Monday, 8 June 2015

Tsipras may still have a card to play

David Begg: In a joint article published in a number of European newspapers last week a German and a French politician set out an audacious plan for completion of the European Integration Project. Sigmar Gabriel, Leader of the German Social Democratic Party, and the French Economic Minister, Emanuel Macron, proposed a Eurozone treasury with its own finance chief, single budget, tax raising powers, pooled debt liabilities, a common monetary fund, and separate organisation and representation within the European Parliament.

For sure one can see that the singular lesson of the crisis is that you can’t really have a currency union without a banking, fiscal, and ultimately, political union. One can see too that the integration impetus has run into the sand, opposed for different reasons by both debtor and creditor countries. So this intervention by the leading Social Democrats from the countries that have provided the motor for European integration is welcome.

The problem though is that it seems a remote idea as Greece tethers on the brink of exclusion from the Eurozone, or so we are led to believe. At the end of last week the Greek Government allegedly resilled from a commitment to repay €300 to the IMF. This is the first of four payments totaling €1.6 billion due to the IMF this month. Greece already has a debt to GDP ratio of 180 per cent. The EU, in its latest proposal to resolve the crisis, has revised downwards its demand for the government to run a primary budgetary surplus of 1 per cent this year rising to 3.5 per cent in 2018. Coming on top of the austerity already endured by the Greeks this requires further cuts for pensioners, increasing Vat rates and more labour market deregulation. It is a hard ask and it may not be politically sustainable.

It is hard to see how it is economically sustainable either. Greece, unlike Ireland, is a relatively closed economy. Austerity depresses domestic demand and there is little possibility of balancing this by increasing exports. The more demand declines the more jobs are at risk and the less tax revenue will be collected. It is a vicious circle compounded by an already unpayable level of public debt. In short the EU is proposing a self- defeating ordinance.

The Greek Government, which enjoys a clear enough mandate from the electorate, is under siege, almost universally demonised in editorials all over Europe. But perhaps they hold a stronger hand of cards than seems to be the case.

A refection on the country’s history since the Second World War reminds us just how volatile its politics have been. In the name of the Truman Doctrine the United Stated supplied the military and economic power to enable the Greek monarchy to defeat the communists in the Civil War of 1947-1949. Greece was the first major police task which the US took on in the post war world. The 1967 military coup and the following seven year dictatorship of the colonels was the culmination of thirty years of national division between the right and left that went back to the resistance to the Nazi occupation during the war.

My thesis is that for Geopolitical reasons America will not allow Greece to be pitched out of the Eurozone – leaving aside the niceties of whether that is legally possible or not anyway. At a time when Russia is seeking to re-establish as itself a great power via its activities in the Ukraine it would seem to be a tad careless to allow Greece to fall under its influence by default. The same logic could apply to China. At a time when President Obama is fighting to get fast-track authority from Congress to conclude the Trans-Pacific Trade Agreement (TTP) – specifically to contain China’a influence in the region – is it likely that he would allow China to open a second economic front, so to speak, in Europe by leaving Greece with no option but to accept support from wherever it could get it?

That said, Greece desperately needs reform. A country that cannot collect taxes is, by definition not in a good space. Syriza must clean up Government, stamp out endemic tax evasion and break up the oligopolies. From a distance at least Tsipras and his colleagues look as if they might have the moral authority with the Greek people to deliver that kind of reform if the EU/ECB/IMF Troika could address the unsustainability of the debt burden. Realistically it’s hard to see any other way to deal with the problem.

If I was Alexis Tsipras I would sit tight for a little bit longer.

David Begg is Director of TASC

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