People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 25

June 24, 2012

The Scenario in Greece


Prabhat Patnaik


WHEN news first came that the New Democracy Party, committed to imposing “austerity,” was marginally ahead in the new elections in Greece, financial markets everywhere looked up. Soon it transpired however that New Democracy itself was well short of the required numbers and had to have an alliance partner to form a government, for which it would have to dilute the degree of “austerity;” and the financial markets promptly took a tumble! Nothing shows the current elemental contradiction between finance and the people more clearly than this. If the interests of finance are to be met, then massive hardships have to be imposed on the people; any reduction in these hardships is ipso facto resented by finance. Finance, in short, must have its pound of flesh, not an iota less, from the people.


This is not because financiers individually lack the “quality of mercy;” it is because individuals’ qualities are irrelevant before the “spontaneous” functioning of an impersonal economic system. In Shakespeare’s time when the world of finance was peopled by individuals like Shylock, Portia could plead for an exhibition of the “quality of mercy;” but times have changed. There is no scope for the exercise of mercy in the functioning of an impersonal market.




This contradiction between the people and finance permeates even the conception of the “crisis” itself. During the Greek election, for instance, a common refrain was that a vote for SYRIZA would precipitate a massive “crisis” for Greece and Europe, because a SYRIZA government would mean a withdrawal of Greece from the Eurozone, that would set off a chain reaction of instability and panic; by contrast a vote for New Democracy would stave off the “crisis.” Such stories, of disaster waiting in the wings, even made their way into the Indian media; but all such stories saw the “crisis” exclusively from the point of view of finance, i.e. as the crisis for finance, and “austerity” as the solution to the crisis. The fact that “austerity,” far from being the solution to the “crisis,” is what constitutes the cause of the crisis for the people, was never ever mentioned. This is because for the bourgeois media there is only one crisis, and that is the crisis of finance; the fact that there is also a crisis for the people is of no concern to them. In the era of hegemony of finance, the interests of finance are treated as identical with the interests of society. Hence there can be only one crisis for society, viz the one affecting finance. The people as an entity do not have to be counted separately in this reified view of the world. How can there be a crisis for them, to be considered separately and taken seriously, if the crisis for finance is overcome?


As a matter of fact, however, what should concern a democratic polity is the crisis of the people, and even though the reified bourgeois view may overlook it, it will necessarily thrust itself as an ugly reality. This is why the idea that the victory for New Democracy in the Greek elections marks the resolution of the Greek crisis is only an illusion and nothing else.


The victory of New Democracy itself is a pyrrhic one; the political formations opposed to “austerity” have got half the popular votes, despite all the propaganda about the dire consequences that were supposed to follow their victory. It is just that under the Greek electoral system, half the votes do not translate into half the seats. And New Democracy, with 29.5 per cent votes compared to 27.1 for SYRIZA, has cornered a lot more seats, though not enough to form a government on its own. It would be forced, as already mentioned, to dilute the “austerity” package for forming an alliance, and if finance capital whose cause within the Eurozone is championed by the zone’s leading state, Germany, finds such dilution unacceptable, then government formation itself will become a problem, undermining finance capital’s ability to extract its pound of flesh.




But even if a government is formed and the “austerity” package is somewhat diluted, “austerity” is after all “austerity.” Greece already has had a fall in GDP by seven per cent last year and is expected to witness a further fall by five per cent in the current year. The toll that such sharp contraction in GDP would be taking on the working people of the country, in terms of unemployment, retrenchment, and cuts in public expenditure and social wage can be well imagined. If this is not reversed  and “austerity,” no matter in how diluted a form, is allowed to extract its toll, then Greece will continue to witness massive popular protests and uprisings, making it “ungovernable” except through fascist and authoritarian measures, which in turn will bring forth even more widespread opposition.


The end of the Greek crisis can come only with the end of “austerity,” a situation that remains unchanged despite the New Democracy victory, since this victory does not signify a vote for “austerity.” Finance capital, in short, is being extremely short-sighted in thinking that the victory of New Democracy represents a victory for “austerity.” It is nothing of the sort and the imposition of “austerity” will recreate the very conjuncture that made two elections necessary.


But why, it may be asked, did Greece get into its current predicament in the first place? The right-wing media, true to form, talks about the Greeks being “lazy,” the Greek welfare expenditures being “too high,” the country “living beyond its means,” and so on. Not only are these factually not correct (the Greek workers, for example, work longer hours than their German counterparts), but represent a theoretical perspective that is fundamentally erroneous.


Greece, of course, is not the only country that is heavily indebted and is being forced to adopt harsh “austerity” measures; several other countries in southern Europe are in the same predicament. And the genesis of the current crisis in southern Europe lies in the world capitalist crisis: the recession and unemployment in the world economy. The impression is often conveyed that Europe’s crisis is of Europe’s own making. But the fact is that Europe’s crisis, like Greece’s, is a result of world developments, of developments occurring in world capitalism as a fallout of the collapse of US demand.




A simple example will clarify the point. Consider any country. No matter what the unit cost of production (at the existing exchange rate) in this country, it can always achieve full capacity output if the level of world demand is large enough. Suppose this country’s full capacity output is 300 and this is what is actually produced, and its domestic absorption, i.e. consumption, investment and government expenditure, is also 300, then its current account must be balanced. Now, suppose the level of world demand falls, which reduces this country’s exports by 15; if its domestic absorption is kept unchanged at 300, and if imports depend  on domestic absorption, then it will experience a current deficit of 15. If this deficit, which arises because of developments external to the economy, is attributed instead to the country’s lack of “competitiveness,” and its exchange rate is depreciated to make it more competitive, without any steps being taken to increase the level of world demand, then the country may well succeed in reducing its current deficit, but only at the expense of some other country; it would be pursuing a “beggar-my-neighbour” policy.


On the other hand, if it cannot depreciate its currency (as no single Eurozone country can) and is asked to reduce its current deficit by cutting domestic absorption, then, assuming that imports are 20 per cent of domestic absorption, such absorption has to be cut by 75, from 300 to 225, to eliminate the current deficit, of which 60 will reduce domestic output. Hence, the country’s total output, which had fallen from 300 to 285 because of the world recession, causing a five per cent drop in employment, would have to fall further to 225, which means a 25 per cent drop in employment compared to the original situation. Moreover, such a drop in its absorption, which reduces its own import demand (and domestic demand) is the same as reducing the export demand from other countries, who would then have to reduce their absorption for reducing their current deficit, and so on. All over the world, including in the country in question, the recession and unemployment will get greatly magnified, if countries adjust to the initial slackening in world demand in this manner.


This, however, is precisely the manner in which finance capital wants Greece, and other countries in southern Europe (and elsewhere), to adjust to their initial crisis, caused by the slackening in world demand. Since current deficits cannot be financed because banks are unwilling to lend to these countries, the remedy is seen to lie in their adopting “austerity” measures which reduce domestic absorption.




Matters are actually worse for these countries in two ways compared to what our arithmetical example depicts: first, the problem they face is not just in financing current deficits, but in financing public expenditure itself. In any other country the central bank can be called upon to finance public expenditure in excess of revenue, so that government spending is not necessarily cut, even as the country goes around finding ways of obtaining foreign loans to finance its current deficits. Southern European countries, however, do not have central banks, since they belong to the Eurozone. So public expenditure itself depends upon the willingness of finance capital to hold government debt. Secondly, it is not just the deficit but the stock of debt itself that is seen as the problem, and “austerity” is demanded not just to eliminate the deficit but to reduce the burden of debt, which makes it even more harsh on the people.


The problem of southern Europe, Greece included, has a simple solution, which many have advocated: first, the European Central Bank simply takes over the debt of these countries so that they are not supplicants before a host of private banks. This debt, already incurred, can be rolled over with no harm to anyone. Second, there is a pan-European expansion in demand through a fiscal agreement among the governments, which has the effect of reducing the current deficits of the southern European countries. Europe may not be able to do much about expanding world demand; but it can certainly undertake an expansion of European demand.


This solution, however, is anathema for finance capital, which is opposed to state intervention for expanding aggregate demand, and which prefers “austerity”-based debt-repayment to a “painless” debt rollover. But this is precisely the reason why there is no solution to the Greek “crisis” or even the European “crisis” within a regime of hegemony of finance capital. What is happening in Greece and its neighbours is therefore a defining moment for world capitalism.