Costas Lapavitsas: "We are clearly at a critical turning point"


As a deal between Greece and its lenders begins to look increasingly unlikely, Costas Lapavitsas outlines the respective parties' proposals and argues that the "institutions" have left Greece with little choice: accept public defeat—and still no solution to the debt—or default. Visit the Jacobin to read the original piece. Translated by Wayne Hall.

By Costas Lapavitsas

Developments in the debt negotiations between Greece and the European institutions have come thick and fast in the last days: the submission of proposals by the Greek side, leaks of lenders’ supposed counter-proposals, their rejection by Greek Prime Minister Alexis Tsipras, pre-agenda debate in the Parliament—where Tsipras repeated his outright rejection of the counter-proposals—and then a refusal to pay the June 5 instalment of the International Monetary Fund loan. We are clearly at a critical turning point.

The only political party capable of moving Greece forward at this time is Syriza. New Democracy is racked with leadership disputes and heading downhill electorally. Potami lacks any kind of credibility. Pasok is moribund. What all three propose is in essence a return to the regime of the memoranda. The Greek Communist Party has bogged itself down in a morass of turbid leftism. The route chosen by Golden Dawn, finally, is one of the country’s total derailment, socially and nationally.

It is in Syriza that the Greek people are continuing to vest their hopes. This is shown by the polls. So it is immensely important that Syriza’s experiment should succeed. The discussions being conducted inside the party automatically acquire a national dimension, for the same reason.

In this crucial historical moment, careful analysis of the Greek government’s proposals, and the lenders’ counter-proposals, is needed to draw some conclusions about the course of the negotiations.

The Greek Proposals

The text submitted by the Greek government as the basis for agreement with the partners can be summarized with reference to the following key points.

1. The government projects a 0.6% primary surplus in 2015, 1.5% in 2016, 2.5% in 2017, and 3.5% for the following five years. These projections are undoubtedly lower than the chimerical 3% for 2015 and 4.5% for 2016 cited in the memoranda. But there is no real relaxation of the fiscal policies. On the contrary, the type of management proposed by the government is very tight, as evidenced by the abandonment of the prospect of balanced budgets. In practical terms there will be austerity in 2015-16, and certainly after 2017.

2. To achieve the surpluses in 2015-2016, which are the only years for which there can be any kind of realistic prediction, the government is proposing to raise taxes. The most important measure consists of three Value Added Tax (VAT) figures (6.5%, 11%, and 23%), with medicines receiving the lowest tax rate, and staple foodstuffs, energy, and water receiving a medium one.

3. These are the largest of the indirect tax increases, but some attempt is being made to pursue redistributive policies, with rates being kept low on items of popular consumption, as exemplified by the reduction on electricity (from 13% to 11%). But inescapably, if VAT increases supervene on a scale adequate for delivery of the required surplus, there will be a significant level of tax gouging.

4. The government is also proposing increases in the solidarity levy (with the weight falling on the more affluent), a special levy on the profits of large enterprises, a tax on television advertisements, payment for television station licenses, a luxury tax, and other tax measures. It is also proposing a series of administrative and legislative measures to facilitate a clampdown on tax evasion, minimization of tax avoidance, and improvements in collection of taxes.

4. Apart from the fiscal measures, the government proposes privatizations to the tune of €3.2 billion for 2015-16, €2.1 billion for 2017–19, and €10.8 for the period after 2020. There will be provision for investments and for protection of workers’ rights in the privatized enterprises, and the revenue will be used for social insurance and for strengthening the investment bank that is to be established.

5. As far as social insurance is concerned, the proposals include abolishing the zero-deficit clause for 2015-16 and gradually phasing out the early retirement up to the age of sixty-two. Also advanced are a number of individual measures to limit uninsured work and avoidance of social insurance contributions.

6. In the area of labor relations, the government wants to reintroduce collective agreements and, after the end of 2016, restore the minimum wage to 2010 levels.

7. As for “loans in the red,” there is a proposal for the formation of a working group to outline measures to gradually mitigate the present situation. Additionally, auctioning of first residences will be temporarily suspended.

8. The government is also introducing a number of reforms to the judicial system, to the insolvency code, to tourism, to trade, to telecommunications, to self-employment, to the land registry, to public administration, and to the energy sector.

9. Finally, the government is proposing two measures for restructuring the debt in 2015-16. Firstly, in 2015 there will be repayment of the bonds held by the European Central Bank, using funds made available through the European Stability Mechanism (ESM). Secondly, in 2015–16 the International Monetary Fund (IMF) loans will be paid off, once again with funds provided by the ESM. There is no reference to the total amount of the new loans, but logically it will be in the vicinity of €50 billion. On this basis it is estimated that Greece will be able to return to the markets in March 2016. The government is also asking “the institutions” to consider a program for funding development in the 2016–2021 period. The size and character of the program remains unspecified, however.

The government’s proposals represent an extremely painful compromise, and there must be an internal party discussion on their consequences in relation to implementation of Syriza’s electoral platform, the Thessaloniki Program. For example, there is no mention of the writing-off of debt and there is no exemption from taxation, but instead the imposition of a new VAT and other taxes, the postponement of the debt relief (seisachteia), not a word about nationalizing banks, and so on.

Bear in mind that the Thessaloniki Program is not some kind of Bolshevism. It is moderate Keynesianism. The compromise being proposed by the government to “the institutions” truly raises questions of how implementable it is.

Clearly the negotiating strategy of the government is to terminate the appraisal process, securing a reprieve on liquidity while at the same time seeking to extract an understanding from creditors on indebtedness and development. Syriza is evidently moving away from the Thessaloniki Program, but it is striving to keep alive hopes of an alternative course in the future.

The Lenders’ Proposals

So what has been the reaction of “the partners”? To judge from the text that has been leaked, the response has been brutal.

1. The “institutions” are demanding primary surpluses of 1% in 2015, 2% in 2016, 3% in 2017, 3.5% in 2018, and 3.5% for every year that follows. These objectives are not very different from those of the Greek side, so there is an implicit recognition that the previous goals were unattainable. There has been a concession on the part of the lenders. But the fiscal management remains very tight. There will be a regime of austerity for many years to come.

2. The problem is that the “institutions” judge that, according to current projections, the Greek economy this year will have a primary deficit of 0.66%. It is also obvious that the “institutions” do not believe the Greek side’s estimates of the revenue that would be generated under their preferred measures. The “institutions” are therefore saying that “specific and high quality” measures must be taken so that the surpluses may be achieved for 2015–16 and in a manner compatible with the Medium Term Program for 2016-19. Which means…

3. First and foremost a VAT increase that will yield an additional €2 billion approximately. There will be two rates, 23% and 11%, with the lower rate applying to foodstuffs, medicines, and hotel accommodation (and energy being taxed at the high rate). The discounts formerly applying to the islands will be abolished.

4. The “institutions” are calling for many other draconian taxation measures, such as eliminating tax breaks—including the fuel subsidy—for farmers, and nixing the heating oil subsidy. Also demanded is adjustment in the objective valuation of property so that property tax yields the same revenue in 2015 and 2016, i.e. €2.65 billion annually. Furthermore, the “institutions” are insisting on the virtual elimination of favorable settlements on contributions in the interest of relieving accumulated debt.

5. Apart from the taxation measures, the “institutions” are demanding reform to the pensions system, with expenditure cuts to the tune of 0.25-0.5% of GNP in 2015 and 1% in 2016. This means introducing a series of changes, including the elimination of the Pensioners’ Social Solidarity Grant and retirement at sixty-seven for those who began receiving a pension after January 30.

6. The “institutions” are proposing a host of other measures for reforming public administration and justice and promoting independence for the mechanisms of tax collection, together with independent private management of the fiscal system.

7. As regards labor issues, they propose a consultation process for the minimum wage, collective bargaining, mass layoffs, and strikes on the basis of Εuropean “best practice.”

8. They are also calling for the deregulation of a number of markets, above all in generation and distribution of electrical power.

9. They furthermore demand systematic continuation of extensive privatizations, including the railway company, regional airports, Εgnatia Odos, the harbor of Piraeus, and the harbor of Thessaloniki.

10. Finally, the “institutions” make no reference at all to debt restructuring or to a program of investment and development.

From the text it follows, then, that the lenders are insisting on harsh and “high quality” taxation for the purpose of securing the “low” primary surpluses. At the same time they are demanding harsh pension measures, painful labor reforms, and a whole array of deregulation policies.

The assumption is that in this way the appraisal will be completed and the country will be granted some injection of liquidity in the immediate future. But they do not propose any solution for the debt or any investment program. We are left to assume that these will follow later, perhaps after “major” negotiation of the fiscal limbo in which the country finds itself.

Where Is This Road Leading?

Some rather self-evident conclusions emerge as to where we are headed.

There is no basis for the idea that there are serious differences between the creditors that can be utilized to the advantage of the Greek side. The European elite is well-mannered and speaks politely, but it includes nobody who could be called a friend. When it’s crunch time, the polite negotiators become hard, intransigent, and cynical. This is the way empires have been built in the past.

There is no “politics of negotiation” in the way that this is usually perceived in Greece—that is to say, with personal agreements between leaders. In the European context political positions are mediated through institutions and mechanisms—in a broader sense than applies for the public sector—which have their own logic. The mediation is often technocratic in character.

For example, there is not much to distinguish the goals of the Greek government from those of the lenders when it comes to the primary surplus, but the stances on the measures to be taken are very different. The technocratic mediation of the lenders’ political positions is strict. It follows the logic of the IMF and, accordingly, demands harsh measures.

There is not going to be a proposal from the lenders that does not entail a high political cost for Syriza and its leadership, because the party endangers the status quo in Europe. The lenders want to demonstrate that Syriza has been defeated.

There is not going to be a proposal from the lenders that will enable Syriza to implement the Thessaloniki Program. Τhe terrain on which the lenders are gradually drawing Syriza is more and remote from its pre-electoral positions.

Certain conclusions readily suggest themselves:

If an agreement is signed on the terms imposed by the lenders, Greece will essentially return to the regime of the memoranda, meaning that there will be no systematic development, unemployment will remain high, inequality will increase, the country will age, and Greece will be transformed into an insignificant pariah on the international scene. If such an agreement is signed, time will work against Syriza. There will be no leeway for an “internal break” from corruption and intrigue and no possibility of social change. It will spell disaster both for the country and for the Left.

Τhe desideratum at this moment is not for some shared terrain to be found between the proposals of the government and those of the lenders, for the obvious reason that any such agreement will take us even further from the Thessaloniki Program. In essence the lenders will have won.

Τhere is little room for maneuver in continued negotiations. The protracted absence of liquidity and funding that has been engineered by the lenders has led the economy into recession. Τhe state is suspending payments and cannot function properly.

The outflow of deposits has assumed mammoth proportions: the banking system is on the brink of collapse. Overdue debt payments are building up. There is a freeze on commercial credit. In the last four months, the Syriza government has managed the economy better than New Democracy or Pasok, but the lenders’ tightening of the vice is widening the cracks.

The strategy of radical change in Greece within the framework of the European Union has run its course. This is the most basic and the most important message that has been conveyed by the steamroller tactics of the lenders.

If Syriza really wants to change society, to avert national ruin, to put the economy back on a developmental track, to secure a new dynamic position for Greece in the international scheme of things, there must be an examination of alternative ways forward.

The analyses, and the knowledge, are there. Political will and decisiveness are what must now be brought into the equation.

- Visit the Jacobin the read the original article.