1. 1. Stavros D. Mavroudeas Dept. of Economics University of Macedonia e-mail: smavro@uom.edu.gr Web: http://stavrosmavroudeas.wordpress.com 9/6/2015 MOC Bruxelles rue d'Anderlecht, 4, 1000
2. 2. Structure of the lecture 1) What is not the Greek crisis 2) What is the Greek crisis 3) What is the troika Economic Adjustment Programs (EAPs) 4) What are the alternatives
3. 3. EU, mainstream media, Greek elite: the Greek is a self- inflicted debt crisis analytical basis: Twin Deficits Hypothesis (TDH): exorbitant wage increases (ULC) FD (public sector) trade deficit (private sector) CAD Fiscal Deficit (FD) causes Current Account Deficit (CAD) (1) What is not the Greek crisis
4. 4. In simple terms: Greek public sector workers blackmailed electorally the government to increase unrealistically their wages thus causing FD Greek private sector workers similarly achieved unrealistically high wages thus causing falling competitiveness and consequently increasing the trade deficit and ultimately the current account deficit This is a blatant lie: FD increased because the state subsidised capitals profitability CAD increased because capital refrained from investing in l-r competitiveness and resorted to s-r windfall profits Wage increases were not exorbitant: they lagged constantly behind productivity increases
5. 5. This whole argument about wages being responsible for falling competitiveness is based, in Mainstream Economics, on nominal Unit Labor Costs (nULC). This is a faulty argument because economic analysis knows very well that: the most competitive economies are high wages economies (Kaldor paradox) wages are part of cost competitiveness. But competitiveness depends also crucially on structural factors (structural competitiveness) in Greece, after years of EAPs, wages have fallen significantly but competitiveness has not increased (because capital simply increased its profit margins)
6. 6. Greek wages constantly lagged behind productivity (which increased faster than that of Germany). Thus, real ULC (i.e. the wage share) have been falling continuously for several decades.
7. 7. Figure 2. Productivity and Wage 0 10 20 30 40 50 60 70 80 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 Productivity Real Wage Productivity: There is a vigorous increase for the period 1960 - 1973 . After 1973 its growth slows down whilst during the 1980s it remains stagnant. In the beginning of the 1990s it rises again till the middle of 2000s when it starts to decline bearing similarities with the 1970s. Real wage: for the whole period it follows productivity but it never gets higher.
8. 8. (2) What is the Greek crisis? It is a systemic structural crisis that hinges upon two axes: (a) internal: a falling profitability crisis, not because of increasing wages but because capital was unable to continue finding satisfactorily profitable investment outlets (b) external: an unequal relation between the Greek economy and the more developed EU economies that deindustrialized and destabilized the Greek economy and aggravated trade and current account deficits
9. 9. The general rate of profit 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.5 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 General Rate of Profit Figure 5 depicts the evolution of the general rate of profit and from its trajectory we can discriminate three phases before the onset of current crisis. The first one is the period 1960 - 1973 where the general rate of profit is at a high level though with a small decline. The second one is the period of crisis (1973 - 1985) when the general rate of profit falls dramatically. The third period is that of neoliberalism (1985 2009) when the general rate of profit displays a slight recovery and then remains stagnant.
10. 10. The unequal core periphery relationship between Greece (and other less developed EU economies) and EUs core developed countries is effected through two conduits: (a) A structural channel: Greek capitals compete within the Common Market with more developed capitals. (b) A policy channel: By, directly or indirectly, ceding the control of monetary, fiscal and trade policy to the EU Greek capitalism lost critical means for supporting its competitiveness and development This resulted in transfers of wealth from the periphery to the core economies.
11. 11. Greeces accession to the Common Market Shrank the primary sector (that was competitive (agricultural trade surplus and secured food subsistence) Deindustrialized the Greek economy Greeces accession to the European Monetary Union (EMU) deteriorated further extra-EU competitiveness (because of its high exchange rate) and intra-EU competitiveness as it facilitated cheap credit (financed through external and not internal debt) that fueled western imports. Consequently, it further worsened the trade deficit and ultimately the CAD
12. 12. Deteriorating Terms of Trade (ToT): Compare Greece with Sweden and Austria: (a) Sweden is an EU euro-core economy but not a member of the EMU. (b) Austria is an EU euro-core economy that participates in the EMU. (c) Greece, Sweden and Austria have approximately the same population. The ToT are estimated as the ratio between exports of goods (fob) to imports of goods (cif).
13. 13. Intra EU15 terms of trade 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 Sweden Austria Greece
14. 14. 1963 till 1981 (when Greece becomes a full member of the EEC): the ToT exhibit an annual growth of 2,1% and manage to converge with the other two countries, and especially with Austria. 1981 to 2002 (when EMU is established): the ToT decline annually by 0,06% which reveals a loss of competitiveness in relation with the rest of the EU15. Sweden exhibits an annual increase of 0,5% till the 1995, when it becomes a full member of the EU. From 1995 to 2009 the ToT decline annually by 0,1%. Austria exhibits an increase in the ToT till its accession to the EU (in 1995), by 0,1% per year. From 1995 to 2009 it has a 1,1% an annual increase.
15. 15. (3) What is the troika Economic Adjustment Programs (EAPs) From 2010 the Greek economy in the straitjackets of the troika (EU-ECB-IMF) Economic Adjustment Programs: severe austerity Results Fall of GDP by 26% (2008-2015):
16. 16. Staggering increase in unemployment From 7.8 (2008) to 26.6 (2014) Unforeseen increase of the debt to GDP ratio, because fiscal cuts depressed the economy more than expected (a bigger fiscal multiplier)
17. 17. 1. EAP strategy pro-capital systematic failures (not because it is erroneous from its perspective (destruction & rebuilding) but because it is very ambitious and violates dangerously the given social, economic and political limits of Greek capitalism Special modification of IMFs structural adjustment austerity programmes: Longer (4 years) Pro-cyclical and 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 EUs multinationals specialized in low technology goods)
18. 18. Systematic failures: 1st EAP failed (milestones, loan amount, time horion), 2nd EAP is also failing (the 2020 target of 120% debt/GDP ratio seems unachievable, given that it is also illogical) Causes of systematic failures: Wages must be pushed to at least Balkan levels Assets costs must be further diminished A big part of the Greek economy has to be dominated by EU multinationals (esp. banking sector, tourism) These aims imply that: (a) Workers must be pressed more (b) The massive middle strata (a traditional systemic support) have to be proletarianised (c) Greek capital has to be subordinated further to EU capitals and lose control of several critical sectors (esp. banking) These cannot be easily accommodated and a political and/or social eruption is possible.
19. 19. Basic alternative strategies Restructuring within the EU & the EMU Restructuring outside the EU & the EMU EAP Exit from EMU Exit from EU Renegotia tion (4) Alternative strategies
20. 20. 2. Renegotiation within the EU 2 pillars: (1) keep one part of the EAP (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). Reprofilling 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 Memorandas structural changes to radical alternatives). A European aid framework (either grandiosely called an EU Marshall Plan or, more bashfully, a wider use of existing fund
21. 21. A non-compatible 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 capitals internal logic. Anti-cyclical expansive restructuring was implemented in Greece after the 1973 crisis with dismal results. The only case that there can be a policy mix is if pro-cyclical restructuring has got hold and proceeds and some measured interval is deemed necessary. Several technical miscalculations: Aid framework: ESPAs rules are already very lax but Greek capitals are afraid to participate because of the recession 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.
22. 22. 3. Exiting EMU (within the EU) and restructuring versions: (a) conflictual Grexit, (b) consensual Grexit Short-sighted view: Grexit returns 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 and if so possibly lead to 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
23. 23. 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 one).
24. 24. 4. Disengagement from the EU Recognizes the deep structural character of the Greek crisis the incompatibility of an ascent of the Greek economy within the EU because of the special zone mechanism Proposes: A self-centered growth model (with strong backward and forward inter-sectoral linkages) benefiting the working class and integrated in a socialist transition program It is organized in a program of short-term, mid-term and long- term measures
25. 25. Short-term and mid-term measures: (1) Exiting EU (2) Debt default (3) Capital controls (4) Nationalization of the financial system (and especially banking) (5) Heavily progressive tax system (6) A managed exchange rate coupled with special instruments (e.g. a multiple exchange rates system, international barter agreements, currency swaps etc.) (7) A price control system Long-term measures: (1) An extensive productive restructuring plan organised by the state and with state control on the basic and strategic sectors. This implies an extensive and heavy-handed industrial policy (2) An autonomous international economic policy.