In These New Times

A new paradigm for a post-imperial world

OK, no memorandum, but what then?

Posted by seumasach on May 9, 2012

Babis Papadimitriou


9th May, 2012

If the electorate wants a government but without the memorandum, then we’ll probably have to head back to the polls, and the parties might as well give the people a chance to explain what exactly they were looking for when they cast their ballots.

Unfortunately all of this matters very little in light of the acceleration of the economic crisis, because one of the first questions we should be addressing is what we would replace the memorandum’s austerity program with. As international capital steadily flees the European bond market and other investments on the continent, the channeling of fresh funds into the eurozone via the European Central Bank remains the only likely alternative. Yet even though the ECB has supplied eurozone banks with huge amounts of money (some 1 trillion euros), new loans are only being issued in countries that still maintain a decent level of economic activity. States such as Germany and the Netherlands can bankroll their own economies from their primary surplus.

However, Greece cannot, and this could prove a problem for those who made pre-election promises to pull out of the bailout agreement. Representatives of SYRIZA and the Independent Greeks insist that the government’s current revenues are sufficient to cover public sector salaries and pensions if we stop “paying interest to the foreigners.”

They are making three mistakes, however.

The first is that this is absolutely not true given that tax revenues remain insufficient to meet the country’s costs and are certainly not enough to cover salaries and pensions — even if the state continues to withhold payment from its suppliers. Secondly, they are factoring into the state revenues money sources which are not constant and are set to cease — funding from the European Union and emergency levies such as the property tax and the solidarity tax.

Furthermore, if the “I won’t pay” mentality prevails on a governmental as well as a societal level, it is certain to be the economy’s undoing.

Finally, correcting the “injustices” and reversing the “cutbacks” stemming from the memorandum will dramatically increase the state’s operating costs, while banks will be irreversibly damaged by skyrocketing delays in debt servicing and hundreds of businesses closing down.

The idea put forward by some leftists groups for a three-year freeze on interest payments on the bailout loans is something that could be put up for negotiation with Greece’s creditors — the European Central Bank, the European Commission and the International Monetary Fund. Their representatives are unlikely to refuse to discuss a proposal that could help to avert a rift between Greece and the eurozone, and they may even be anticipating a request for the write-down of Greek debt to be extended to the interest due in the next three years and to the payments arising from the first memorandum. Of course it’s pretty certain that they would only discuss these possibilities on the condition that all the other terms of the memorandum would be adhered to.

In conclusion, the most effective way for Greece to maintain its ties to the eurozone within the context of a less aggressive austerity program would be to increase the number of people the troika negotiates with. SYRIZA leader Alexis Tsipras will have to choose whether he will contribute toward containing the crisis or opt instead for a leading role in the final act of the Greek drama.

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