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BRICs, currency, EU, Eurozone, Germany, Greece, monetary union, russia

The significance of Tsipras’ visit to Moscow

By Jacques Sapir

Alexis Tsipras, the new Prime Minister of Greece will be in Moscow April 8. The following day, Greece must make a payment to the International Monetary Fund. The statements by Greece’s Minister of Finance does are unambiguous: Greece will honour its debts. [1] But on April 14, the Greek government must simultaneously issue 1.4 billion euros of bonds, rolling over this short-term debt, and pay 1.7 billion euros in pensions and salaries. However, the European Central Bank has “advised” Greek private banks not to accept new short-term bonds issued by the Greek state. [2] This visit to Moscow by Alexis Tsipras goes far beyond the traditional friendship between Greece and Russia. It could mean, in the relatively short-term, the beginning of a major shift across Europe.

I. The situation in Greece

We know that Greece has reached a tentative agreement with its creditors (the Eurogroup but also the IMF). Today the country thus faces significant challenges in the short term, top among them the flight of capital outside the banking system (12 billion euros in February) and financial uncertainty surrounding its ability to make repayments its debt. This financial uncertainty is both a political and economic weapon against the new government. Investments in Greece have slowed down sharply, and Foreign Direct Investment (FDI) has stalled. Under these conditions, the Eurogroup (the meeting of Finance Ministers of the Euro Area) has taken the responsibility to exert ever more heavy political and economic pressure on the Greek government.

We also know that austerity policies are a failure not only in Greece but in many other countries. The destructive effects of these austerity policies, not only in the case of Greece but also in Portugal, Spain and Italy are now perfectly obvious and proven. From a technical point of view, the multiplier of tax expenditures (the multiplier that links changes in GDP and budgetary expenditure) was grossly underestimated by the authorities of the European Union, even after the publication of the famous study of Blanchard, published by the IMF, dating back to January 2013 [3]. It is clear that the policies implemented in Greece under the “Memorandum” haven’t worked and have moreover have had very large destructive effects on the economy. These policies, and we must insist on this point, have not been developed to “help” Greece, but only to allow the creditor countries to be reimbursed. This was recently recognized in a note from the IMF. But on this point too, they have proven counter-productive. Indeed, it is clear that Greece, following various Memoranda, cannot repay its debt. The implementation of this policy to take the country out of insolvency has, instead, plunged it into insolvency.

It is in this context that we must assess the policies implemented by the European Union, of which the anti-democratic, even fascistic character is revealed a little more each day. By cutting off access to ECB’s emergency liquidity facility on 4 February, rejecting all policy proposals from Athens, European leaders are hoping that the pressure will be such that Alexis Tsipras will be forced to accept the conditions of its creditors. These conditions are not based on economics, because they have actually worsened the country’s situation. These conditions are in fact political. They demand “reforms” to the labour market and pensions not because they are urgent economically, for they are not, but in order to demonstrate the ability of the European institutions to ‘cancel’ politically most of Syriza’s programme and message.

This is the essential point, and must be understood to grasp the general situation. European leaders want to cancel the results of the elections of January 25 that jeopardize their policies for years to come. They want to cancel the elections even while they claim to be the great defenders of democracy. Proof that “democracy” is only a word in their mouths, and in reality, they constantly deny it and deny the sovereignty of the people expressed in these elections. So the Eurogroup continues to reject the reform proposals presented by new government of Greece. But in doing so, it has radicalized the position of the Greek government. We must therefore understand why the Greek government has not decided to make a clean break with European institutions.

II. Greek policy vis-à-vis Europe

In reality, Syriza locates its action within the European Union. Some do it by ideology, but the majority of the party do it by realism. The attachment of the population, and Greek elites to the EU is significant, and we need to understand why.

First, there are geopolitical reasons. The Greeks remember the isolation of their country during the events in Cyprus in 1973, which were to lead to the Turkish intervention in the island (operation Attila). These events were also the cause of the fall of the dictatorship of the “colonels”. So the dangers of a new isolation remains in the collective memory of the Greeks. This is what successive governments, right and left, have sought to avoid through the accession of Greece to the Common Market (under the conservative government of Karamanlis) and the unwavering support for the different stages of European integration. Even the accession of Greece to the Economic and Monetary Union, ie the eurozone, can be interpreted as an expression of that desire not to be isolated. One might think that this fear of isolation from Turkey could now be offset as much by political and military agreements with Russia as by joining the European Union.

Second, there are economic reasons. Greece benefited greatly in the 1975-2000 period from European structural funds, and much public investment has been made through the various European aid programmes (aid to the islands, mountainous areas, etc …). The fact that the latter has been greatly reduced since 1995, and especially since the entry of former countries of Eastern Europe into the EU, however, makes this a much weaker argument that a decade ago. The Greeks are aware that this “help” is becoming weaker while the constraints imposed by the European Union are truly deadly.

Third, is the ideological reason. The modernizing elites of Greece, elites of which Syriza is an integral part, have always considered the union with Western Europe, ie the initial core of the Common Market, as a guarantee of the implementation of reforms to liberate Greece from the Ottoman legacy. One can discuss ad infinitum what in the Greek social and political culture constitutes the “legacy” of Ottoman occupation, but it remains that the massive presence of nepotism, corruption, and generally of institutions that can be described as “soft” and that allow the continuation of this nepotism and corruption, are attributed to this “heritage.” From this point of view, the accession to the European Union was the only guarantee of the necessary reforms.

These are the three reasons why Syriza is a viscerally pro-European party, and that the mourning of the European dream is a painful process. The leaders of Syriza had hoped to unite around the countries that suffered most from austerity, such as Spain, Portugal and even Italy and France. They had hoped to form a great “united front” against austerity in Europe. But here they caught by optimism. Optimism about the French government’s position, which shifts each day a little to the service of Germany. Optimism about the positions of conservative governments in Spain and Portugal, who see Syriza as endangering their own rule over their people.

The leaders of Syriza, mutatis mutandis, find themselves in the same position as the Bolshevik leaders who believed that the revolution in Russia was going to cause a revolution in Germany, and who were left without a strategy when this did not happen. From this situation was born the strategy of the autonomous development of the USSR, with the New Economic Policy (NEP), conceived as an alternative following the failure of the revolution in Germany. The idea was that around that NEP an implicit bloc from the Bolsheviks to the various modernizers (Mensheviks, Socialist-Revolutionaries) could form, a political alliances that could give the NEP extremely progressive economic and social dynamics [4]

In fact, it seems that Syriza’s leaders anticipated that their optimism could be misplaced. The political deal they made with the “Independent Greeks” meant that the concessions they were willing to make to stay in the euro zone would have a limit. It is also possible that they underestimated the national resistance movement that emerged after the election on 25 January.

Since that election, the Greek government has realized that outside an unconditional surrender, an abject submission to European diktats, it would find no common ground with the Eurogroup and the ECB. The fact that it has changed his position on the privatization of the port of Piraeus, to avoid offending China, is an indication that the Greek government no longer expects much from the European Union and is prepared to count ever more on Russia and China.

III. What strategy?

Let’s consider what might happen in the next few days or few weeks.

The Greek government has decided to honour its debt to the IMF. This is entirely understandable. It cannot turn its back on both the Eurogroup and the IMF. A default vis-à-vis the latter would have more serious consequences for Greece, consequences that are more important even than Greece being cut off from European funding and de facto forced out of the Euro. The decision to honour its debts vis-à-vis the IMF suggests that a rupture in the position is emerging within the Greek government.

For this rupture, however, the Greek government wants to place the responsibility soley on the shoulders of the Eurogroup and the European Union. It wants this on the one hand for reasons of domestic politics and political ethics. Having said during the campaign that he would not leave the Euro, it must act as if to be expelled from it. Hence one cannot expect gestures of rupture from Greece, but simply that it will be firm on these principles: there is no question of abandoning electoral promises and the programme under which this government was elected. However, the Greek government also wants this rupture to be carried out by the European institutions to make the end of the European dream less painful. Mourning the European idea, at least in its most inclusive form, will certainly have consequences. While responsibility for this loss can be placed with Brussels and Frankfurt, it could result in greater legitimacy to the Greek government.

It is here that the possibility opens up of creating a new currency that would operate together with the Euro, to allow the Greek government to make the payments owed to the population (i.e. public sector wages, welfare), and boost investment. This would have no precedent. It is not that the dual circulation systems have not existed. But these systems were both very unstable (one currency eventually crowds out the other) and there is no example where a supranational currency was challenged by a newly created national currency, except in the case of countries overturned by drastic upheavals (Austria-Hungary, USSR). In this case, the dual circulation lasted not more than a few weeks. If the Greek government took the (logical) decision, in the face of financial strangulation to which it is the object, of creating a new currency two problems will immediately arise:

  • Stability for the new currency.
  • The exchange rate between the new currency and the Euro.

The stability of the new currency could be guaranteed by a stabilization fund, itself created from a short-term loan (2 years maximum). Russia has already said, through its foreign minister, it was ready to consider such a loan. In fact, it is clear that this is a “soft” way out of the Euro. If this new currency is stable, it will quickly establish itself in within Greece, in competition with the euro, while experiencing a depreciation of 20% to 30%. This depreciation should lead to a strong trade surplus within six months to a year, guaranteeing the repayment terms of the loan.

In fact, in the medium term the conditions for stability of the new Greek currency appear as good. This stabilization fund could be supplied by Russia. This trade surplus could also be also increased by removing “counter-sanctions” taken by Russia against the food production in the countries of the EU; they could be lifted Greece and Hungary, initially. In addition, Greece will have to default on its debts denominated in Euro, which will create problems for the countries of the Eurogroup and the ECB.

More generally, an irreconcilable conflict between Greece and the Eurogroup countries would mean that Greece turns to Russia and China both for investment (FDI) and to political and economic relations.

IV. A dramatic shift

Such a solution would involve a dramatic shift with significant far beyond Greece. When preparing his trip to Moscow to be held on April 8, Alexis Tsipras set the tone on March 31 stating that “sanctions against Russia lead nowhere.” [5]. This statement was a clear repudiation of the eastern policies of Brussels, particularly regarding Ukraine. That is worrying the European Commission. Athens could then decide to defend the positions of Russia in the EU, and especially if the EU showed itself aggressive with regards to Greece. There is nothing in it for Greece to leave the EU. The Greek government would be a better ally of Moscow if it remained a member of the EU, while systematically challenging and paralyzing all decisions. One can theoretically expel EU countries, but this requires unanimity of all the other members. Clearly, there will always be one or two other countries that refuse to vote for this expulsion, if only because of the fear that they might be next on the list of expelled.

This refusal to go deepen the confrontation with Russia, a position that is widely shared in Greece by political forces that are not in government, could also bring out of the woodwork other countries that share these positions in reality: Cyprus, Slovakia and Hungary, for example. But today, the challenge of this trip is probably even greater. It is clear that the conflict between the eurozone and Greece is inevitable, and that this conflict may cause an exit from the euro by Greece. The trip to Moscow by Alexis Tsipras, but also the close relationship that his government is to establish with China and more generally with the BRICS countries, potentially represents a historic moment. An ebbing away of the power of EU institutions to the benefit of an advance, albeit timid and certainly prudent, but nevertheless real by emerging powers such as Russia and China, in the European game. That is why there is much more to this trip than the eye of an observer can see.

The fear of this great shift must now begin to enter into the somewhat misty brains of European leaders. So what are the possibilities? They concede all or part of what Syriza requests. As has already been stated, such a solution would in itself be an implicit condemnation of austerity policies. There’s little chance that the governments of countries, such as Spain and Portugal, would applaud what just yesterday what they had spurned, and decide to embrace the demands of Greece. There is a big risk that the policies established by Germany in favour of Germany are defeated. The German Government is aware of this, and that’s why it leads a “front of firmness” on these points. But by taking an uncompromising position on Greece, these same leaders risk the collapse of the entire political structure they have built these past fifteen years or more. Regardless of the outcome of this crisis we are witnessing the end of European integration as it been pursued for nearly twenty-five years. The term “momentous change” seems appropriate. The question in my native France is how our rulers will adapt to this new situation.


[1] http://lexpansion.lexpress.fr/actualite-economique/la-grece-s-engage-a-rembourser-le-fmi_1668428.html

[2] http://www.latribune.fr/economie/union-europeenne/la-bce-demande banks-Greek-de-do-more-buy-for-debt-to-athens-463735.html

[3] Blanchard O. and D. Leigh, “Growth Forecast Errors and Fiscal Multipliers”, IMF Working Paper, No. 13/1, January 2013.

[4] Sapir J., “Éléments d’une histoire économique de l’URSS: quelques questions sur la croissance”, in Historiens et Géographes, n°351, décembre 1995, pp.191-218. Idem, “La guerre civile et l’économie de guerre, origines du système soviétique”, in Cahiers du Monde Russe, vol. 38, n°1-2, 1997, pp. 9-28.

[5] http://www.theguardian.com/world/2015/mar/31/alexis-tsipras-greece-russiarelations

Translation by Revolting Europe

About revoltingeurope

Writer on Europe's Left, trade union and social movements @tomgilltweets or @revoltingeurope


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