The Real Thing: an Anti-austerity European Government

By James K. Galbraith, Social Europe, April 7, 2015

I have just come from Athens where I have, for the last several days, had the high privilege of working with the government of Greece, and especially with the Finance Minister, my very good friend, Yanis Varoufakis. I’ve actually had two occasions, so far, to observe the drama that’s unfolding in Europe from a close vantage point.

The first one was during the week of the negotiations that led to the landmark agreement on 20 February. And then, in these last few weeks in Athens, which had their own drama as they led up to a series of payments, including a very substantial one that was due to the International Monetary Fund. All of which were, let’s say, events followed with distinct interest around the world and especially in financial circles.

What is at stake in Greece goes very far beyond merely financial questions. It goes beyond the question of the fate of a small and historically very badly governed country with weak institutions that has suffered abominably in the wake of the crisis over the last five years, losing 25% or so of its output. And having unemployment rates that are comparable to those in the United States during the worst period of the Great Depression, unemployment rates that exceed well over 50% for the youthful population, and facing severe stresses in every aspect of (its) public and social (activitie)s.

It goes, as I say, even beyond that very grave situation, which is visible on every street and on every wall in Athens. It goes beyond that to the future of Europe and beyond that, to the meaning of the word democracy in our time.

But what the Greeks have done, and this is what has attracted me to become as engaged as I could be in this situation, what they’ve done in the past few months, is astounding. They have dismantled – I think definitively –  and banished an entire previous political class.

They have ended a rather rotten and corrupt previous, two-party duopoly, and they have installed a government of dissidents, activists and professors – including, of course, a Finance Minister who was for years, until very recently, banned and blacklisted from Greek television by the then existing authorities. That man is now the Finance Minister of the Hellenic Republic.

And the Greek people did this, by the way, in the face of a wall of resistance from their own media, which continues, and in the face of a wall of incredulity from their European partners, which also continues. I would say that possibly nothing quite comparable to this has happened in Europe since the election of Solidarity in Poland at the end of the 1980s. And it is obvious that it has had a galvanising effect on the political atmosphere outside of Greece, in fact, in many places around Europe, and is spreading an aspect of possibility that was not there before, opening up a window of opportunity. I believe the word in Spanish for the atmosphere that is emerging is ‘podemos‘. And that is the breeze which is wafting fresh air over the entire European scene.

I have been, of course, watching the European scene with some care for the last five years especially, and the transformation, the psychological transformation, is already perceptible outside of Greece. Inside Greece it is a fundamental fact that one can observe at any time.

At the same time it is also true that the new government confronts an elaborate, well-laid political and economic trap. It’s more than a trap actually. It’s more like a minefield or an obstacle course that is entirely of human construction. It’s purely artificial.

The trap is comprised of deadlines, deadlines for reviews, deadlines for payment schedules and cash flow hurdles, that were put in place before the 25 January election, in some cases with a view towards the likely timing of that event. It is comprised also of caps on liquidity assistance to the banking system, on issuance of T-bills by the government and the ability to discount T-bills at the European Central Bank – which came into play after the election.

Each of those measures can be, and has been, rationalised as a measure of supervision or oversight or precaution. We can argue about whether that’s a legitimate rationalisation or not. I would have my questions, my doubts. But what one can say for sure is that the ensemble of these obstacles and, let’s say, precautionary financial measures, is, from a macroeconomic standpoint, from a psychological standpoint, fundamentally counterproductive. It adds materially to the instability that is perceived with respect to the Greek economy, to the instability of the financial system. It adds materially to capital flight, and to the political pressures that have been on the government and to which neither the government, nor the Greek public has shown any inclination to bow.

To get past the trap, to get through the minefield, has required manoeuvres of a fairly high order of adroitness in at least three stages. The first was to establish, in principle, that the previous agreement, the Memorandum of Understanding as it was called – which had subjected Greece to a form of colonial government, according to which practically everything that the government did was dictated from outside, by the institutions known as the troika – was a thing of the past. That it was finished, that the Greek public had rejected being ruled this way in an open and decisive election. And, at least in principle, that proposition was accepted, after some fairly rancorous negotiations that led to the communique on 20 February. This was a major step forward, although one that did come at the cost of deferring certain measures in the SYRIZA election platform, including raising the minimum wage, not reversing privatisations that have previously occurred and accepting a primary surplus target, which, although lower than the previous completely unrealistic one, was and is still constraining on the Greek government.

The second stage, still ongoing, involves establishing this reality at the operational level. It involves establishing a professional, acceptable working relationship between the international teams, which do have a legitimate role. And that role is finding out the facts and assuring the European partners of the good faith of the Greek government. And that has required an adjustment on the part of the international teams who came back to Athens, I think, still hoping that they could conduct business as they have done before, basically under the same operational rules that had governed under the Memorandum of Understanding. They found out that that was not the case and there was a certain amount of friction that was associated with that discovery.

I think it’s fair to report, in the last several days, some progress has been made. Technical discussions were suspended for a while, with the proposition being that the teams would present their request for documents from the Greek government in writing. And the teams are now doing that. They are working to present a list of documents that they require and that request will be responded to. The Greek Ministry of Finance  has issued a statement saying that they view this as a constructive development. It’s putting the relationship between the two sides on a proper footing of good order and regular exchange of documents.

A third stage in the process is one which has to be resolved at the political level. And that involves restoring the liquidity of the Greek government and giving enough financial stability to the banking system so that economic activity can begin to resume. That’s been a major problem, especially in these last two months, in the atmosphere of fear that surrounded the election and the atmosphere of uncertainty that has succeeded it. Basically, banks have suspended most of their activity and a great deal of capital has left, requiring, as I say, these intermittent and rather small increases in liquidity assistance to keep the system in function.

But that is not sufficient to allow the government the breathing space, either to develop its programme of reforms, or to begin to open up the prospect of some recovery in the economy. And a decision to move past that mechanism of destabilisation had to be taken at the political level and it is possible that that was accomplished, in part at least, in Berlin (on March 29).

And here I think, as was the case before the 20 February agreement, the pragmatic intervention of someone, for whom I don’t ordinarily offer a great deal of effusive praise, namely the Chancellor of the Federal Republic of Germany, has to be acknowledged. It’s a pragmatic step which may amount to a turning of the corner and an easing of the pressures that have been extremely problematic in recent days from the European Central Bank.

So as these manoeuvres, as I call them, mature, there emerges an interesting possibility. And that is the possibility of a politically stable, anti-austerity government in Europe, led, as I think you probably have observed, by forceful personalities, and presiding over an economy which is so far down that it has no place to go but up. And that may well be, within a short period of time, on a track of some recovery, some improvement in jobs performance and stabilisation of its external debt situation.

This would be in the wake of a crisis that was brought on by the neoliberal financial policies of the early part of the 2000s. Which was then aggravated and prolonged by the austerity ideology that succeeded the crisis, by the profoundly counterproductive policies with which Europe has reacted to the crisis. And so the possibility that an anti-austerity government might lead the beginning of a recovery from the austerity regime is, I think, a present reality and it is, of course, a nightmare in certain quarters.

It is, of course, the worst thing that could happen if you happen to be associated with the larger political system, and the larger economic policy that Europe has been pursuing. And there are a lot of people who are associated with that ideology and with those policies, and you can see their reaction in recent days.

They have thrown down one last line of mines and barriers, which has been visible to everybody, and I think it deserves a word, even though it is not strictly speaking a word about economic policy. That is a campaign of political character assassination, which has been aimed specifically at one pillar of the potentially forthcoming Greek revival, and that is my friend the Finance Minister, Yanis Varoufakis.

This part of the game is a familiar one, certainly familiar to Americans. Americans of my generation have seen versions of it aimed at progressive, or ostensibly progressive, political figures on various occasions; Gary Hart was an example, back in the 1980s. Bill Clinton was an example on several occasions in the 1990s. And there have been attempts of the same sort aimed at our incumbent President, Barack Obama.

There are always two major features to a successful attack of this kind. One of them is the great principle that freedom of the press is a concept that applies most particularly to those who happen to own one, which, in this case, are the rightists who own banks, which own media companies.

And the second essential element is the altogether reliable response, especially in large audiences, when references are made in public to the fact that the human male is normally endowed with a reproductive organ. Did I state that with sufficient delicacy to get away with it?

Of course in the cases of my friend Gary Hart and of President Clinton, there were issues here which, if you happen to care about those things, could be raised. In the case of President Obama, we have a man whose visible family life is more pristine than any since Ozzie and Harriet. But, in his case, that second essential element was therefore wholly absent, which is why President Obama was not taken down by this kind of attack.

And in the case of Yanis Varoufakis, the attackers have essentially the same problem. Real life affords no plausible foothold, or is it perhaps a handhold? or is it perhaps a finger hold?  And, so, the whole thing had to rest on an alleged fleeting gesture in a long ago quasi-academic lecture. The phrase for this is: scraping the bottom of the barrel.

But it is something which has been part of the political and media dynamic, aimed in a very specific way at the one figure who has done the most to transform the political climate of economic policy discussion in the world, and especially in Europe, in the last four months. And his position in doing that was built upon a record of years and of millions of words of effective and largely accurate analysis of what has been going on.

So we need to watch and be careful not to make too little of these matters, which may seem trivial or may be easy to dismiss, but which are in fact, intended to achieve a very specific political purpose.

This I think will pass. It will pass because the leader of the Greek government, the Prime Minister, Alexis Tsipras, is the real thing. I’ve gotten to know him, not as well as I know Yanis. But I have to say, I’ve met a lot of political leaders in my time and I have not known very many who approach Alexis in his ability to assess a political situation with a very cool eye and to make a very solid judgement about it, which is why he came from nowhere – after less than four years, really, in less than a year and a half – to be the Prime Minister now of a European country.

The Greek people after all, elected their government in complete defiance of their own media and they have rallied behind it in the crisis that followed the election by margins that reached 80%, which meant that half or so of those who voted against them in the election have come to support them, at least at some point in the period that followed.

There is a spirit of dignity in Athens that is worth a great deal more than money. That’s something very profound to observe. I’ve only observed it on maybe two or three occasions in a lifetime. And that is a spirit which is contagious and it may be felt in Spain, and it may be felt in Portugal and it may be felt in Ireland, and elsewhere before long.

So I hope that you will not find me too portentous if I convey to you just how much this particular moment, and the chance to participate in it, has meant to me by closing with the words of Zola: la vérité est en marche et rien ne l’arrêtera. Merci.

This is the transcript of a speech delivered at an ETUI conference in Brussels on 20th March 2015.

James K. Galbraith holds the Lloyd M. Bentsen Jr. Chair in Government/Business Relations and a professorship of Government at the Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin. He is the author, most recently, of The End of Normal.