Come on Grexit lovers, let’s talk specifics


The advocates of ‘pride’, ‘resistance’, ‘honour’ and such like (even if it leads to ‘rupture’) know not what they do, nor what they speak of.

A common response to my resistance to the “Kougki” rhetoric of the left in Greece (Kougki meaning blow it up in pride, rather than capitulate) is that I don’t understand how bad it is in Greece.

I fully understand how it is in Greece and what a new ‘memorandum’ will bring. I have written about it aplenty. I have written a whole book on how undemocratic and shortsighted and damaging neoliberalism and austerity are.

Yet there is something that sets me apart from the revolutionaries of Syriza. Revolutions are built on the corpses of existing people to benefit an abstract future generation. I care about the people living in Greece now, get it? The people who will need to survive the first post-euro year or two. I agree in a way with Lapavitsas when he says that the growth prospects of Greece would be better after Grexit. They will be, but the ‘better’ will be a long way off.

Let’s talk then about what is to happen in June if Greece starts defaulting, first to the IMF and then more generally.

If Greece does something that is classed as a default in ANY of its contracts this will trigger cross default clauses in all other agreements. This means that selective default is not possible on the kind of debt that Greece’s creditors now hold. Will failing to pay the IMF on 5.6.15 have this effect? Not immediately, but if the payment is not made within a month, then probably.

What happens then? The key issue is liquidity and bank capitalisation. The advocates of default claim that if Greece doesn’t pay the Troika, then no problem, there will be money to spend internally. Wrong! Greece still has a primary surplus (it seems) but such surplus cannot be used to capitalise the banks, it isn’t enough! If support is lost from the ECB as may well happen post default, the banks will collapse due to lack of capital to fund outflows.

People often ask whether Greece can default yet stay in the euro. If ECB turns off the ELA tap, then the banks close down. What will Tsipas do? Two options exist: 1) nationalise the banks and bail in depositors. All deposits gone, or a Cyprus style haircut. Anyone fancy that? It may not even be enough. Bye bye to everyone’s money. 2) print own money which means of course Grexit. And what’s wrong with that? Paying for your supermarket shopping 40-50% more after devaluation is what. Fancy paying for the baby formula (now €20 for what I pay £8.50 in London btw) the equivalent of €50?

But the ECB might not stop ELA, it may wish to protect citizens even if the state has defaulted? This cannot happen as the inevitable bank run will render the banks insolvent and cut them off ELA anyway.

To get to the chase. How does the left faction and all those prideful Greeks deal with all this? Come on Mr Lafazanis, let’s hear it. What will the government do with the banks? How will it buy essentials, how will it pay salaries and pensions post default? Time to cut the nonsense about Greece’s geopolitical significance and talk specifics. Do you have any clue what you are about to unleash?


6 thoughts on “Come on Grexit lovers, let’s talk specifics

  1. Pancho says:

    You’ve been calling out Syriza for a while now, for not signing any submission deal offered to them. When you called them out first, they were in the worst imaginable negotiation situation. At that time the result would have been a full subjugation without any glimmer of hope.

    Now in the meantime, the pressure on the creditors steadily increases day by day. Finally, the economic fallout turns out to be uncalculable for the Eurozone rather than for Greece.
    UK, Poland and Spain elections showed how hardcore austerity believers will soon be crushed between anti-EU rightists, economically pragmatic atlanticists and alter-EU leftists. And so even in Germany public opinion just started to swing back against Schäuble.

    At the same time, at least some progress has been made in the negotiations. At the same time Syriza has taken a grip on the notoriously sluggish government apparatus. A number of acts have been passed, at least some remedy for the worst hardships has been implemented, tax collection is already improving, and ERT will restart soon.

    Now conceding that Greek growth perspectives in the medium term would be better with a Grexit, you say you care about people’s lives in Greece today, not tomorrow, right? But then, you and I know very well that the creditors’ concessions still don’t amount to giving the country room to breath and leeway for at least some economic recovery. You and I know that a continuation of the old Memorandum style would almost immediately throw the country into even worse decline. You and I know it would drive even more young educated Greeks out of their country.

    From a political perspective staying in the Eurozone clearly is preferable, yet from an economic perspective it is a quite ambivalent path. If the Eurozone doesn’t reverse its recessionary policy, if Germany’s neomercantilist policy can’t be hedged, and if there is no will to take steps towards a European Investment Bank, and do so now (!), then the Eurozone won’t be an attractive path for Greece to follow anyway.

    That however might take some more weeks to go and some more hardships to take. But who thought it would be a leisure ride to make Schäuble admit that back then in 2008 his policy was wrong for Greece, and served to quietly “outsource” a European problem to the Greece public?
    Still your nerves are wrecked and your hopes gone? You’re fed up and want to quickly stop and undo everything?

    Now I really don’t know what you expected when in January you supposedly voted to fight against austerity. Surely some mistakes could have been avoided and some more support could have been expected, but other things turned out better than expected, so altogether it seems your expectations were outright unrealistic. The right answer will only be given in the further course of negotiations. Fortunately, the Greek public just proved that it fully understands this fact.

    For now, if the Greek government keeps staying calm and sticking to the few remaining red lines, that’s exactly the right thing to do. Europe will finally come towards them, or it won’t. Even if the continued tightrope walk might well wrench some spectators’ nerves, that’s not what this is all about.


    • Thank you for this post. Don’t think that I am not conflicted. My entire career is built on critiquing neoliberalism (austerity being its modern incarnation) yet I lost my faith in Syriza to deliver an alternative. It boils down to this: the Greeks disgusted with the errors, corruption and mismanagement of the past (ND and Pasok) voted for a democratic alternative. They did not vote (I think) for changing the European trajectory of the country. I fear Syriza has (not due to it’s own fault predominantly) charted a path to Grexit for which it lacks a mandate. If a new election delivers a ‘rupture’ majority, then I will support it. But, now, playing such a high stakes game is taking things too far.


      • Pancho says:

        Nea Dimokratia, with its back-and-forth track record on the Memoranda, was elected in 2012 as a party that at least wouldn’t simply subjugate under every demand of the lenders. Of course, the Samaras government didn’t deliver to that expectations and didn’t even refrain from the most provocative measures such as the ERT shut-down or the systematic looting of the country’s assets. When in 2014 it became clear that the course was impossible to hold, he simply started playing dead and passed the mess on to another government he hoped would soon collapse.

        Now in January 2015, the people elected a party into office that clearly promised it would stick to their promises: to throw out the Troika, abandon the Memorandum course and renegotiate with the lenders. Tsipras certainly overestimated the leverage Greece would have, so Syriza was quickly confronted with an all-in propaganda war which it just managed to hedge and turn around a bit. But the mandate remains: go out and negotiate hard and to your best knowledge and believe.

        So I tend to disagree that the Greek electorate just wanted ND and Pasok to be replaced by a bunch of other, less worn off people. Otherwise, and especially if they desired less confrontation, they would have voted for Potami in far greater numbers. But they didn’t (and still wouldn’t, according to current opinion polls).
        At the same time, Syriza was sufficiently clear about their course, and even in the heated and strongly personalized atmosphere, a grand majority of the people clearly must have clearly known what this election was all about.

        So I firmly believe that the current government does the absolutely right thing in assuming the full responsibility handed to them in the January elections. Inmidst a war (or this kind of negotiation), you simply can’t hold elections.
        Plus, it is exactly this slight ambiguity that leaves the government some leeway for negotiation. Of course, the ambiguity comes at the cost of assuming the full responsibility with all its risks, and they may be punished for whatever the result turns out to be.
        However, while there certainly is quite some uneasiness about the negotiation course, even the opinion polls continue to give them a clear mandate to hold course: yes, a large majority wants to keep the Euro, but an even larger majority wants Syriza stick to at least its remaining red lines.

        Our joy and excitement may have worn off a bit, but people can’t identify a better alternative. Actually there is none at all. Though Samaras lost all his credibility and enjoys an incredibly low popularity, he keeps clinging to his position. Same with Venizelos, and neither Pasok nor Potami manage to present a real alternative, or anything of substance at all. Unless Bakoyanni replaces Samaras, there won’t be a real contender in the bourgeois camp. Now I won’t complain, but that’s not exactly a highly contested situation calling for a new election.
        All that could be expected was a Syriza absolute majority with a strengthened Konstantopoulou that would insist on slightly tougher negotiations (but with less leeway by then), or a Syriza party torn in two parts that would then have to reorganize and form some coalition government while the world is waiting. So a new election certainly wouldn’t give us any better options.

        But even if the election (or even a referendum) delivered a clear “rupture” mandate, imagine what would immediately happen: bank-run, full default, stop of ELA funding and Graccident, with not even a chance to prepare an orderly Grexit. On the other hand, if a 2/3-of-Syriza+Potami+Pasok coalition or a referendum led to a clear “Eurozone” mandate, the talks would be immediately over, with no more negotiation possible. Worst case, imagine an unmanageable electoral result requiring yet another election (remember 1989/90).

        So no. That’s all not what we want, neither does the Greek public, as far as I can see. The situation is the way it is, and we have to come clear with it.
        In a sensitive situation, when Schäuble should have seen Syriza as the most benign warning, and teamed up with them to overcome the tensions, the stubborn old man waged a war and struck the “European dream” all but dead. IMHO, he won’t ever be able to capture all the evil spirits he released. Possibly Syriza and Podemos can, with the help of Sinn Fein, SNP, Die Linke, Green Parties, possibly the Portuguese SP and others. But therefore they need to win the game, not lay down their arms.
        So now more than ever, the Greek government can’t accept a lame compromise but needs to keep pushing hard. And at crunch time, it will have to take a tough, farreaching decision.


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