‘Austerity and Socialist Strategy’12th Annual Historical Materialism ConferenceSchool of Oriental and African Studies5-8 November 2015

‘Alternative Strategies for exiting the Greek crisis’

Stavros MavroudeasDept. of Economics

University of Macedoniae-mail: smavro@uom.edu.gr

AbstractTwo basic alternative economic strategies are recognized and each one is further subdivided in two versions. The first main alternative proposes restructuring the Greek economy within the European integration. It is subdivided in (a) the strategy of the IMF-EU-ECB Economic Adjustment Programmes (EAPs) and (b) the strategy of renegotiation of the EAPs towards a less pro-cyclical and less austere policy mix. It is argued that the first version is an overambitious bourgeois strategy that endangers the politico-economic stability of the system. The second version is an incoherent and unreliable strategy because it depends upon the partial success of the first version. The second main alternative proposes restructuring of the Greek economy outside (partially or totally) the European integration. It is subdivided in two versions: (a) a strategy of restructuring outside the European Monetary Union (EMU) but within the European Union (EU) and (b) a strategy of restructuring through complete disengagement from the EU. It is argued that the first version is a middle-of-the-road approach that disregards the deeply structural character of the Greek crisis. On the contrary, the second version offers a coherent alternative strategy answering the problem of the crisis from the perspective of the working class.

Basic alternative strategies

Restructuring within the EU & the EMU

Restructuring outside the EU & the EMU

Economic Adjustment Programs

(EAP)

Exit from EMU

Exit from EU

EAP Renegotiation

Alternative strategies for exiting the crisis

The delineation of these alternative strategies is based on a Strong Structural Explanation of the Greek crisis

References• Mavroudeas S. ed. (2015), ‘Greek

Capitalism in Crisis: Marxist Analyses’, Routledge

• Mavroudeas S. (2015), ‘The Greek saga: Competing explanations of the Greek crisis’, Kingston University London Economics Discussion Paper Series 20015-1.

Main groups of explanation

Mainstream

Greek disease

Heterodox Marxist

Non-OCA & rectifiable

Non-OCA & non-rectifiable

Financial expropriation

Class struggle & financialisation

Minskian disinflation

Underconsumption & financialisation

TRPF & underconsum

ption

TRPF

TRPF & imperialist

exploitation

Global crisis Causes of crisis Analytical focus

PR OCA TDH

Mainstream No, external impact

Policy errors, some Greek structural problems

Exchange relations

no yes yes

Heterodox Mixed answers

Weak structural problems (neoliberal policies)

Monetary relations

no yes no, FD vs CAD

Marxist Yes, internal dimension

‘deep’ structural problems (systemic crises)

Productive relations

yes disproportionality

no, twin deficits are results

Type of explanation

CONJUNCTURAL[emphasis on policy errors (national or supranational)]

STRUCTURAL[emphasis on the structure of

the economy]

Mainstream explanations

WEAK STRUCTURAL

[emphasis on mid-term features (neoliberalism,

EMU)]

STRONG STRUCTURAL

[emphasis on long-term systemic features]

Radical explanations

Marxist explanations

A MARXIST STRUCTURAL EXPLANATION:• A strong structural explanation of the Greek crisis: the

fundamental causes lay in the sphere of production.• 2 structural components:(a) internal: the 2007-8 economic crisis (a Marxian falling

profitability crisis) engulfed the Greek economy. The Greek crisis is a profitability crisis caused by a rising organic composition of capital (OCC).

(b) external: imperialist exploitation (i.e. ‘broad’ unequal exchange) within the EU worsened the position of Greece and aggravated the crisis. Since its accession in the European Common Market Greek capitalism competes, in a framework of absolute advantage, with more developed capitalisms (higher OCC). Thus, it suffers from ‘broad unequal exchange’ (i.e. transfers of value abroad).

Basic conclusion of the strong structural explanation of the Greek crisis:

The twin deficits (current and fiscal accounts deficits) are a by-product of the inefficiency and the non-viability of the productive model of the Greek economy.

This is explicitly recognized by Marxists, explicitly ignored but implicitly recognized by Mainstreamers and essentially ignored but verbally touched by Radicals.

Exiting the Greek crisis requires a radical restructuring of the productive model of the Greek economy. This will solve, in return, the deficits’ problems.

1. Memoranda’s or Economic Adjustments Programs’ strategy • Basic characteristics:

pro-capitalPro-cyclical (capital is reading Marx inversely)Fiscal consolidation based on austerity (reducing the wage share)Export-oriented growth strategy

• The Greek EAPs: Special modification of IMF 1990’s structural adjustment austerity programs:– Longer (4 years instead of 3)– Extremely front-loaded– Lacking initially a debt restructuring mechanism– Lacking an exchange rate devaluation mechanism

• 2 aims:– Short-term: debt viability– Long-term: transform Greece to a European ‘special economic zone’

(low cost export hub for EU’s multinationals specialized in low technology goods)

• Systematic failures: 1st EAP failed (milestones, loan amount, time horizon), 2nd EAP is also failing (the 2020 target of 120% debt/GDP ratio is unachievable, on top of being illogical)

• Causes of systematic failures:– Wages must be pushed to at least Balkan levels– Asset values must be further diminished– A big part of the Greek economy has to be dominated by EU

multinationals (esp. banking sector, tourism, energy, telecommunications)

These aims require:(a) Increased workers’ exploitation(b) Extensive proletarianisation of the massive middle strata (a

traditional systemic support)(c) Increased subordination of Greek capital to EU capitals and

concession of the control of several critical sectors (esp. banking)These cannot be easily accommodated and a political and/or social eruption is possible.

Productive restructuring:• Not explicitly theorized• It is left to the market forces• Implicitly it is posited that it would be a variation of

the current productive model: that is a lower part of pan-European value chains characterized by low value-added, technological expertise and cost

• It main differentiation, the ‘balkanization’: diminishing wages and assets’ value and deregulating markets (primarily the labor market but also eliminating quasi-protectionism in other markets). Typical example: the proposition for the creation of ‘special economic zones’ in various areas (esp. Northern Greece).

2. Renegotiation within the EU2 pillars:(1) keep one part of the Memoranda (loans)(2) renegotiate austerity and structural part for an anti-cyclical, less austere, more developmental policy• Loan agreements: a short-time pause in servicing them (until the Greek economy

returns to positive rates of growth) while their tranches will continue. It is not clarified if the accumulation of interest (and thus the augmentation of debt) will continue during this pause. Re-profilling of the Greek debt. More radical versions: consensual haircut of Greek debt.

• Keynesian anti-cyclical policies with (a) limited amelioration of workers position: increase of minimum wage, reregulation of the labour market (firings etc.), nothing concrete about unemployment and work-time and (b) a measured increase of public investment.

• Structural changes; but the different versions of this strategy are both vague and differ wildly (from acceptance of Memoranda’s structural changes to half-heartted alternatives).

• A European aid framework (either grandiosely called an EU Marshall Plan or, more bashfully, a wider use of existing fund transfer programs (e.g. NSRF - ΕΣΠΑ).

• A incompatible compromise: Logic of pro-cyclical supply-side restructuring incompatible with anti-cyclical demand management. The latter requires more time (than EU is willing to concede) and is unrealistic in a overaccumulation crisis (a huge devalorisation of capitals is required). Pro-cyclical restructuring is closer to capital’s internal logic. Anti-cyclical expansive restructuring was implemented in Greece after the 1973 crisis with dismal results.

• Only possibility for such a policy mix: if pro-cyclical restructuring has broadly succeeded and some modest ‘letting of steam’ is affordable. This is not the current case.

• Several technical miscalculations: Aid framework: NSRF’s rules already very lax but Greek capitals unable to

benefit (recession prospects, financing problems) Pro-cyclical restructuring is organised around the EU ‘special economic zone’

model: this is incompatible with a rapid revitalisation of internal demand The euro-bond proposal (a mechanism for common cheap borrowing) does not

make practical sense.

3. Exiting EMU (within the EU) and restructuring• versions: (a) conflictual Grexit, (b) consensual Grexit• Short-sighted view: Grexit grants monetary and currency

autonomy but that does guarantee the policy instruments for a radical productive restructuring (discreet industrial policy, protectionism etc.).

• Import substitution and export increase cannot proceed rapidly solely through devaluations (that may also cause rampant inflation). Private initiative cannot achieve them adequately and in time.

• A wide and concise plan for the productive restructuring of the economy requires a very heavy handed and expansive state industrial policy and other policy measures that are prohibited by the Common Market rules.

• This strategy disregards the deep structural character of the Greek crisis and tries to confront it only through the monetary mechanism.

• In its consensual version it faces the institutional and vested interests’ prohibitions of EU.

• In its conflictual version it cannot proceed unless coupled with the exit from the Common Market and the institutional framework (that is from the EU altogether).

• A special problem: consensual Grexit and relegation of Greece (and other euro-periphery countries) to a currency one depending on euro (e.g. the pre-euro situation) is the B-plan of the dominant EU powers. It can be implemented if the current A-plan goes astray. This is disastrous for workers’ interests (double devaluation [internal + external], more severe transformation to a ‘special economic zone’).

4. Disengagement from the EURecognises the deep structural character of the Greek crisisthe impossibility of a pro-popular exit from the

crisis within the EUProposes:A self-centered growth model (with strong

backward and forward inter-sectoral linkages) benefiting the working class and integrated in a socialist transition program

• Phases of the program(1) A ‘special economic period’: almost ‘war-like’,

strong confrontation with the EU and the West, special measures

(2) A period of consolidation (state capitalism period): stabilize the economy, possibly relax some special measures, emphasis on growth, model on the basis of a Preobrazhensky 2-sector model (capitalist – socialist sectors).

(3) A period of socialist transition: the balance of the 2-sector model changes desicively towards the socialist sector.

The ‘special economic period’ program is structured in short-term, mid-term and long-term measures

Short-term and mid-term measures:(1) Exiting EU(2) Introduction of new currency(2) Unilateral debt default(3) Capital controls(4) Nationalisation of the financial system (and especially banking)(5) Heavily progressive tax system (increased taxes on profits and higher incomes, moving from indirect to direct taxation, reducing the tax burden on workers, hitting tax avoidance)(6) A managed exchange rate coupled with special instruments (e.g. a multiple exchange rates system, international barter agreements, currency swaps, possibly a dual currency system for a limited period etc.)(7) An extensive price control system

The immediate aim is a balancing between the external, the private and the public sector with the latter playing the role of the pivot. Concomitant monetary, fiscal and incomes policies should follow.

Long-term measures:(1) An extensive state-led productive restructuring

plan(2) An autonomous international economic policy and

the participation in alternative international economic networks.

Productive restructuring plan: main aim a self-centered (but not closed) economy, i.e. strong backward and forward inter-sectoral linkages

1. Re-industrialisation (via a 5-year plan of restructuring and import substitution)

2. Restructuring of the agricultural sector towards nutritional adequacy (emphasis on livestock etc.)

3. Development of a higher technological expertise

Main lever the public sector through a fiscal program. State control on the basic and strategic sectors. This implies an extensive and heavy-handed industrial policy. Nationalization of many private firms (heavily indebted to the banking system and operating below full capacity utilization). A first initial ‘growth dividend’ by setting them in full operation.

The private sector would have a subordinate and supplementary role.