But either way it is actively intervening in the political process to reshape society in fundamental ways, not just following a set of objective rules to fulfill a narrow technical function. It was already evident several years ago that the ECB was selectively withholding support from financial markets to put pressure on elected officials, and now it is undeniable.
5. Within the eurosystem, the national central banks are a key terrain of conflict. Before the crisis no one even knew that national central banks still existed — I certainly didn’t. But now it’s clear that the creditors’ unchallenged control of this commanding high ground was decisive to the outcome in Greece. Next time an elected government challenges the EU authorities, their first order of business must be getting control or cooperation of their national central bank.
6. There is no sharp line between “in the euro” and “out of the euro.” The idea that “leaving the euro” was some enormous, no going back, all or nothing leap was was a powerful weapon for the authorities. But it’s not the case — just look at Cyprus, Andorra, Montenegro, Denmark. The common currency is shorthand for a bunch of different linkages between banking systems, and it’s perfectly possible to maintain some of them while severing others.
7. There will be more crises in the future. Crises are how the system works. If the goal is to compel elected governments to follow policies they would not otherwise, they must have clearly in front of them evidence of the costs of failure to comply. This, I think, was the main interest in Greece — not any direct gains to capital in Germany or elsewhere, but setting an example pour encourager les autres.
8. Defaults don’t punish themselves. Another ideological weapon of the creditors is the idea that financial markets will automatically punish countries that default. But neither historical evidence nor logic support that claim – if anything, a country that has removed a pile of unserviceable debt is a much better credit risk going forward. Debt is only a constraint on governments because there are political agencies enforcing it, either local elites who want the debt-servicing-required outcome anyway, or embargo, or gunboats.
9. The existing state apparatus serves the existing interests. This is one of the great challenges for left governments, the hope or belief that having assumed office, the bureaucracy will simply execute their instructions. It doesn’t work that way. The left cannot use the existing levers of power, nor can we rely on the law.
10. “Money” means bank deposits. I’ve spent a big chunk of my intellectual life immersed in these old debates, the law of reflux, money vs banking view, endogenous money, horizontalists an verticalists. But it turns out — perhaps no surprise — that you can’t talk about the mechanics of the ingle currency in a meaningful way, without getting this stuff clear. You can’t think through what exit from the euro would concretely require, or even know what “exit” means, unless you have clearly in mind a network of bank-mediated money contracts, as opposed to money as a kind of homogenous fluid.
11. Relative prices are not what drive trade flows. I already believed this, and I can’t say the euro crisis has provided any particular new evidence. But it’s important because so many liberal observers, especially in the US, took it for granted that a flexible exchange rate would allow Greece to painlessly achieve payments balance. I think the historical evidence shows that floating exchange rates do not reliably remove balance of payments difficulties — which is a genuine argument in favor of the euro system in the abstract, if not in its current form.
12. Free financial flows serves no social function. The EU’s founding documents refer to the free movement of people, goods and finance, yet it’s precisely those financial flows that were the proximate cause of the crisis. You simply can’t have perfect capital mobility if you also expect any kind of payments constraint on individual countries. Let us maximize the freedom of money-wealth owners to shift their assets between countries, and then require that real trade flows adjust to compensate — why would we want that?
13. We can’t separate the real from the financial. Whether debt is “sustainable,” whether banks are “solvent” — answers to questions like these are always contingent on interest rates and more broadly on liquidity. We can’t understand the growth of Geek debt, or the non-growth of debt elsewhere in the euro area, except in terms of the financing decisions of the ECB. The financial crisis is the crisis; it is not (necessarily) a reflection of some underlying “real” disorder.