Kostas Vergopoulos is Professor of Political Economy at the University of Paris VIII. His publications include “The Peasant Question and Capitalism” (with Samir Amin, 1975), “The Agrarian Question in Greece” (1977) as well as the more recent “The Love of Wealth: Money, Power, and Corruption in Greece” (2005), “After the End: The Economy of the Catastrophe and the Next Day” (2011) and “Greece-Europe: An inappropriate Relation?”(2012).
Professor Vergopoulos spoke to “Epohi” weekly newspaper (Dec 18) commenting on PM Alexis Tsipras visit to Berlin and the limits of austerity policies in Europe. Here you can read the main part of the interview translated in English*:
What is your conclusion after the declarations of various European leaders during the Prime Minister’s Berlin visit?
A first conclusion to be drawn is that suddenly Greece is once again at the focus of international media, who are reporting that the government has decided to give out financial aids that may contradict the adjustment programme the country is committed to. However, the second conclusion is that this incident brings again to the surface the underlying dispute that almost all Eurozone countries have with Germany. The countries that dispute German austerity are in favor of Greece, especially France. As it happened in July 2015, it was France’s intervention that deterred Wolfgang Schaeuble’s proposal for Grexit.
Right now we find ourselves in a similar situation that may even prove fatal. At a time a when recession all over Europe calls for growth policies, almost everyone is clamoring against the German recipe for generalized austerity. Germany’s SDP and Sigmar Gabriel himself, along with the social-democrat president of the EU Parliaments Martin Schulz, and the president of the European Commission took Greece’s side in this debate. Not only do they believe that the anti-austerity measures adopted by the Greek government are not in conflict with the Eurogroup agreements, but they are taking this a step further, using Greece as an example of why austerity today is bad for all of Eurozone and why we need a change of course.
So today, Greece is not isolated. The German Finance minister is more isolated. The French Finance minister Michel Sapin publicly stated that: “I am not aware of any Eurogroup decision that says we have to freeze aid towards Greece. The decision taken on December 5 is that we will immediately apply short-term debt relief measures”. So, what we have is that that neither Eurogroup, nor the ESM, as institutions, have decided to freeze aid to Greece. What we have are only individual statements from their presidents, Dijsselbloem and Riesling respectively, statements that provoked expressed discontent among member-states.
The Eurogroup report on what might be the consequences of the Greek pension bonus is itself ambigious. It leaves the door open to a painless solution to this issue.
The report acknowledges that these 630 million Euros used for the pension bonus will not have any negative fiscal impact, not in 2016, not in 2017 and not in 2018. The president of the European Commission, Jean-Claude Juncker even stated that “not only will there not be any negative impact but the predicted impact will be positive”. This is due to the high multiplier of this bonus: it will be directly funneled to consumption and it will increase internal demand. If you want my opinion, this bonus is justified and in the right direction; the problem is that it is essentially too small to restart the Greek economy at this point.
I believe that Greece will reach an agreement with the institutions over this. The institutions will issue a disapproving statement along the lines of “this must not happen again” and I believe they do have a point here: such decisions shouldn’t be unexpected and unilateral; they should be discussed before being publicly announced.
The harshness of the statements on all sides shows that there is an acute problem within the EU, even a rift.
There is definitely a rift within the EU, and a big one. On the other hand, there is at the same time a very strong will to keep the EU alive and united. Germany also wants this, since it reaps great benefits from the EU, and about 50% of its surplus. What the German politicians want is to not burden the German tax-payer. However, Greek debt, as well as other Eurozone debt does not in any way burden the German tax-payer. The loans to Greece and other indebted countries don’t come from tax revenues of any European country; they come from the ESM, which borrows them by selling bonds in the financial markets, in order to maintain the stability of payments within the Eurozone.
The negotiations seem to be actually taking place between the IMF and Germany, with Greece being just a triggering cause. At the root of the discussions lies the issue of European debt overall, a problem that is becoming bigger each day. Is that so?
Right now, the Eurozone, where many members have a debt over 100%, is the most heavily-indebted area in the world. Germany´s debt, for instance, is 85% and rising. This is happening because the Eurozone is the only place in the world that opts for austerity with such blind fanatism. Austerity shrinks GDP and therefore increases debt as a percentage of GDP. So, austerity is not the answer to heavily indebted countries, it actually exacerbates their problem. This policy and the rising Eurozone debt is a cause for concern for the IMF. In a recent article, Maurice Obstfeld, Economic Counsellor and Director of Research argued against austerity, and even in favor of deficits, under the condition that they are “smart and targeted”.
How is it then possible that a proposal for a 3,5% primary surplus for 10 years is being discussed for Greece in the EU?
It is tragic. Ex prime minister Antonis Samaras actually went as far as to accept a 4,5% surplus. This is impossible; the economy will never grow like that. It’s about the predatory, greedy short-sightedness that characterizes a part of the German elite. It’s pure and dogmatism.
What do you think about the Greek compromise proposal for 2,5% surplus + 1% for growth?
The fundamental principle for growth is that fiscal surplus has to be lower that the growth rate of the economy. So, is the surplus is 2,5%, in order for the economy to remain in positive numbers, it should grow with a rate higher than 2,5%, for example 3% or 3,5%. And this is difficult to achieve, even a 2,5% growth rate for Greece would be high. 1,5% is a more realistic number. And of course, in order to maintain a steady growth rate, it has to be lower than the rate for servicing the debt. With the 5 December Eurogroup agreement this rate was set at 1,5% and I believe this is positive.
*Translation by Ioulia Livaditi