Syriza, the Troika and Grexit

Syriza, the Troika and Grexit

The four-month breathing space

As I write, the Greek finance minister Yanis Varoufakis, is meeting again with the Eurogroup finance ministers in another chapter in the tortuous negotiations over revising the conditions for the extension of the bailout programme for Greek government debt payments.

Last month, the newly elected Syriza government eventually negotiated a four-month extension of the existing bailout programme now to last until end-June.  This was a setback for Syriza.  Syriza was elected on a programme to cancel or renegotiate the huge Greek government debt that it has, mainly with the other Eurozone governments and to end any further bailout programmes that require the Greeks to impose drastic austerity measures on public spending, wages, public services and employment, in return for bailout funds.  Under the existing bailout programme that was due to end last month, the dreaded Troika (the EU Commission, the ECB and the IMF) regularly monitored the Greek government’s adherence to austerity, privatisation and ‘competitive’ reforms before doling out funds.  Syriza pledged to end this humiliation.

However, the balance of forces was against the Syriza government.  Money to fund public services was running out as Greeks (mainly rich ones) stopped paying their taxes while they waited to see if Greece would be thrown out of the euro.  And Greek banks suffered a massive drain of deposits as rich Greeks spirited their money abroad and others out euros under their mattresses.  Depositors had withdrawn about €20bn, or about 12% of total deposits in the last three months.


The banks now depended for survival on the ECB and the National Bank of Greece printing euros and providing Emergency Lending Assistance.  The ECB board made it clear that such assistance would stop unless agreement on an extension of the programme was reached.  It became clear at weekend negotiations that by Monday, the Greek banks would be bust.  Either Syriza would have to opt for imposing capital controls on cash flight and probably leave the Eurosystem or capitulate.

The government opted for the latter.  The four month extension gave them some ‘wriggle room’ to try and negotiate better terms under the existing bailout that did not impose so much austerity.  But it was a defeat, contrary to the claims of prime minister Tsipras afterwards.

But the Greek people are relieved.  The majority by far still wish to keep the euro and stay in the European Union.  In a recent poll conducted by the University of Macedonia, 56% of those Greeks asked believed the Greek bailout extension had been a success compared with 24% who said it represented a failure.  A Metron Analysis poll showed that more than two in three Greeks were satisfied with the way the government was negotiating with EU partners, while 76% were positive about the government’s overall performance so far. It also put support for Syriza in any election at 47.6% compared to conservative New Democracy with 20.7%.

That’s an indication that the Syriza government has won time with the Greek people hoping for an end to austerity, as well as with the Eurogroup leaders wanting more austerity in return for the remaining bailout funds.  But this ‘window of opportunity’ is small and probably smaller than four months.

The immediate issue is finding funds to cover the upcoming €1.5bn repayment due to the IMF this month and the rollover of short-term government debt.  The ECB has ruled out an expansion of T-bill issuance to cover this debt redemption.  And it has raised the Emergency Lending Assistance limit to Greek banks only slightly so they cannot use ECB credit to cover Greek government debt bills.  And yet tax arrears and non-payment have built up so that the government has lost between €1-2bn in revenues since the beginning of the year.  The budget forecasts a €2.1bn deficit in March.  The government has so far been covering its cash deficit by tapping the reserves of public entities, including pension funds, hospitals, and universities.

Varoufakis has now proposed seven economic reforms as the “first of a batch” of measures intended to unlock €7.2bn in bailout aid, including the recruiting of “students, housekeepers, even tourists” to serve as undercover tax inspectors; a plan to issue licenses to online gambling companies that Athens believes could raise €500m per year; the activation of a new “fiscal council” to monitor government spending and a new plan to collect unpaid taxes.

In the meantime, it looks as though the Syriza government is trying to proceed with various measures to ameliorate the ‘humanitarian crisis’.  Tsipras said that the government would introduce measures including the provision of free electricity to 300,000 households living under the poverty threshold and the introduction of a new payment plan for overdue taxes and social security contributions. The scheme is set to allow applicants to pay in up to 100 instalments and will mean that anyone owing up to 50,000 euros cannot be arrested over their debts.  And the government will protect primary residences with a taxable value of up to 300,000 euros from foreclosures and reopen the public broadcaster ERT, shut down in June 2013.  None of this will affect the budget targets, Tsipras claimed, although how that is the case remains to be seen.

Maybe it won’t if the government can find extra revenues from undeclared funds that should be taxed.  The finance ministry is now planning an amnesty on undeclared capital abroad, aiming to tax it – but not necessarily to repatriate it – according to Alternate Finance Minister Dimitris Mardas.  The government reckons that up to €120bn is being held abroad by rich Greeks and oligarchs, often hidden in real estate in the UK or Swiss bank accounts.  The government says it can obtain up to 10-15% of this.  In addition, special tax minister Nikoloudis reckoned he had 3,500 audits amounting to €7 billion in back taxes, €2.5 billion of which he hopes will be collected by summer.  If this money can be collected, then the government can square the circle of paying its debts and keeping within the Troika fiscal targets and help out the poor – at least for a while.

But only for a while because Greek public debt is ‘unsustainable’ and will never be reduced to a manageable level by Troika-style spending cuts and tax measures.  However, as the interest rate on the debt is relatively low (4% of GDP annually) and the repayment schedule on the loans owed to the Eurogroup has been put back to the early 2020s, if the government can get through this year’s redemptions, then it may find another small fiscal ‘breathing space’.  And if the Greek economy can grow over the next year, tax revenues will improve.

It’s just possible that an economic recovery in the rest of the Eurozone might also provide a boost to the Greek economy too.  But it is only a possibility.  The Greek economy is still suffocating from the stagnation in Europe and the Troika’s inexorable austerity measures.  Indeed, Greek real GDP rose only 0.7% in 2014 while prices fell 2.8%, so nominal GDP contracted.  Unemployment in January rose back up to 26%.


Greece’s manufacturing PMI, the main measure of current business activity, was down at 48.4 in February, implying that the economy is still contracting. Greek investment and profitability remains at all-time lows.

The strategy of capital

Yes, the Syriza government has retreated massively from its original position to cancel or renegotiate the ‘odious’ debt burden and it has given way on some (many?) of the immediate measures it wanted to take on reversing austerity and improving the hugely reduced living standards of Greek households.  But Greek capital is the weakest in the spectrum of European capital, where Germany and France are strongest.  They call the tune.  But the real villain of the piece is Capital in the persona of Franco-German capital and their supporters in the governments of the other ‘distressed’ EMU states of Spain, Portugal and Ireland, as well as ‘northern Europe’.

What is more important for the Eurogroup and big capital in Europe is not so much the budget balance and the government debt.  More important is that the neo-liberal ‘structural reforms’ of deregulating the labour market and other capital markets and the privatisation and ‘foreignisation’ of the best bits of Greek industry go through.  For these political leaders of European capital, this is the key policy for restoring the profitability of the Greek capital (at labour’s expense).

These ‘structural reforms’ have been pursued with gusto by the conservative governments of Ireland, Spain and Portugal that have been under Troika programmes.  The last thing they want is for Syriza to succeed in turning things round without restoring the profitability of the capitalist sector.  So these governments have been the strongest supporters of a ‘tough line’ with Greeks.  The French and Italian social democrat governments also continued to introduce measures to weaken the rights of employment and worsen the conditions at work.

There are many commentators, including those on the Keynesian left, who complain that the Germans are being unreasonable and stupid.  Giving the Greeks some leeway on public spending and reducing the burden of debt would help restore the Greek economy and keep the European project going in the face of increased scepticism from the electorate of Europe and a stagnating and deflating Euro economy.  You see, austerity does not work, so goes the argument[1].

But the Germans are not ‘irrational’ from the point of view of Capital.  The Austerians reckon that European capitalism will not recover unless the capitalist sector is restored to high profitability and the burden of debt is reduced.  That means neoliberal ‘structural’ reforms involving primarily decimating the power of labour through anti-trade union laws, increased sacking rights, reducing unemployment benefits and pensions and more privatisations.  Alongside this, there must be cuts in public spending and debt to allow cuts in corporate taxation to raise profitability.  Get labour costs down and boost profitability – that’s the way out of this depression.[2]

That is a rational strategy for Capital.  The Keynesians, on the other hand, reckon that cutting wages and fiscal austerity just slashes ‘effective demand’, so that more austerity breeds even less growth.  In the depth of depression, this argument has some validity, especially in Greece.  But the essence of recovery on a capitalist basis must be a return to profitability and raising wages or spending more on welfare does the opposite[3](

So the German intransigence flows from an ideological belief that fiscal austerity and wage-cutting programmes are essential.  As the Germans are not committed in any way to proper fiscal union in Europe[4], they do not want to make any (or the most minimal) concessions to Syriza.  Moreover, they are backed in this by the venal, corrupt and harsh neoliberal governments still in office in Spain, Portugal and Ireland who have imposed Troika programmes on their people and who would be badly undermined if there are better terms for a leftist government in Greece.  The feeble pro-capitalist social democratic governments of Italy and France, both trying to impose ‘structural reforms’ on labour, also go along with this.

Unfortunately, propaganda in Germany and the rise of Eurosceptic forces have led the German electorate to believe that the Greeks are lazy, are all on benefits, get huge pensions and are corrupt.  Apparently, 66% of Germans asked do not want the Greeks to get any concessions.  Of course, this characterisation of the Greek working class is nonsense.

Greeks work more hours in a year than any other country in Europe – and more than even the Americans or Brits!  And surprisingly, it is the Germans who are the ‘laziest’, if measured by hours worked.


Although Greek economy-wide productivity started from a low base when the country joined the Eurozone in 1999, growth in labour productivity since then has been faster than in the strong capitalist economies of Germany or France, Greece up 25% compared to just 10% in Germany.


The reason Germany has been so competitive has not been because the growth in its productivity of labour was so good, but because wages have risen the least, just 22% since 1999 compared to nearly double in Ireland and up two-thirds in Greece[5].

So while Greeks saw their living standards improve under the euro until the crisis came, they did this by working the longest hours and by being exploited more than any other workforce in Europe.  The biggest gainers from joining the euro were the Greek capitalists.  The fruits of increased economic growth and trade went to them disproportionately.  The wage share in Greek national income fell nearly 4% pts, a fall only surpassed by Spain and more even than American workers suffered relatively.


One of the cruel ironies of the last minute deal between the Eurogroup and the Greek government for a four month extension is that in any sane meaning it is not a ‘bailout’ at all.  Assuming a deal is reached this week, between now and the end of June, the financing institution of the Eurogroup, the EFSF, will release €1.8bn, while the ECB will return profits that it has made on maturing Greek government bonds that it purchased in 2014 worth €1.9bn and the IMF will disburse another €3.6bn in funds under its programme of ‘aid’ that lasts until April 2016. That’s €7.2bn.  But most of that will be immediately recycled back to the Troika as repayments of debt and interest for previous loans and government bonds that are maturing. In the upcoming four months, the IMF must be paid back €5.3bn while the Greeks must also roll over short-term T-bills bought by the Greek banks worth about €11bn. So the Troika ‘aid’ will just disappear and the Greek people will see none of it to help with government spending!


This is just like ‘Third World’ aid that used to be distributed by the World Bank and other international agencies back in the 1980s and 1990s. Most of this ‘aid’ ended up in corrupt dictators’ pockets or in repaying previous debt. The people never saw it. And the debt levels stayed where they were, as they do for Greece now.  Back then, eventually the international agencies agreed what was called a Brady debt swap that wrote off a portion of the debt that could never be repaid. No such plan is available to Greece, although Syriza asked for it in their negotiations with the Eurogroup.

The debt to the Troika remains fully on the books and, as a share of Greek GDP, is set to rise. Sure, the cost of servicing this debt is relatively low with repayments on the EU part of the loans put off until the next decade and interest on these loans at very low rates. But the debt liability is there forever – like the proverbial albatross round the neck.

The alternative strategy

But what happens at the end of June?  Already there is talk of shackling the Greeks into a new bailout programme.  In return for new loans (and a mixture of old ones) of up to €50bn over three years, the Greeks would be committed to yet more Troika monitoring and neoliberal measures to save Greek capital.  This is the aim of the Eurogroup and its conservative governments.

Tsipras has made it clear that the Greeks will not enter a new package after June.  But if the government also says that it will honour all its debts to the IMF and the EU (even though it wants a new debt schedule), then either financial markets must be willing to buy Greek government debt and bank debt at reasonable rates of interest; and/or the government must find extra tax revenues to meet its debt commitments. Actually, it seems that Tsipras has requested “higher-level discussions” on a third rescue programme for Greece as a “follow-up arrangement” which will be called a “Contract for Recovery and Growth of the Greek Economy.”

Perhaps the Greek government can avoid default and stay in the euro as the debt servicing schedule in 2016 is much lower.  After all, the Greeks could meet the ‘ordinary’ budget targets under the EU Fiscal Compact.  But can it get that far, and even if it does, how can it, at the same time, meet the needs of its people in raising wages, pensions, reversing privatisations, and restoring a decent health and education and other public services, and get the economy growing?

Within Syriza, there is a sizeable opposition to the attempts of Tsipras and Varoufakis to reach a deal with the Eurogroup.  The Left Platform within Syriza received up to one-third of Syriza MPs in opposing the extension deal.  The Left Platform firmly argues that the answer is for Greece to renege on the debt and leave the euro.

Costas Lapatvitsas is Professor of Economics at the London School of Oriental and African Studies (SOAS) and he is now a Syriza MP and a leader of the Left Platform.  In a recent article in the British Guardian newspaper[6] Lapavitsas reiterated his view that “to beat austerity, Greece must break free from the euro”.  Lapavitsas reckons that “we are deluded to think that we can achieve real change within the common currency.  Syriza should be radical”.

Lapavitsas correctly gauges the deal reached by Tsipras and Varafoukis for the four month extension as a heavy price to pay “to remain alive”.  But is it correct to argue that breaking with the Troika and reversing austerity must start with advocating leaving the euro, as Lapavitsas says?

Tactically and theoreatically, this does not seem right.  Tactically, the alternative to the Troika should not be posed as ‘leaving the euro’, but rather ‘breaking with capitalism’.  Syriza must reject a new programme with the Troika after June. Instead, it must introduce measures that can get the Greek economy growing sufficiently to enable wages and pensions to be restored, labour agreements honoured, increase employment and revive investment.  That will mean taking over the Greek banks, introducing capital controls, and bringing into public ownership and control strategic industries and companies with a plan for investment.  Such an investment plan should be pan-European, with an appeal to the labour movement through Europe to campaign for this.

But won’t Greece be thrown out of the euro anyway if it adopts these policies?  Well, maybe, even probably.  But there is nothing in the EU treaties that stops a member state from adopting these measures.  Public ownership of the banks and the ‘commanding heights’ might break EU competition rules, but that would not be enough grounds for Greece’s expulsion.  After all, Germany runs state-owned banks in every region.  And if Greece is managing to run ‘balanced budgets’ or even small deficits, it won’t be breaking the EU fiscal compact either.  There is just the question of its huge public sector debt that is supposed to be paid back (but not for decades).

The issue for the labour movement is not the “illusions” that the left has in the “absurdity of the common currency” (as Lapavitsas claims), but the illusion that capitalism can be made to deliver people’s needs (something that Varafoukis has encouraged[7]).  It is breaking with capitalism that matters, not breaking with the euro.  The latter may flow from the former BUT the former does not flow from the latter.

And theoretically, breaking with the euro will not necessarily provide “a chance of properly lifting austerity across the continent”. Default and devaluation and the establishment of a new drachma will not mean prosperity for Greece if Greece’s weak and corrupt capitalist sector continues to dominate the economy.

Take Iceland. This is a very tiny economy with only 325,000 people, the size of smallish city in Europe or the US. It is often presented by Keynesian economists and others as showing way out of the crisis compared to staying in a common currency. The argument is that Iceland defaulted on its debts and devalued its currency and so recovered its economy (on a capitalist basis), while Greece remains trapped.

But this story of default and devaluation is just not true (see my post [7a]). Iceland did not renege on the huge debts that its corrupt banks ran up with foreign institutions (mainly the UK and the Netherlands). It eventually renegotiated them and is now paying them back like Greece.

And devaluation did not mean that Icelanders escaped from a huge loss in living standards. They have done little better than the Greeks on that score – although of course, Icelanders started from a much higher standard of living than the Greeks. In euro terms, Icelandic employee real incomes fell 50% and are still 25% below pre-crisis levels. And even in real krona terms, living standards are still 10% below.


The same myth is peddled by Keynesians and others that having your own currency saved Argentina in its crisis of the early 2000s[8]. Argentine capitalism is back in crisis now.

Greek capitalism’s demise is not because it joined the euro. It had already failed as profitability collapsed[9],


And as post-Keynesian economist Steve Keen has recently pointed out[10], “While Greece certainly had its own specific problems—especially with its current account—in general, its apparent boom before the crisis and the crisis itself had much the same cause as in the rest of the OECD: a private debt bubble that burst in 2008.  Private debt grew rapidly before the crisis—on average by more than 10% of GDP per year.”


So the ultimate cause of the Greek crisis was falling and low profitability and the proximate cause was the huge increase in fictitious capital to compensate that eventually imploded in the Great Recession. It was not being stuck in the euro.

Greek capitalism is no position to turn things round with its own currency. Greek capital will be saddled with huge euro debts following devaluation and it won’t be able to export enough to stop the Greek economy dropping (further) into an abyss and taking its people with it. Grexit also means not just leaving the euro but also the EU and without any reciprocal trade arrangements that Switzerland has, for example.

The issue for Syriza and the Greek labour movement in June is not whether to break with the euro as such, but to break with capitalist policies and implement socialist measures to reverse austerity and launch a pan-European campaign for change. Greece cannot succeed on its own in overcoming the rule of the law of value.









[8] See my joint paper with G Carchedi (

[9] As a heap of excellent papers by Greek Marxist economists show (for a summary,


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