What It's About

I'm as thrilled as anyone by Syriza's first week in government. The European bourgeoisie has declared war on social democracy, with the euro as its weapon to re-subordinate society to the logic of the market. And now -- shades of Polanyi's double movement -- society is pushing back. It's amazing to see Varoufakis declare that the "troika" has no legitimacy and that Greece is done negotiating. (As my friend Harry says, maybe what's amazing that Dijsselbloem and the rest thought that Syriza would roll over. But I suppose that's what's happened before.)

Here's what I think is the most important point in all this: The debate now is not about claims on real resources, but about power -- who decides, and on what basis.

Daniel Davies:

Don’t think of the Greek debt burden, either in cash € terms or as a ratio to GDP, as an economic quantity. It basically isn’t an economically meaningful number any more. The purpose of its existence is as a political quantity; it’s part of the means by which control is exercised over the Greek budget by the Eurosystem. The regular rituals of renegotiation of the bailout package, financing of debt maturity peaks and so on, are the way in which the solvent Euroland nations exercise the kind of political control that they feel they need to have... 

It is, therefore, totally inimical to the Eurosystem to hold out any hope of the kind of debt writedown that Syriza wants, as opposed to some smaller, cosmetic face value reduction or maturity extension. The entire reason why Syriza wants to get a major up-front reduction in the debt number is to create political space to execute the rest of their program. The debt issue and the political issue are the same issue. Syriza understands this, and so does the Eurosystem. The people who don’t understand it are the ones writing editorials in the business press which support the debt reduction but don’t think that Syriza should be given carte blanche to do everything it wants.

One man's "carte blanche to do everything it wants" is another man's "freedom to make decisions as a sovereign, democratically elected government." But this gets the stakes of the negotiations just right.

Krugman is also very good, especially here.

at this point Greek debt, measured as a stock, is not a very meaningful number. After all, the great bulk of the debt is now officially held, the interest rate bears little relationship to market prices, and the interest payments come in part out of funds lent by the creditors. In a sense the debt is an accounting fiction; it’s whatever the governments trying to dictate terms to Greece decide to say it is. 

... the aspect of the situation that isn’t a matter of definitions: Greece’s primary surplus, the difference between what it takes in via taxes and what it spends on things other than interest. This surplus ... represents the amount Greece is actually paying, in the form of real resources, to its creditors... Greece has been running a primary surplus since 2013, and according to its agreements with the troika it’s supposed to run a surplus of 4.5 percent of GDP for many years to come. What would it mean to relax that target? 

... let’s think of a maximalist case, in which Greece stopped running a primary surplus at all (this is not a proposal). You might think that this would let the Greeks spend an additional 4.5 percent of GDP — but the benefits to Greece would actually be much bigger than that. Remember, the main reason austerity has been so harsh is that cutting spending leads to economic contraction, which leads to lower revenues, which forces further cuts to hit the budget target. A relaxation of austerity would run this process in reverse; the extra spending would mean a stronger economy

This makes three important points. First, Greece now has a primary surplus, meaning that the public budget is no longer dependent on foreign borrowing to maintain its current operations; default would allow for a higher level of public spending with no increase in taxes. [1] Second, the size of these transfers is a political decision, no less than the scale of the transfers under, say, the Common Agricultural Program. Third, while these flows are -- unlike the notional stock of debt -- objective economic facts, they are not the most important thing about the debt payments. The most important thing is the policies the Greek government has to adopt to keep generating those flows. It's a problem that Greece is making payments to the richer parts of Europe, and will do so indefinitely if the troika gets its way. But the bigger problem is that the overriding need to generate those payments prevents the Greek state from taking any positive action either to end the current depression or to foster longer-term economic development.

One issue where Krugman and Davies disagree is if a default on the Greek debt would automatically lead to a collapse of the Greek banking system (in which case exit from the euro would uncontroversially follow) or if this would require a positive decision of the ECB to withdraw support from Greek banks. [2] I don't claim any expertise here, but Krugman's position seems more plausible. And in general, one of the welcome effects of the crisis is that supposedly natural economic constraints are forced to take form as explicit political choices.

Maybe the best short overview I've seen is this piece by Mark Weisbrot. The key point he makes is that the big fear of the current of Euroland's rulers is not that economic catastrophe will follow Greek exit from the euro. It's that it won't.

And yes, it's published in VICE. These are strange days.



[1] There's a certain slippage in these conversations between "Greece" meaning the country as a whole and "Greece" meaning the government. It is true that the Greek government budget is in primary surplus (if the official numbers can be trusted, which probably shouldn't be taken for granted -- leaving aside questions of fraud, there are non-recurring revenues from privatization.) But if we are talking about Greece the country, the relevant number for real resource flows is the trade balance, which is close to zero. But it's still true that there is no net flow of real resources into Greece to be financed, which is important in thinking about the consequences of default.

[2] As far as I can understand, the Greek banking system could collapse in two ways. First, if it loses access to the interbank payment system, and second, if it faces a run because it becomes clear that the ECB is no longer willing to offer Greek banks liquidity support. Both of these events can happen just as easily if Greece is current on its debt as if it defaults.