By Sebastian Gerhardt
Capital flight from Greece continues. Deposits of households and non-financial companies shrank by only 2 billion Euro in March but 5 billion in April. After the great breakdown – from December till February it was 24 billion, half of it in the election month January – high panic changed into on-going distrust of Greek banks. None of the other economic data not look good for Greece. Economic performance is stagnating. Tax revenues until March were significantly lower than in the previous year. The tourist season which could compensate for the trade imbalance with foreign countries only starts in June.
In reality what is happening with deposits is only the tip of the iceberg. The monthly statements issued by the Greek Central Bank, the Bank of Greece, give a real impression of the tense economic situation in Greece. The Central Bank currently has to massively increase its overall balance sheet, as was the case between spring 2010 until the end of 2012, in order to compensate for the drop in private and public creditworthiness: From 91 billion in November 2014 to 160 billion Euro in April 2015. The liabilities side of this balance sheet shows the Greek banking system’s dependence on the Euro: The whole increase in business for the Central Bank was financed by a rise in borrowing from the Euro system. Speaking in terms of national economics, it is not true that Greece has been servicing its debt “without help from outside” since last autumn as is claimed by some Syriza colleagues.
However only a small amount goes into “hidden state financing” as German Central Bank boss Jens Weidmann publicly both claims and condemns. Yannis Varoufakis wouldn’t have any liquidity problems if the newly borrowed money went into the state budget. It flows into the private economy instead. This makes capital flight possible through which pressure on the Syriza-government increases daily. This outcome is deliberate and not being criticised by Mr. Weidmann. In early February the ECB made liquidity supply for Greek banks massively more expensive. At the same time it ensured Greece stays within the Euro-zone network by allowing the Greek Central Bank to gradually extend the “Emergency Liquidity Assistance” (ELA). The ECB could force a Greek state bankruptcy within a few days simply by stopping ELA. It doesn’t. Here is one reason why the Eurogroup is still negotiating with the Tsipras government: It has interests in Greece.
The other reason was somewhat reluctantly admitted by Euro Safety Mechanism (ESM) boss Klaus Regling before the EU-summit in Riga. Questioned about a possible Greek default in payment he said: “Greek officials have repeatedly been able to mobilise solvency, more than they had indicated to us before…” Whilst the mass media like to speculate about the supposed amateurs in Athens the liquidity management by the Greek Ministry of Finance seems to work in a highly professional manner. Despite the tense situation wages, salaries and pensions are being paid out as well as debt repayments. This does not only say something about the quality of the personnel on the top floor, it especially says a lot about the loyalty of civil servants and therefore the political stability of the Syriza-government. Left wing radicals may find this eerie. Because this also means that there is not “destruction of the bourgeois state apparatus” in Greece. But not only reformists after an electoral victory, every revolutionary was happy to rely on public administration clerks on the “day after”. The result however is only self organised austerity with just a minimal social or political room for manoeuvre.
Further developments only partly depend on the Greeks, given the situation. Because of this extensive considerations about the quality of the reform policies conducted in Athens are only part of the story, as are reports about first demonstrations and social protests under the new left wing government. The ones with the big pockets are the ladies and gentlemen of the Euro-group. These pockets are well filled despite everything. The Euroland economy has picked up speed. This does not mean that the situation is improving for everyone. It means that profits are rising and the scope for governments and the Euro-group to in the final analysis maybe give tiny concessions to Greece is increasing. A strong bourgeois family can humour its black sheep as long as there are only a few of them. From the point of view of the Berlin, Paris, Rome and Madrid governments this is precisely what Greece is: A, but only one, black sheep.
The Euro-group is likely to offer Greece a not very honourable compromise: A partial payout from the last 7,2 billion package or a further rise of the upper limit of the ELA programme. Syriza will take this and will have to give concessions in return. The Greek government is completely politically isolated in Europe. Those criticising its decisions as insufficiently left-wing should first convince their colleagues, friends, neighbours and relatives of the dire need for a different German Greek policy. They can carry on criticising the Syriza government afterwards.
Without doubt one can and must criticise the policies of the Greek left-wing party. The naivety with which its representatives demanded an about-turn in Euro-policy points to a deep misunderstanding of modern capitalism. For one both Yanis Varoufakis and his critic Costas Lapavitsas see the decisive motor for economic development in solvent demand not in daily labour, which alone enables reproduction of society. On the other hand they they assume that solvent demand can be widely manipulated because apparently credit financing can lead to sales out of nothing. In reality the core of the modern money system is to ensure the existence of private property. There are no free gifts on the market, especially not for left wingers. But as can be seen easily with both mistakes: The critics of the Syriza majority also share its economic outlook. Sadly.
Of course there are alternatives, even a number of them. Not all of them are better. The Greek government could try to limit the influence of the ECB in Greece by introducing capital controls and a parallel currency. But you cannot pay for foreign trade in domestic currency. And domestically the question would arise of what rate about this parallel currency would be traded. What would that look like? One example for equally self organised and sustainable austerity entirely outside the Euro is provided by the economic history of Poland since 1989. This, however, is not an example to follow for a crisis solution based on solidarity.
A Greek exit from the Euro would not be entirely inconvenient for plans for a neoliberal “core Europe”. Berlin also has a plan B. In order to stave off a financial crisis after a Greek exit a number of countries in the Euro-zone will be prepared to submit to wide scale controls over their state finances – in exchange for a partial socialisation of state debt in Euroland. Blueprints for this are on the table since a 2011 report by the German expert advisory council. On Mai 31st Alexis Tsipras remarked on this danger for the first time in a contribution to Le Monde. In it he writes about a possible “super finance minister” for the Euro-zone who could throw back budget plans of sovereign governments unless these are properly neoliberal.
Those looking for alternatives have to approach this conflict differently. Policies based on solidarity can be demanded by Athens but cannot be fought for there. The electoral victory of Syriza is a beginning only if further steps follow in other countries. And this takes time. Demanding too much from the Greek departure out of its depth is politically fatal.
In a fable written by Aesop a traveller boasts about his athletic achievements on Rhodos until his listeners demand that he confirms them before their eyes: “Hic Rhodes, hic salta! Here is Rhodes, dance here!” The same is true for political achievements.
