July 26, 2015

Greece for Sale

Prabhat Patnaik

LET us forget for a moment that even the IMF, which happens to be one of Greece’s major creditors, has now publicly recognised that it is unrealistic to expect Greece to pay back its entire debt. Let us assume that Greece cannot be given any debt relief, but must pay back its debt, a certain amount each year. Even then however there are two ways to make Greece pay back this debt. One is through the creditors taking more Greek goods and services gratis as a form of debt payment, which basically means Greece running a current account surplus on its balance of payments, through an increased demand for its exports from its main creditor country (or from anyone else for that matter), whose proceeds go towards paying off Greek debt. The other is through Greek assets being sold off to its creditors (or to anybody else for that matter, with the sale proceeds being used to pay off the creditors).

The difference between the economic implications of these two ways is enormous. Consider the first way. Since the Greek economy is demand-constrained, an increase in its export surplus (which is how an increase in current account surplus would be effected) via an increase in its exports (and not via a curtailment of its imports which is what “austerity” seeks to achieve), would have the effect of increasing its output and employment. What is more, because of the “multiplier” effects of this initial increase in output, through an enlarged (export-caused) export surplus, the total increase in output would be much larger. For instance if the export surplus increases by 100 because of larger demand from outside, and if private consumption habitually constitutes half of the total output of the economy, then, even with Greek government expenditure and private investment remaining unchanged, the total increase in the output of the Greek economy would be 200. (It may be thought that in this calculation we have not reckoned with the increase in imports that would be caused by an increase in output, but this is not so: we are talking of an increase by 100 in the export surplus, ie, in the excess of exports over imports). Of these extra 200, increased private consumption will absorb 100 and export surplus another 100.

Greece in this situation would have paid off 100 to its creditors at no cost to itself; on the contrary, while doing so, it would have raised domestic output, domestic employment, and domestic consumption, while making no cuts whatsoever either in domestic investment or in government expenditure towards pensions, salaries, transfer payments and such like.

This point is very little appreciated. The bourgeois propaganda about Greece typically takes the following form, which alas even many progressive persons get persuaded by: the Greeks have lived beyond their means for a long time, because, it is hinted, they are a lazy, indolent, easy-going and inefficient people, unlike the hard-working and industrious Germans; having lived beyond their means for so long, they now have no alternative to tightening their belts, accepting “austerity”, and enforcing a cut in their domestic absorption of goods and services; in fact this cut in domestic absorption will have to be particularly sharp, and hence the “austerity” particularly severe, if they not only have to forego any further loans from outside, but also have to pay back the loans they have already taken; one need not therefore feel sorry about them because they have brought it all upon themselves.




 The empirical absurdity of this argument has been thoroughly exposed. Propositions such as: the Greeks are a lazy and indolent lot; the Greek debt is a result entirely of Greek factors with no connection with the world economic crisis; the Greek debt has piled up because the Greek nation has continuously lived beyond its means, and that the pile-up has nothing to do with the very policies imposed upon Greece by its creditors; all these have been shown to be utterly hollow. But what has not received as much attention is the conceptual absurdity of this argument.

This argument is based entirely on the assumption that the Greek economy has always been and continues to be characterised by full employment, that it has always been and continues to be supply-constrained as distinct from being demand-constrained. The need for belt-tightening, and for austerity as a means of doing so, cannot possibly arise in an economy in which resources are lying unutilised. It can only arise in a supply-constrained economy, because only in such an economy does domestic absorption have to be reduced to make room for an export surplus that can be used for paying back debt. In a demand-constrained economy, debt can be paid back through the generation of an export surplus, even as domestic absorption increases, through the employment of idle resources, provided demand for exports is forthcoming from outside.

Putting it differently, if the Greek government simply gave out vouchers in lieu of its debt which were distributed among its creditors, and through them (with appropriate fiscal intervention no doubt) among the populations of the creditor nations, for a free holiday in Greece, then numerous birds would have been killed with one stone. The people of the creditor nations would have experienced an improvement in their living standards through a free holiday in Greece, paid for in effect by the claims their countries held vis-à-vis Greece; Greece would have paid off its debt to the extent of the value of the vouchers; domestic employment, domestic output and even domestic consumption in Greece would have improved as a consequence of the inflow of voucher-holding tourists; and, of course, there would have been much better fellow feeling within the Eurozone.

But this is not the way finance capital operates. It is not interested in offering free holidays in Greece to the people under its jurisdiction. More generally, an increase in Greek exports, for generating a larger export surplus for Greece, can only come about in ways, each of which is anathema for finance capital. Each of these ways involves a stimulation of demand, which, to be realistic, has to be in the surplus economies of Europe, and Germany in particular. Such stimulation can take the form of larger consumption by the domestic population (of which a free holiday in Greece is one example), or it can take the form of larger government expenditure. Increasing the consumption of the domestic population as a way of liquidating the debt owed to the country, goes against the ethics of capitalism, which, as the Polish Marxist economist Michal Kalecki had summed up pithily, holds: “you must earn your daily bread with the sweat of your brow unless you happen to have private means”. And as regards increasing government expenditure, the only such expenditure that is favoured by finance capital is that which benefits itself, and this in the current context has little demand generating effect.

It follows therefore that the most obvious, the most humane, the most reasonable way out of the Greek debt imbroglio, which is through an expansion of demand in the European economy (such an expansion incidentally poses no threat of causing any balance of payments difficulties for Europe as a whole), is ruled out under what in effect is a   dictatorship of finance capital in Europe. What finance capital has dictated to Greece instead is more “austerity” that seeks to reduce Greek imports by generating further recession and unemployment, and an enforced transfer of the ownership of Greek assets to foreign capitalists.

An important part of the new agreement imposed on Greece is the setting up of the Hellenic Republic Asset Development Fund (TAIPED for short), which will be monitored by foreign officials and which will organise the sale of everything that the Greek State owns, sea ports, railways, utilities, international airports, and even the Olympic venue. The money raised through such sales will go to pay off Greek debt. This, ironically, is the decision of the European Union, which has pretensions to being the most “civilized” place in the world!




Every Indian child knows that this is exactly what the village moneylender has done to the indebted peasant throughout our history, especially under colonialism, when a whole paraphernalia of law courts was established to enforce “contracts”. He took over the land, the utensils, the measly furniture that the peasant had, the paltry ornaments that the peasant’s wife had brought with her when she got married, all in lieu of the peasant’s debt. Innumerable short stories, novels, plays and films have been written in every Indian language on the cruelty of the moneylender towards the peasant. But today, ironically, we have the governments of the most “civilized” nations of the world imitating, in their collective wisdom, the rapacity of the Indian village moneylender!

Two points are especially noteworthy here. First, owing to the “austerity” that not only continues but has got intensified, these asset prices have got vastly reduced through a fall in their rate of utilisation. Second, because all potential buyers of these assets are well aware of the fact that the Greek government is under pressure to effect these sales as quickly as possible in order to settle its debt obligations, they would all bide their time and push the asset prices further down. Hence, not only is the nation called Greece being stripped of its public assets which are now to pass into foreign capitalist ownership, but it is also being made to do so at throwaway prices! Since many of these new owners would be “fly-by-night operators” who have little interest in actually running these assets or making use of them for productive purposes, the Greek economy is in effect being destroyed for a “song”.

Victor Grossman, writing in the e-magazine version of Monthly Review sees a parallel between what is happening in Greece and what had happened in the erstwhile GDR exactly a quarter century ago, when a Privatization Fund had been set up for selling public assets to all sorts of racketeers who were more interested in asset-stripping than in running those assets for the purposes they were meant for. From the point of view of German capital there is indeed a similarity between the two situations, which extends even to the desire in each case to “punish” the population for having sustained a Left-wing regime. There is however an important difference: Eric Honecker had not presided over the destruction of the GDR economy, the way Alexis Tsipras is being made to preside over the destruction of the Greek economy.