The Enlargement of the Global South to the EU

By Vassilis K. Fouskas

Over the last fifty years or so, scholars, pundits, politicians and journalists have missed no opportunity to praise, again and again, the virtues of the ‘European project’; its integrating force through its various ‘waves of enlargement’ and by way of increasing prosperity and jobs; the greatness of the project that spearheaded from Europe’s civilised core to an underdeveloped and even ‘semi-barbaric’ periphery (East-Central Europe and the Balkans); and the great opportunity these peripheral regions had been having to make their economies, polities and societies converge towards the developed and civilised core. In fact, many had argued that this convergence was already at hand after the introduction of the common currency, the euro, in 1999 (Greece joined in 2001). To estimate the amount of books and articles written on the issue of ‘European integration’ from WWII to date; or the conferences, seminars, workshops, websites, magazines, newspapers etc. etc. is a completely fruitless exercise and not just because they amount to hundreds of thousands if not millions. It is also fruitless because the so-called ‘European project’ proved to be a mere ‘house of cards’ ready to collapse when the financial crisis of 2007-08 kicked in and spread across the Euro-zone. The ‘civilized’ core was quick to respond to its banking mayhem by displacing the crisis to the periphery through the banking system and by way of using debt as a lever. The crisis exposed the contradictions of the Euro-project drawing clear lines, which pre-existed, between the core and the periphery. Instead of witnessing a convergence towards the ‘civilised’ and ‘developed’ core, the periphery of Europe is experiencing a convergence towards the bottom. Today, Greece’s social economy and the state resemble more its northern Balkan neighbours than Holland or Denmark. It now seems that the Global South is expanding to include large chunks of Europe, hence the title of this article for roape.net.

This article explains the current debt crisis in Greece and seeks to open a dialogue with the developing countries of the Global South (Africa, Latin America, Asia), all of which have faced, or are currently facing, debt problems. The debt is a leverage great powers use on poorer countries to extract political and economic premiums, subjugating the latter on the former via regimes of perpetual dependency. The dependency is chiefly economic and political. But it is also ideological and cultural in that it reproduces a peculiar type of “orientalism” in the minds of the peoples of the periphery by idealising the superiority of the “West” either through the efficacy of its institutions or through the very functioning of the idea of a “superior and stable” currency, in our case, the “Euro”. The “Euro” is not just a form of money, i.e. a unit of account or a monetary medium mediating the act of transaction. In itself it represents a form of identity making the people of the weak periphery to feel as strong and secure as those in the core. The real functioning of the Euro creates dependent cultural identities in the periphery that has great significance when it comes to political elections and critical decisions. Periphery elites themselves, not just ordinary people, are victims of this form of ideological/cultural dependency that stems directly from the ideological functioning of money as a carrier of identity. This article, however, refrains from tackling this aspect of dependency. In general, it remains within a politico-economic framework.               

Further, this note’s ambition is to shed light on the movement of Syriza in Greece, a truly left radical movement that came to power in January 2015 breaking up the old political establishment of PASOK (Centre-left) and New Democracy (Centre-right). It seems, however, that even Syriza cannot deliver from positions of power what it promised when in opposition. Apparently, deeper structural forces and constraints are in operation restricting radical political action from positions of governmental power. This article offers some further guidance about how to study the Syriza experiment and what useful lessons can be drawn from it for other progressive movements in Africa and around the globe.

Imperial origins of the Greek debt crisis

 Greece is one of the very few European states that never had a modern Empire. It has always been a dependent/subaltern state in the modern imperial chain. Its foundational act was not the result of a movement led by an independent, endogenous national bourgeoisie breaking away from its feudal fetters and establishing its bourgeois institutions and the state. Quite the opposite, modern Greece was born as a vassal state, an artificial geo-political construction at the behest of France and England, whose main purpose was to serve as a base to block the Russian fleet from entering the Mediterranean via the Turkish straits. Greece was founded in 1830 and some 30 or so years ahead of Italy and Germany respectively. But the peasants of the Peloponnese hardly resembled the Junkers of Prussia or the bourgeoisie of Piedmont in Northern Italy. Imperial geo-political competition in the Balkans and the Near/Middle East led to the creation of “modern” states in the region in a similar way that led to the partition of Africa.

Debt was part of the DNA of the Greek state from its inception. Having borrowed large amounts of money from its West European masters to conduct the “war of independence” against the Ottoman Turks in the 1820s, Greece found itself bankrupt already before its foundation as a state. For most of its modern history Greece has been insolvent. What she also experienced was a historical transfer of hegemony from one master to another depending on which imperial power dominated the globe both economically and politically. Soon after the end of WWII, the British transferred Greece’s mastery to the USA. Then, with the entry of Greece to the European economic ‘family’ in 1981, the American factor became slowly replaced by the French-German one and, most recently, by the power that dominates the political economies of the EU and the monetary union, Germany.

Imperialism is, above all, appropriation of international value. It goes hand in glove with creation of debts for the periphery and surpluses for the imperial core, inasmuch as value produced in the global periphery (or South) is transferred to the core via financial means (e.g. loans with usurious interest rates or “investment” in T-bills) or global production networks (e.g. MNCs). What is inherent in the production, circulation and consumption of commodities, whether real (a piece of chocolate) or fictitious (e.g. a bond) is the uneven development of the value-form. Disobedient periphery actors, such as Iraq or Libya, are destined to experience other, extreme forms of subjugation, such as direct military invasions. This has as a result a massive increase in the level of suffering of already poor and deprived peripheral populations.

Many analysts consider that the Greek debt crisis has domestic and not imperial origins. They point out the large fiscal deficits and the profligacy of the state as the main reasons leading to the bankruptcy of Greece and the need to seek humiliating bail-outs from the so-called troika (the EU, the ECB and the IMF). This is not correct. Despite the fact that Greece has had large public deficits before the advent of the current crisis, so did other European countries, such as Italy and Belgium. More to the point, countries that have received bail-outs, such as Spain and Ireland, had surplus budgets. The thesis that the current crisis in Greece and across Euro-zone is fiscal does not stand up to close scrutiny. In fact, the crisis is a typical balance of payments crisis reflecting current account disequilibria caused by the uneven levels of economic and trade development across the Euro-zone. In this respect, the banking sector is crucial in understanding the nature of the crisis.

When the global financial crisis broke out in summer 2007, the European banks found themselves in great difficulties because during the years of financial bonanza, low interest rates and exorbitant profiteering they had acquired large amounts of paper (CDSs, CDOs and other toxic assets) from Wall Street banks, private operators and the City of London, which became valueless overnight. The first European banks to collapse were German banks. German and French banks had themselves bought large quantities of Greek paper, which Greece was using in order to finance its current account deficits and other obligations, such as the national health system and Greece’s large defence budget. The entire chain of financialization got into trouble and de-leveraging became a thorny issue that, in the end, fell on the taxpayer. The troika, among others, asked Greek authorities for bond swaps in two consecutive agreements (2010-12) in order to transfer the debt from the banks and the private sector to official institutions, thus justifying austerity and legitimising fiscal transfers, ie taxpayer’s money and cuts, to servicing the debt. The argument put forth by Germany and the creditors is that “internal devaluation”, i.e. lay-offs in the public sector, pension and wages cuts, reduction of public spending would increase competitiveness and attract investment while decreasing the debt as a percentage of GDP. Five years have passed since these recommendations. It has not worked. When the first set of austerity measures was implemented, the debt/GDP ratio was at 118%. At the moment of writing (September 2015) it is as high as 178%. Unemployment stood at 8% in 2009, but it has risen to 27% today in the wake of “internal devaluation” (a polite phrase for austerity). Obviously, the country’s fiscal condition improved due to austerity, with the Greek budget recording primary surpluses of 1.5% of GDP in the last quarter of 2014, but this is nonsensical given that such surpluses cannot contribute significantly either to debt repayment or to any meaningful regeneration of the economy. After all, the bail-out agreements have tied down any budgetary surpluses to debt repayment, which is absurd. Recent reports by the IMF indicate what the left of Syriza kept saying from the beginning of the crisis, namely that the debt is unsustainable and that without substantial debt relief and investment in the real economic sector Greece would not possibly recover.       

Having said this, the EU is not an integrated economy, let alone an integrated polity, and the introduction of the Euro in 1999 created more problems than it solved. The Euro was introduced as a step towards facilitating economic and, eventually, political integration, the immediate aim being to cure currency crisis across member-states, such as the 1992 crisis of the British pound and the Italian lira. None of this became possible. Instead, the Euro-arrangements favoured Germany, which became the EU’s imperial power par excellence by way of recycling its surpluses within the Euro-zone and imposing austerity. Germany’s model is that of low wages, low inflation, budgetary discipline and export-led development. It is this model that Germany wants to implement across the EU and prospective members of the EU. But this, instead of uniting the continent has divided it further. The disintegrative tendencies of the EU are far stronger than the forces of integration and the gap between core and periphery widens. Currency crises take the form of banking and liquidity crises, as the cases of Cyprus and Greece have shown. EU periphery states resemble more the states of East-Central Europe, the Balkans and certain African, Asian and Latin American states, than those of the core of Europe. In fact the largest part of the EU is joining the Global South in a race towards the bottom, even though many parts of the global periphery are now becoming entangled into the economic developmental web of large peripheral powers, such as China and South-East Asia, Brazil, South Africa, Russia and Turkey.

However, the case of Greek debt crisis stands out for two reasons. First, because of the ferocity of the crisis as Greece was vulnerable both in terms of its current account deficits and in terms of its fiscal position. Second, Greece, unlike other European peripheral states, came to experience a truly radical left and anti-austerity movement that rose from 4% of the electorate in the election of 2009 to nearly 40% in 2015. To this interesting ‘peculiarity’ we must now turn.

Why being in office matters

When Francois Mitterrand’s Socialists assumed power in France in 1981 with a Keynesian programme in hand, he and his coalition partners, the Communists, were forced to backtrack. The French currency could not defend its exchange rate and as inflation spiralled out of control, Mitterrand began introducing neo-liberal reforms — the famous U-turn of 1983. Andreas G. Papandreou’s PASOK in Greece also tried to resist neo-liberal globalisation, but its programme was far more radical than Mitterrand’s. Thus, several discontinuities before and after it assumed office occurred and a transmogrified type of socialism took shape in Greece in the 1980s, the most peculiar aspect of which was the introduction of a national health system and other welfare reforms which were financed via domestic and external borrowing, rather than taxation as is the norm in the West. Obviously, this worsened the country’s public debt situation, bringing it up to 100% of GDP.

Let us go a bit further. Before they conquered power in 1917, Lenin’s Bolsheviks advocated a direct passage to socialism – the so-called “dictatorship of the proletariat” – confiscation and nationalisation of all land and property and all power to the workers’ and peasants’ councils (the Soviets). Lenin, in particular, despised Taylorism, which in a series of articles in 1913-14, he characterised as the most inhuman capitalist way of organising industrial relations. What did he do after 1917? He introduced the famous “New Economic Policy” and “tax in kind”, advocating the co-existence between the public and private sectors of the economy and he began praising Taylorism as the most advanced method that Soviet Russia needed to adopt in order to increase its productivity, and invited English capitalists to invest in his country through diplomatic channels and various interviews he gave in the then Manchester Guardian. Interestingly, Lenin praised Plekhanov as the best Marxist philosopher of Russia that the youth must study – before 1917, Plekhanov and other Marxists of the Second International were dubbed as “renegades” and “traitors of socialism”.

The conclusion is that being in government matters and it changes things, even if the social force that brings you to power is the poor and working classes. It makes you face the real constraints of capitalism, both national and international,  as well as face the limitations in terms of state capacity and the realistic delivery of promises. I explored these scenarios back in the early 1990s, going as far as to define populism as a political strategy of discontinuity before and after the conquest of governmental power[1].

Photo sourced from Wikimedia Commons

The Syriza experiment

And now Syriza enters the stage. Its Salonica programme of September 2014 was a moderate Keynesian set of proposals aiming at alleviating the humanitarian crisis and raising gradually the minimum wage. At the same time, it advocated balanced budgets, administrative reform and withdrew its opposition to NATO. It was expected that the ECB would support this programme, especially since a Syriza government, like all Euro-zone governments, lack Keynesian instruments to implement Keynesian policies. Thus, Syriza came to power with a mild reform and anti-austerity agenda believing that tough negotiations with the troika would bring positive results. Syriza, among others, had hoped that a part of the country’s debt would be written-off and some of the cash flow coming into the country could be directed to productive investment. The effort was very brave but brought no results. This was because the so-called “EMU rules” do not allow flexibility. And they do not allow flexibility because the institutional and ideological bias upon which they are based reads as follows: no wage growth, anti-inflationary policies, budgetary discipline and export-led growth. In other words, the rules are set after Germany’s successful neo-mercantilist economic story which, contrary to the rules of the EU and EMU, it suppressed wages for years in order to make Germany a surplus country and improve its competitive position within the EU and internationally. Germany is now exporting austerity as it first imposed austerity on its own workers. But this austerity is bound to take on different shapes and forms across the Euro-zone and beyond, simply because the levels of economic and political development in each country are vastly different. All EU/EMU countries, and also all candidate countries, are subject to the same discipline and neo-colonial controls. This is what Syriza failed to break in the negotiations and, despite the resounding and heroic victory of the NO vote in the anti-austerity referendum of 5 July, it was in the end forced to backtrack submitting to creditor power. The deal Syriza finally accepted is recessionary; it has no chance in improving the Greek economy as it stands  and, as the IMF predicts, the debt/GDP ratio would increase under the new agreement. More to the point, Syriza, like all other left radical movements in 20th century European history, registered a massive retreat, capitulating on every single point it had stated was unnegotiable when in opposition. Effectively, it signed up for a new recessionary Memorandum of Austerity, which includes a 50bn Euros privatization fund that will be replenished by selling public assets and a target of 1% primary surplus for 2015. Curiously, this capitulation came after a triumphant standing in the referendum of 5 July 2015, in which the Greek people was asked to vote if they agree to further austerity. Their answer was a resounding”No”[2].

So far, commentators in various venues have said almost everything about the Greek/Euro-zone crisis. From Bloomberg analysts to Financial Times’ journalists, and from scholars, such as Leo Panitch and Sam Gindin to Paul Krugman and Joseph Stiglitz, all major issues have been tackled well and explained competently. Obviously, without Keynesian instruments at the national level and without a European federal state at the European level you cannot have any form of Keynesian policies. Too much reliance on the ECB – which, first and foremost, is a bank – and the “good will of European partners”, coupled with lack of institutional preparation to return to a national currency, brought Syriza’s negotiating team to a deadlock. Others, quite rightly, have argued that there was no real negotiation from the time Syriza assumed office in January 2015. The Germans, the argument goes, wanted regime change as they could not agree with the Greek Finance Minister’s reasonable demands – which included restructuring of the debt, i.e. debt relief. In fact, this insight is correct: after the referendum of 5 July, the Greek PM sacked Finance Minister, Yanis Veroufakis, in order to keep his cabinet in place and avoid being pushed out by the creditors – mainly via financial and media warfare and permanently blocking liquidity to the Greek banks.

The imperial creditors seem to be of the opinion that there is a Greek state in place that can implement, and a Greek society that can accept, the new austerity measures. This is reminiscent of the gruelling rationale behind America’s various wars post-9/11, but also before: invade Afghanistan, Iraq and elsewhere to bring about liberal democracy, human rights and free market capitalism. This indicates the total ignorance of the actual societies and states they supposedly want to change and improve. In fact, wherever American power went it made conditions worse. Greece and the European periphery should be seen under the same light. Greek political elites, mixed with big comprador and corrupt interests, as well as the institutional materiality of the state as such, have always been fragmented, deeply inefficient and in the service of clientelistic, corrupt and nepotistic deals and practices. But Syriza did not inherit just this. Syriza inherited a no-state, a completely dilapidated administrative apparatus with civil servants terrified about who is next going to lose their job. Society itself, with 27% unemployment and 57% youth unemployment and unpaid salaries for months, exists in a strange combination  of anger, radicalization and demoralisation. Recent administrative reforms in municipalities (the “Kallikratis” plan) caused havoc, further distancing the citizen from the state. Add to this the factional warfare within Syriza, despite the election victory in September, and the government and you will have one of the most inefficient “ruling” machines in the West. In other words, Syriza’s state cannot reach the 1% primary surplus fiscal target; it will find it incredibly difficult to effect privatizations and other neo-liberal reforms required by the creditors in order to receive bail-out funds. The new anti-austerity package will fail. Equally and arguably, for the same reason, a debtor-led default and exit from the Euro-zone will fail. A transition to a national currency requires a strong and well-organised state apparatus to lead an impoverished society through hardship to eventually achieve renewal and something positive at the end of a long and arduous journey. I would argue that there is no state capacity in place to hold sway over the implementation of a new austerity package or indeed to buttress and deliver Grexit. So what is to be done?

Proposals

Reluctantly, we can outline only two solutions. The first entails a substantial write-off of the Greek debt of about 40% and a concrete development plan for the country which should take place in parallel with an overhaul of the state machine. Austerity measures may continue but not without immediate cancellation of large parts of the debt, a developmental perspective and modernisation of the state administration. Syriza’s negotiating team must put forth these two points as non-negotiable items for the implementation of the new austerity agenda. To a certain degree, this is also a choice, perhaps the only choice, for Europe. The common currency has no chance of survival if the union is unprepared to move towards a federal state allowing debt write-offs of the periphery, the same way that North America forgave the debt of the South after its victory in the Civil War. That is how the USA came into existence. Here, Greece and the Euro-zone crisis in general offer the creditors a golden opportunity to build a European federal state with the European taxpayer guaranteeing payment of the weaker economies of the union. It is as simple as that. But Germany may stick to its neo-mercantilist policy of low inflation and low wages and refuse debt relief. What, then, for Greece and, for that matter, Europe?

If this eventuality becomes reality, then Greece must default on its debt obligations, restore the independence of its central bank and introduce a new currency in stages. For this to happen successfully, the current Syriza government must open up the debate among civil actors, lay down the problems it faces in terms of state capacity and reform and invite all Greek people to assist to rebuild the state and society on the basis of a new developmental agenda. Here, the Greek government must nationalise the banks; pursue a courageous policy of import-substitution; build on the existing strengths of its economy and modernise all these sectors (aluminium and cement industry, tourism, fishery, solar energy, agriculture and biological agriculture); SMEs, which are the backbone of the Greek economy, need special protection innovation techniques and incentives for developing new patents; and re-design the state apparatus starting from the drafting of a new Constitution. Given the level of inflation that will ensue and the devaluation of the new drachma, imports of raw materials and pharmaceuticals will have to be negotiated with the EU and Russia. Also, the EU, the USA and Russia should be in a position to assist possible challenges to Greece’s sovereignty by Turkey. Apparently, this will also be the only choice left for Europe if it fails to move towards a federation, which is very likely given the gap between core and periphery and the uneven spatial functioning of the value-form: to assist Greece to survive its exit from the EMU, because an impoverished failed state with hundreds of thousands of migrants and on the brink of war with Turkey either in Aegean or Cyprus will blow up not just the EMU but also the EU and NATO itself. In the end, however, any type of socialism, whether democratic or not, is possible, in the first place, in one country only.

Vassilis K. Fouskas is Professor of International Politics & Economics at the University of East London, and the founding editor of the Journal of Balkan and Near Eastern Studies. He has authored, co-authored or edited 11 books and has published dozens of scholarly articles. 

Notes

[1] Vassilis K. Fouskas (in Greek) Populism and Modernization. The Exhaustion of the Third Hellenic Republic (Athens: Ideokinissi, 1995). The approach suffers from some problems that we were unable to see but, overall, it captures much of the developments and structural tendencies inherent in any radical political perspective that attempts to disregard systemic constraints inherent in national and international political economy. For a complete account, see Vassilis K. Fouskas and Constantine Dimoulas (2013) Greece, Financialization and the EU. The Political Economy of Debt and Destuction (London and New York: Palgrave-Macmillan)

[2] There is speculation that the referendum happened after the leading group of Syriza under the PM, Alexis Tsipras, succumbed to pressure by the left-wing of the party, the “left platform”, under the leadership of Panagiotis Lafazanis, and that Tsipras himself did not want either the referendum nor knew how to administer its result. In fact, such a result pointed, if anything, to a “default and exit strategy” on the part of Greece, vindicating the “left platform” of Lafazanis and its major theoretical advocate, Costas Lapavitsas. This speculation can be found in the comments and interviews by former Finance Minister, Yanis Varoufakis, who resigned immediately after the referendum, his position taken by soft-spoken and moderate, Euclid Tsakalotos.