Following Syriza’s victory in the Greek elections far wider forces than socialists are supporting the new Greek government’s calls for renegotiation of Greece’s debt – for example the Jubilee Debt Campaign. Before the election letters to the Financial Times and Guardian by leading economists supported this. The following article analysing the the situation after Syriza’s victory appeared on Socialist Economic Bulletin by socialist economists Michael Burke and John Ross.
The Greek people have inspired every progressive force in Europe, and beyond, by electing the first anti-austerity government in Europe. Syriza has similarly inspired every progressive person with the great political skill with which it outmanoeuvred the forces in Greece and Europe who attempted to scare the Greek people into not voting for it. As Alexis Tsipras said immediately after its victory Syriza has opened up hope for the Greek people – and many others as well.
The key question now is how to turn hope into reality.
Syriza has outlined clearly its orientation – which should be supported by every progressive force. Syriza has said it is not seeking to exit from the Euro. It wants Greece’s unpayable and unjust debt renegotiated. The immediate priority of the left throughout Europe must be to organise support for this demand of Syriza during the coming negotiations. It is to be welcomed that not only the political left but also far wider groups arguing for a rational economic policy support this course – including eminent figures in their profession such as Nobel Prize winners in economics Joseph Stiglitz and Chris Pissarides. All efforts must be redoubled across Europe to gain support for the renegotiation of Greece’s debt – a course which corresponds not only to the interests of the Greek people but to the interests of rational economic policy across Europe, and therefore to the interests of the people of Europe.
Whether or not these negotiations succeed, however, the new Greek government is faced with key choices in economic policy. This is even more the case as, if the economic policies of the new government do not succeed, sinister forces that failed to win this election will seek to turn Greece backwards.
The first and immediate priority, of course, is to reduce and eliminate the appalling humanitarian suffering imposed on the Greek people by the austerity policies. Creating jobs, raising wages, restoring pensions, recreating the best possible social security are the top priorities. As always politics must take precedence over economics.
But to sustain the improvement in the living standards of the Greek people it is necessary to relaunch economic growth. And the key to economic growth is necessarily investment. Without rising investment an economy cannot grow.
Under the conditions of Greece it is even more unrealistic than normal to rely on the private sector for investment. It is the collapse in private investment which has driven economic collapse in Greece and economic recession across Europe. Since 2007 Greece’s GDP has fallen by €57bn of which the bulk is the fall in investment at €36bn. The only way to secure economic growth is therefore to embark on a programme of state investment. Those countries which have used state investment as their key instrument to promote growth have enjoyed outstanding success – for example Ecuador, Bolivia and China.
In a country such as Ecuador, which has enjoyed 5% GDP annual average growth over 10 years, real incomes per capita have risen by over 2% a year, and 10% of the population has been lifted out of poverty. This has been driven by state investment which has now reached 15% of GDP.
Economic growth, led by state investment, will in turn create the conditions under which the private sector will begin to invest again.
A key economic task is therefore to assemble the finances and practical programmes which can begin such a programme of state investment. State spending to improve the immediate living standards of the population is necessary but if it is not accompanied by measures to increase investment it will not lead to economic growth, making it increasingly difficult to sustain the popularity of the government.
Under normal circumstances the immediate resources for such an investment programme could come from borrowing – which can be cheap in the present interest rate conditions in Europe. A budget deficit divided between immediate measures of social welfare and measures of state investment would be financed by this borrowing. But the agreement with the Troika prevents the Greek government turning to public borrowing. A key goal in any negotiations must therefore be for the Greek government to regain the right to borrow not only for social welfare but for investment.
While borrowing is the rational way to speedily launch social welfare and state investment, it is entirely possible to finance these programmes through overturning Greece’s corrupt and inefficient taxation system – one designed solely to prevent the rich paying their proper share of Greece’s taxation. As rapidly as possible a fair and efficient taxation system, capable of funding both social welfare and investment, must be created. Borrowing would be the transitional measure until the time such a taxation system can be put in place.
These measures will become even more necessary if, as is very possible, forces within the EU and IMF attempt to block Greece getting the debt reduction which is required for any rational economic policy. The obstruction of these forces will be all the greater because they will consider not only the situation in Greece but they fear the risk of ‘contagion’ – that debt relief for Greece, and success in its anti-austerity policies, will inspire others in Europe to challenge the policies of austerity which have led Europe into a dead end. Here the British government plays a wholly negative role, with Cameron and Osborne both criticising Syriza’s victory. As politicians who rely most on the finance sector, this role is hardly surprising.
Very difficult choices will of course be faced by the new government in Greece in the negotiations, in its economic policies if the negotiations are successful, and in the case that forces of reaction in Europe block the successful outcome of these negotiations. All the skill which Syriza has shown achieving the support of the Greek people, without which nothing can be achieved, will have to be shown even more in carrying out the necessary economic policies. If the immediate welfare of the people is not secured, and if state investment is not created to restart economic growth, a way out will not be found.
Studying the economic policies of Ecuador, Bolivia and China will give ideas as to how aid in constructing such programmes.
Before all else, while the new government of Greece deals with key economic and other issues which confront it, the widest possible forces across Europe and the world must campaign with all their strength to ensure that the legitimate needs of the Greek people are met in the coming negotiations. The greater the success of this campaign the greater will be the chances of success for Syriza and the hope it represents first of all for the Greek people but also for every progressive person in Europe.
This article originally appeared here on Socialist Economic Bulletin.