Time For Tsipras To Pull The Plug

After five months of being tied into negotiations with the IMF, EU and ECB (the institutions), during which Greece has already made concessions to the demands of these organisations, and during which these organisations have simply ensured that Greece's creditors continued to be paid, and that a new global financial crisis was staved off, for a while longer, its time for Alexis Tsipras and Syriza to pull the plug on further such talks. The Greek government should give “the institutions” a simple ultimatum - “Either agree to the concessions we have already offered, cut the debt, and provide the required short term liquidity by this weekend, or all further talks are off, and we will go into default on 30^th June."

The reality of the “support” for Greece that has been provided by the IMF, and ECB, and the previous debt write downs negotiated with the support of the EU, is that they have not been support for Greece at all. They amount to the same kind of support for Greece that things like Housing Benefit, or other in-work benefits provide for underpaid workers. In other words, no support at all. Just as Housing Benefit goes not to the worker as tenant, but to the landlord; just as the various in-work benefits go to enable cheapskate employers to underpay their workers, so the support provided to Greece is really support provided to Greece's creditors.

None of the support provided for Greece, for example, has gone to provide the kind of infrastructure or modernisation of the Greek economy required to enable Greece to pay its way in the world. That would not be so bad, if the EU actually performed the function it should perform, of bringing about an ever closer union, and a convergence of economic conditions within its borders, by organising fiscal transfers to those areas that needed such investment. All of the money that has been put into Greece, has been simply to pay the interest, to creditors, and to enable those creditors to cash in their capital, when Greek sovereign bonds fall due.

Without a deal that cancels the debt, or at least as Syriza had proposed converts the debt into long-term, zero interest bonds, any deal will be unsustainable. In fact, even the IMF has said that a deal that does not reduce the debt is unsustainable. But, the IMF and the other EU and ECB are simply playing a good cop/bad cop routine. The IMF says the debt should be cut, whilst the EU refuses to make any move on that front. At the same time, the IMF rejects Greece's fiscal measures because it relies on what Paul Mason has called “left austerity”, an emphasis on taxes on the rich, rather than on cuts in spending.

But, as Paul has pointed out the IMF has a pretty bad track record, in this regard. Their models are based upon an assumption that a reduction of €1 in the budget causes only a fall of €0.50 in GDP, whereas the evidence is that the fall is more like €1.50. That is why the austerity measures in Greece have already caused a 25% contraction of its economy, and sent the percentage of its debt up rather than down, from around 120% to 180% of GDP. The same thing was seen in the UK after 2010, when the Tories austerity measures caused GDP to tank, and made it impossible for them to fulfil their promise to eliminate the budget deficit. In fact, even though they reduced the deficit, the percentage of debt to GDP on their watch rose from around 40% in 2010, to over 70% in 2015.

It has become obvious that the “institutions” are seeking “regime change”, by using the debt as a political weapon. But it is a double edged sword for them. Yes, a huge amount of Greek public debt, has over the last five years been nationalised. That is various state bodies across Europe have taken it off the hands off private speculators. But, the fact is that if Greece defaults, all of that debt, held as fictitious capital in the shape of bonds etc., by the banks and finance houses will become worthless. It means that all of these worthless assets will then have to be written off as components of the banks' capital, which then limits what the bank can lend to other banks, under international banking regulations. The only alternative is to replenish this bank capital out of taxes, which means that it will be Germany and other northern European countries, within the Eurozone, which will have to stump up the cash one way or another. In fact, in the face of the financial crisis that is likely to follow a Greek default, as was seen in 2008, the amount that they will need to stump up to replenish the devalued fictitious capital is much greater than first appears, and certainly much greater than the cost currently of providing the support that Greece actually needs.

But, secondly, at the moment everyone is discussing only the Greek sovereign debt. That is the debt owed by the government. But, Greek private debt, that is the debt owed by companies, and individuals is around 150% of GDP too. In other words, more or less the same as the sovereign debt. If Greece defaults, and a financial crisis ensues, creditors can say goodbye to this private debt as well – or around a further €360 bn. None of this debt is part of the previous haircuts arranged for the sovereign debt, and by its nature is debt held by various European and global financial institutions. To put this in context, Lehman Brothers, whose collapse was largely seen as the spark for the 2008 financial crisis had debts of around $600 billion, which is less than the total sovereign and private sector Greek debt today.

Moreover, although the talk is of global banks and financial systems being more robust today than in 2008, the opposite is the truth. The problems of 2008 were resolved not by allowing the oceans of fictitious capital to be written down, but by pumping even more liquidity into markets to keep them inflated. European banks today sit on a much larger mountain of assets in property and bonds at vastly inflated prices than they did in 2008. They have only been kept going by an unheard of programme of extend and pretend to prevent debtors from being foreclosed upon, and a fire-sale of properties taking place.

Yesterday, on CNBC, one of today's leading speculators, Carl Icahn, said that the US stock market was greatly overheated, and he made the point I have made here several times in recent weeks, that the bond market, particularly the junk bond market is in a dangerous condition, because not only are bond prices at extremely over extended levels, but like the property market, it is an illiquid market. That is as soon as people begin to sell, they find that there are no potential buyers, so prices move extremely quickly from going up to collapsing. Similarly, the Chinese stock market, which did not move much for several years, whilst other stock markets were soaring, and when its economy was growing more rapidly than anywhere else, is itself now in a bubble, as a result of money printing by the Chinese authorities.  In the last year, it has risen by around 130%, and some analysts are now forecasting a drop of 50%.

The Chinese monetary authorities, in an attempt to keep China's markets inflated, are looking at removing all limits on borrowing, in a move reminiscent of the actions taken in the US and UK, that led to the financial crisis of 2008. The chances of a bigger financial crisis than 2008 are now growing, as I set out in my book. For example, a considerable part of the bubble in London property has come from Chinese speculators, and other speculators from Singapore and Malaysia. If the Chinese asset price bubble bursts, then as happened in 2008, one of the first things will be that all those speculators that have bought on margin, i.e. borrowed to speculate, will have to sell anything and everything in order to get cash to meet their margin calls. In 2008, the signal for that was a sharp fall in the futures price for oil, as banks and financial institutions sold what had been a very profitable asset, in order to simply get cash.

A bursting of the bubble in China, will inevitably see, huge sales of speculative London property. But property like junk bonds is an illiquid asset. Even if you can find a buyer, it takes several weeks for the deal to go through, compared to selling shares, which happens more or less instantly at the click of a mouse button. A collapse in London property prices, will immediately burst the property bubble in the rest of Britain, and affect British banks whose balance sheets are a fiction based upon these massively inflated property values.

So, if the ECB, EU and IMF force a default on Greece, the effect will be pretty immediate and dramatic across Europe, inside and outside the Eurozone, and its unlikely that such an effect will leave Asia and North America untouched.

Moreover, Tsipras has limited options. Putting forward the concessions they have so far made, could be justified, as a means of buying time. Already, in Spain, Podemos has won ground in the regional elections, and there is scope for further advance in the Spanish General Election later in the year. But, that is still months away, and it has to be said that little in the way of an international movement has been built to defend Greece, or to push other European governments towards a more social-democratic position.

Several years ago, I warned that the ideas being put forward by some on the far-left in respect of Greece were dangerous. The idea that a small country like Greece, could escape the laws of economics simply by installing a left-wing government, or even some form of workers government, were utopian. It is the stuff of the Stalinist theory of Socialism in One Country. Such an attempt would lead to economic chaos, leading to social chaos, and inevitably to the introduction of some kind of fascistic, militaristic or Bonapartist regime as has been seen in Greece in the past.

The economic situation of Greece, whoever forms the government, or indeed whoever holds state power (and the two things are not at all the same thing, which is why demands such as “Labour (Syriza) Take The Power”, as some proposed are not only illiterate in Marxist terms, but positively dangerous) cannot be resolved in Greece. Greece's problem comes down to a lack of capital. As Trotsky pointed out, in relation to Mexico, if your intention is even just to build state capitalism, that is impossible without capital, and if you lack it, you have to rely on others to provide it. The problems of Greece, and other peripheral economies can only be resolved as part of a European solution.

The answer for Greece, therefore, cannot be, as the Stalinists and some on the far left are suggesting, for Syriza to nationalise the banks, exit the Euro, and even the EU. For one thing, Syriza is not a revolutionary party, such as the Bolsheviks in 1917. Politically, it is little different from the Labour Government of 1945. In fact, as I said some months ago, what Syriza was asking permission to implement is little different to the kind of counter-cyclical measures that Obama has undertaken in the US since 2008! But, even if Syriza were to try to implement the kind of policies some on the far left are proposing, of economic autarchy and state capitalism, they would necessarily fail both economically and politically.

They would fail economically because Greece is a tiny poor country, whose problems stem precisely from the fact that it lacks capital, and is unable to compete in the world on the basis of the capital it does have. It would fail, for all the reasons Marxists have outlined over the years in relation to “Socialism In One Country”. That also means it would fail politically, therefore. It would fail politically, because Syriza is not geared to implement such a programme. It would split into numerous factions. But, it would fail politically, because Greek society would also split into warring factions, and the most likely winner of such a contest under current conditions would be the fascists or the military.

The institutions, in looking for regime change, do not seem to have recognised that the conditions under which they could do that several years ago in Italy have gone today in Greece. If Syriza falls under such conditions, it will not be a technocratic government that takes its place, it will be anarchy on the streets and a Golden Dawn coup with or without the backing of sections of the military and police. If the institutions want a model of where there programme is driving they should stop thinking about the experience in Italy, and think more of what the actions of Europeans have brought in Libya. Given the huge influx of migrants into Southern Europe from across the Mediterranean, they may want to think about what the spread of those conditions to the other side of the Mediterranean will mean.

As I pointed out months ago, if Syriza is forced to buckle that is what lies in store for Greece. Yet, as set out above, nor can Syriza simply choose to withdraw from the Eurozone and EU, because to do so would equally lead to economic calamity, and almost certainly something similar to the scenario described above, with social chaos and the rise of the fascists. It would yet again, be an opportunity for the right to blame socialists for the crisis, and to emphasise that socialism does not work.

That is why the time has come for Tsipras to pull the plug. Tsipras, Varoufakis and the other Syriza spokepeople are right. There is nothing extreme or unreasonable in what they are asking. If the EU really did want to resolve the problem in Greece, and facilitate a resolution of the wider debt crisis, and sluggish growth they would have agreed to them months ago, along with a similar programme for growth across the EU. As has been said before, in 1945, states avoided the mistakes of the Versailles Peace, by cancelling Germany's debts, and introducing the Marshall Plan of Keynesian fiscal stimulus and investment across Europe. Today, it appears that the EU leaders have reverted to the mistakes of Versailles in 1918.

The reason for that has also been set out here over the last few years. It is that the EU itself is suffering not from an economic crisis, but from a political crisis. If the EU truly were a state, the current situation would not arise. The political crisis arises because what are still nation states operating within its boundaries continue to have powerful national forces, which insist upon the furtherance of national interests over the interests of the EU as a whole. Cameron and the Tories are a classic illustration of that, but Merkel faces similar problems from her own conservative voters. Until such time as a United States of Europe is created, these kinds of political crises will continue to erupt within the EU, and they will continue thereby to cause, financial and economic crises.

One hopes that Syriza have been drawing up plans for what to do if they were forced into a default. I have suggested some of the measures they could adopt in that vein, by continuing to denominate their prices in Euros, whilst creating electronic Euro deposits to finance the state's expenditure, which would thereby also put deposits into the accounts of its employees and so on. But, Syriza should have other plans.

The government has been taking measures that meet some of its social promises; it has made reforms in relation to the police and so on, as Paul Mason has described in his reports. But, there are many more things it could do, in the immediate aftermath of a default. Greece still has a large military budget, as a member of NATO. A first move would be to withdraw from NATO, and to begin selling off the large amounts of heavy military equipment it possesses. They may want to consider an international auction for use of the military and naval bases to the highest bidder. They could no doubt get quite sizeable bids from either Russia or China.

As part of that process, they should follow the lead of countries like Switzerland, that rely upon a citizen's militia rather than a standing army. In fact, Engels proposed that every country should institute universal military conscription as a necessary concomitant of universal suffrage. The only way a people can enforce the electoral choices they make, he argued, is if they are themselves armed to prevent those choices being frustrated. The right to bear arms as part of a well regulated militia is also a fundamental aspect of the US Constitution. Greece could save a large amount by disbanding its armed forces, and paying all of its citizens as part of a citizen militia, under democratic control. That is also a fundamental protection against a coup by the fascists or sections of the state.

One of the other measures that creditors are trying to impose on Greece is the privatisation of state assets. To pre-empt that Syriza should encourage the workers of all state industries to take them over and run them as co-operatives. The government should encourage such action by declaring that it will sell these assets to the workers at a nominal price. With the banks, the government should establish a “bad bank”, as was done in Spain, for example. All bad loans, should be transferred from other banks to this bad bank. The workers of the other banks should then be encouraged to take them over and run them as worker co-operatives, with encouragement for all these banks, then to form one single worker owned co-operative bank.

At the same time as giving its ultimatum to the institutions, Syriza should also announce that it intends to call new elections. That would signal its seriousness about ending all future negotiations after this weekend. Syriza's message then would be quite clear:

1. We stood as a social-democratic party intent on resolving the problems of Greece within the confines of the EU and capitalism. The Greek voters voted for us on that basis.
2. The EU, ECB and IMF have made fulfilment of our electoral programme impossible.
3. We are not prepared to implement the programme of austerity that the institutions are demanding, and so we are standing down from government.
4. If you elect us on the programme we are now putting forward to you, we will only take office if a large majority of the Greek population give us their support.
5. Our programme can only be implemented with your support and the support of workers across Europe.
6. If we do not form the next government, we will continue to resolutely oppose any measures that the government tries to impose upon the Greek people that are against their interests.

On this basis, the battle lines would be clearly drawn, and the institutions would then go into collapsing the Greek economy in the full knowledge of what they would be unleashing. It would have several advantages. Until now, Syriza have not had to impose any additional austerity measures on the Greek people. It is still seen by the vast majority as having tried to prevent the imposition of any such measures. Unlike other social-democratic parties such as PASOK, or those in Spain, Portugal and Italy, therefore, its hands would remain clean. In the meantime it would have brought about some of the other social changes it promised, which put the Greek workers in a stronger position.

I opposed the line taken by the CPGB some time ago that Syriza should not have taken office. I think their position did not make sense. If a social-democratic party like Syriza stands in elections, wins an electoral majority (or as near as dammit) what message would it send to workers if it failed then to take office. It would be like Attlee, refusing to take office in 1945, because he did not believe he could legislate socialism! It confuses the position of a social-democratic party taking governmental office, with the position of a revolutionary party seizing state power.

But, there is a tactical reason to take office for socialists. It is to demonstrate the difference between them and other bourgeois politicians, as well as to demonstrate the real limitation of what is possible without state power, and within the confines of a single state. In the 1980's, one of the tactics proposed by socialists in relation to local councils facing cuts was that of resignation. It meant that socialists in control of a council could go to the limit of mobilising opposition to the cuts, but, in the absence of a larger national mobilisation of the working-class, which would have meant they could confront the state, they could instead make a point about the limitations of their electoral power and resign rather than implement attacks on the workers. They could then continue to oppose the cuts from opposition, voting against any budget put forward by what would then be a minority administration.

It is rather like the militant shop steward, who does everything in their power to mobilise the membership to oppose the attacks of management, rather than simply resigning themselves to what appears to be the current apathy and weakness of the majority of the workforce, and yet having done so, has to advise those members that they are not in a position to win.

Syriza has shown they are prepared to fight in a way that other social-democrats have not. But, to win we need to build a much larger, much stronger movement across the EU.