"Syriza is the Only Game in Town"

From time to time we among the news-consuming public are treated to a focusing of the lens that reveals a basic conflict, a sort of good guys versus bad guys, the outcome of which might change before our eyes the world we live in. Cyprus vs. the troika at the beginning of 2013 is an example. It looked for a moment there as if the eurozone might come tumbling down, of which I was in favor because it seemed to me that rather than providing an alternate model of the dominant race-to-the-bottom neoliberalism of the United States, the European Union was copying it, hollowing out the rich social democracies of its member nations.

After Cyprus there was Syria in the summer of 2013. A false flag chemical attack in a Damascus suburb was meant to launch a saturation bombing campaign led by the U.S., the idea being to drive out the ruling Baathists and carve up Syria, re-crafting Sykes-Picot. The Russians intervened with some deft diplomacy, the result of which was that the U.S. would call off its air power campaign in exchange for al-Assad giving up all of Syria's chemical weaponry. This so incensed the Saudis that Islamic State was given the "Go" signal. By the next summer we had a version of the Sykes-Picot reboot that the Gulf sheikhdoms were hankering after all along.

Also last summer there was Cold War 2.0. It looked for a while like the rebels of the Donetsk People's Republic and Luhansk People's Republic were going to smash so thoroughly the Ukrainian military that the junta in Kiev might collapse. Then there was the Minsk ceasefire in September. Now that fiction has evaporated and we are back to where we were last summer with "boilers" in the Donbass and the junta military getting its clocked clean.

Right now the good guys vs. bad guys narrative moment of clarity has to do with Greece's new Syriza-led government. Since its convincing election victory ten days ago, Syriza's leader Alexis Tsipras has stepped back from the international limelight and finance minister Yanis Varoufakis has stepped forward.

Varoufakis has been seemingly everywhere of late, parrying with BBC talking heads and eurogroup chief Jeroen Dijsselbloem, flying to Paris to meet with France's finance minister, all in an attempt to break the stranglehold that German-dictated austerity has on the continent.

Yves Smith of Naked Capitalism has been following these perambulations and, despite the outpouring of joy from the Western left that greeted Syriza's election, she has been bearish on Syriza's chances of achieving its aims, i.e., restoring social spending and collective bargaining rights, halting privatization, negotiating a debt jubilee with Greece's creditors.

Smith's post this morning, "Greek Finance Minister Varoufakis Retreats on Debt Writedowns, Public Spending Promises," is a good example:

We’ve said that Greece had a weak negotiating position in trying to get a better deal from its creditors. That is playing out before our eyes. Greek Finance Minister Yanis Varoufakis has stepped down some of his early proposals even before formal talks have begun. This is a sad but predictable situation, since the Germans and the other members of the northern bloc are not at all willing to cut Greece much if any slack, since that would lead bigger, more powerful countries to try to slip the yoke of austerity.

The tragic thing about this situation is that Varoufakis is simply describing economic reality and has a number of sound ideas for how to make conditions better for Greece, which in the end will also lead to better results for its lenders. Yet he has run into a massive, if predictable wall, with his willingness to make unvarnished descriptions of the obvious, abject failure of Eurozone economic policies regularly depicted as “confrontational”. One reason Varoufakis may be going this route is to use his newfound high profile to send a message to voters and anti-austerlity politicians throughout Europe, since as we have stressed, the more popular anti-austerity and anti-Eurozone parties become, the more even the Germans will have to fear.

The Germans have a short-sighted view of the stakes. With the ECB holding a sword of Damocles over the Greek banking system, in terms of its ability to cut off access to emergency liquidity facilities, and Syriza and Varoufakis personally having rejected a Grexit, they can dictate terms. In their eyes, the only reason to cut Greece any slack is that, as Varoufakis keeps stressing, Syriza is the sole party that is not loyal to Greek’s oligarchs. If they want corruption tamped down and the tax system cleaned up, Syriza is the only game in town.

Today in a Financial Times interview, Varoufakis walked back his negotiating ask for debt cancellation, instead proposing a series of “debt swaps” that would achieve more or less the same result. He was more obvious that might have been ideal in stating that he regarded this as a fix to placate Germany. From the Financial Times, which broke the story:

Greece’s radical new government revealed proposals on Monday for ending the confrontation with its creditors by swapping outstanding debt for new growth-linked bonds, running a permanent budget surplus and targeting wealthy tax-evaders…

Attempting to sound an emollient note, Mr Varoufakis told the Financial Times the government would no longer call for a headline write-off of Greece’s €315bn foreign debt. Rather it would request a “menu of debt swaps” to ease the burden, including two types of new bonds.

The first type, indexed to nominal economic growth, would replace European rescue loans, and the second, which he termed “perpetual bonds”, would replace European Central Bank-owned Greek bonds.

He said his proposal for a debt swap would be a form of “smart debt engineering” that would avoid the need to use a term such as a debt “haircut”, politically unacceptable in Germany and other creditor countries because it sounds to taxpayers like an outright loss.

But there is still deep scepticism in many European capitals, in particular Berlin, about the new government’s brinkmanship and its calls for an end to austerity policies.

“What I’ll say to our partners is that we are putting together a combination of a primary budget surplus and a reform agenda,” Mr Varoufakis, a leftwing academic economist and prolific blogger, said. “I’ll say, ‘Help us to reform our country and give us some fiscal space to do this, otherwise we shall continue to suffocate and become a deformed rather than a reformed Greece’.”

In a more sophisticated undercutting of Varoufakis than the disgraceful BBC interview of last week, a Financial Times video embedded in the article features a commentator discussing Varoufakis’ progress thus far. The segment depicts Varoufakis as being confrontational and as not having gotten on well with the UK chancellor of the exchequer, and also focuses on the flight of financial assets from Greece and its falling stock market. Does it not occur to anyone that a substantial portion of the money exodus is that of those very oligarchs that Syriza has threatened? The rest of the EU says they want the country cleaned up, yet they attack Syriza for the predictable results of their seriousness.

But while it may seem trivial for them to get their way with Greece, this victory is likely to be Pyrrhic. The more it becomes obvious that the northern countries will keep inflicting pain on Greece out of a desire to keep a bad status quo intact, the more the other victims in better bargaining positions (by virtue of having larger economies and even more fractious voters) are likely to escalate. Indeed, Varoufakis, by challenging the Troika on so many fronts, is conveying a powerful message that subservience is neither necessary nor desirable. No wonder the technocrats are out to discredit him personally.

Ambrose Evans-Pritchard argues that Greece holds the trump cards. Here I disagree. With de facto control over Greece’s banking system, the ECB can bring Greece to heel. We’ll see if the ECB imposes any conditions on its approval of the Greece’s request to use ELA funds on Wednesday. If they are anything other than cosmetic, that means the ECB is supporting the northern countries and is determined to box Syriza in. But I do agree that in a longer time frame, Germany is losing. The problem is it may not lose quickly enough for Greece to get the relief it desperately needs. 

Interestingly, right after Syriza won the election all the talk was that the troika would extend the bailout program set to expire on February 28. Nothing of the sort materialized, and last week Varoufakis staked out the position that Greece would not accept the bailout funds because doing so would lock the country into conditions the new government rejects.

Now, following the post-election bank runs, Smith sees a lot of importance in what position the European Central Bank will take Wednesday regarding Greece's request for Emergency Liquidity Assistance. According to Smith, the game for the Syriza can be up pretty much by tomorrow if the ECB demands onerous conditions to access ELA money.

My sense is that Syriza is shrewder and tougher than Smith is willing to credit. At this point "There Is No Aletrnative" to a party like Syriza, other than, given time, one more to the left or the far right. Varoufakis, it seems to me, is waiting for the troika to overplay its hand. And so far this seems to be transpiring, which is having the effect of radicalizing the public. The point is that the general populous has to be moved from its false consciousness to one that is more real, more radical. That is happening. But as Smith asks, Will Syriza have enough time?