Nobel Prize-winning economist Joseph Stiglitz wrote “the economic programme the troika foisted on Greece five years ago has been abysmal, resulting in 25 percent decline in the country’s GDP. Greece’s rate of unemployment exceeds 60 percent.” Syriza was formed and eventually elected to power as a revolt against the austerity policies of the government.
According to Stiglitz, what the Syriza government has done by going for a referendum and people’s mandate against austerity measures are in the true spirit of democracy — which is the very antithesis of the EU project. He wrote in a recent article that the “concern for popular legitimacy is incompatible with the politics of the eurozone, which was never a very democratic project. Most of its member governments did not seek their people’s approval to turn over monetary sovereignty to ecb.”
SQUEEZED TOO TIGHT
Before the referendum, ECB cut off Greek banks’ access to additional funds, forcing the government to impose bank holidays and capital controls. According to some observers who oppose the troika, the international financial institutions’ attempt has been to bully the left government and make it toe the line they prescribe. Economist Paul Krugman wrote, “The campaign of bullying — the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office — was a shameful moment in a Europe that claims to believe in democratic principles.”
Some even question the purpose of the entire financial package to Greece. Joseph Stiglitz argues, “Almost none of the huge amount of money loaned to Greece has actually gone there. It has gone to pay out private sector creditors — including German and French banks. Greece has gotten but a pittance, but it has paid a high price to preserve other countries’ banking systems.”
If the troika is not going to change its stance after the people rejected their proposal of austerity, then the chance of Greece’s continuance in EU will be difficult proposition. Succumbing to people’s demands would essentially give credence to people’s protest in other European countries. This may create perpetual troubles for the troika, which will snowball into a major crisis for all the international financial institutions. At the same time, the option before the Syriza government is also limited.
Though the majority of the people have voted against the structural programme, they are not against eu as such, according to various press reports coming from Athens. Going back to the preeuro currency drachma is another option that some economist suggest. Krugman writes, “Greek exit from the common currency is the best of the bad options.’’ He find the exit from euro as the only plausible escape route to its endless economic nightmare. “If they can’t make a go of Europe’s common currency, it is because the common currency offers no respite for countries in trouble.”
This is easier said than done. The euro has no legally approved exit route. There are nine eu countries that are not using the euro as their currency. But going back to the national currency may result in dire consequences for the eu project and the common currency of euro. And how will an economy like Greece survive with its original local currency in the changed European scenario?
GREEK AND LATIN
When the world is debating the Greek crisis and the possibility of its exit from euro, the experience of other countries like Iceland and Argentina is often discussed. When the recession gripped the world in 2008, like most European countries Iceland also was on downward trajectory, which soon snowballed into a major financial crisis bankrupting major banks, including its central bank. The currency collapsed and stocks plummeted by more than 95 percent.
To tide over the crisis, Iceland devalued its currency and imposed strict capital control to the chagrin of international finance capital. After five years of perseverance, the Iceland economy recovered, the employment rate increased. But it will be premature to compare a small economy like Iceland’s with Greece.
The story of Argentina’s re-emergence after the recession in 2000-01 is an example cited by economists who oppose structural adjustment as a panacea for a nation’s economic ills. It was a decade after the programme started in Argentina at the behest of the IMF that the economy went into the doldrums. The poverty rate soared to 52 percent and joblessness to 24 percent.
Three years of recession marked by spending cuts and growing indebtedness triggered mass protests against the government. President Eduardo Duhalde dismantled the system of convertibility that pegged the Argentinean currency peso to the dollar for a decade. When left-of-centre Nestor Kirchner took office, he persisted with the devaluation of the national currency and introduced strict financial and capital controls. This helped the Argentinean economy onto the growth path again. The economic policy initiated by Kirchner and later followed by Cristina Fernandez helped the government in reducing poverty and unemployment.
But even the worst critics of structural adjustment do not agree with the idea of devaluing the currency as a solution for the crisis facing countries such as Greece. Julia Gambina, head of the Buenos Aires-based Social and Political Research Foundation, says that since states like Greece and Spain do not possess a range of exportable natural resources as in Latin America, devaluation of the currency may not solve the problems they are facing. Instead, he adds, “Europe should look at the process in Latin America which on the political level is trying to free itself from the hegemony of US through its new integration structures.”
There is almost consensus among analysts that what is happening in Greece is not an isolated political phenomenon. Take Spain. Podemos, a left party formed after the anti-inequality and corruption movements, is posing a great challenge to the People’s Party led by the Prime Minister Mariano Rajoy.Podemos, led by Pablo Iglesias, has already stated that it will renegotiate its austerity measures. If Podemos wins the General election later this year, many suspect events in Greece will be replicated in Spain.
The Podemos party chief, while welcoming the Greece referendum, said that the economy of Spain has much more weight in the eurozone and the country’s administrative system is in better shape than that of Greece. Having said that, the similarity in the political programmes of Syriza and Podemos prompt many to say that Spain is a Greece in the making.
EU does not agree with the notion that there is a threat of contagion in the zone. The world is hoping that democracy prevails, not lenders’ predatory ways.