Syriza's About-Face and Why We Should Stomach It

Yesterday, a Monday back at work to begin another week in a series of weeks that will lead eventually to May and Memorial Day, the sense of hopelessness and fatigue was palpable. I kept checking for signs of life from Brussels, wishing that Syriza had discovered a path forward to foil the eurogroup of finance ministers and their neoliberal austerity.

But no such luck was mine. The reporting was sparse and eventually, I think it was late morning Pacific Standard Time, it was reported that Greece would submit her proposals Tuesday morning, today.

First reports (James Kanter and Niki Kitsantonis, "European Lenders to Review Greece Overhaul Plan") this morning are not encouraging:

Jeroen Dijsselbloem, the head of the Eurogroup of finance ministers, that he could not yet give a “positive assessment” of the list submitted by Athens, as the overhauls first needed to be reviewed for their effects on the Greek budget. A conference call among the 19 finance minister of the Eurogroup was set for Tuesday afternoon.

“I think they are serious,” Mr. Dijsselbloem, referring to the attitude of the government in Athens, told lawmakers on an influential economics committee at the European Parliament during scheduled testimony on Tuesday.

Among the overhauls are plans to improve management of the national budget, and to enact changes to Greece’s taxation system, including changes to the collection of sales taxes “with a view to limiting exemptions while eliminating unreasonable discounts,” according to a letter that Yanis Varoufakis, the Greek finance minister, submitted to Mr. Dijsselbloem.

The government also committed not to reverse existing privatization plans and said it would review planned sell-offs with a focus on bolstering “the state’s long-term benefits.”

In addition to streamlining the public sector, the government will review public spending at every level and will modernize the pension system in an effort to end “an excessive rate of early retirements.”

The country still plans to raise the minimum wage, one of the government’s pre-election promises, but pledges to do so in a way that safeguards competitiveness, the letter said.

The opportunity for Greece to submit the proposals was one of the few concrete concessions it won in an accord reached with its creditors late on Friday in Brussels. That accord brought to an end the bitter standoff that began when Prime Minister Alexis Tsipras pledged to redraw or scrap the bailout agreement after he came to power in January.

European and Greek officials spent much of Monday exchanging drafts of the proposals to pare back austerity measures while ensuring that Greece can still meet fiscal obligations.

The government of Mr. Tsipras had an opportunity to put its “political stamp” on a bailout plan if it respected budget targets, Mr. Dijsselbloem told the parliamentary committee.

The deal to extend the country’s bailout program with European creditors by four months is subject to the approval of the Greek Parliament, where members of Mr. Tsipras’s radical-left Syriza party have called the plan a capitulation after the party’s anti-austerity campaign promises.

Also on the list submitted by Mr. Varoufakis are plans to crack down on the smuggling of fuel and tobacco, which cost the Greek economy billions of euros a year, to address tax arrears and nonperforming bank loans, and to support struggling homeowners who are unable to meet their mortgage payments.

The overhauls will also address what Syriza has described as Greece’s “humanitarian crisis,” referring to the need for food stamps and other assistance to poor families, but Athens said the measures would be mostly “nonpecuniary” and would have “no negative fiscal effect.”

You will recall shortly after Syriza's victory at the end of January the consensus opinion was that Tsipras would be unable to crack the troika's austerity diktats; that the best Greece could hope for was a few scraps of social-welfare spending tossed from the master's table. Then Syriza's finance minister Yanis Varoufakis went on the offensive against the cruel fiction of neoliberal austerity and the fantasy that governments can cut their way to growth. Commentators zipped their lips. Maybe little Greece was going to shake up the neoliberal consensus.

Well, it appears the original conventional wisdom is going to be proven true.

The commitments to existing privatization plans and streamlining the public sector (highlighted in red in the Kanter and Kitsantonis story above) are truly ominous and confirm the view that Tsipras and Varoufakis have indeed performed an about-face. In a post yesterday, "Eurogroup to Review Greek Reform Proposals; Meeting Set for Tuesday (Updated)," Yves Smith is troubled by the Greek proposal's commitment to EU "best practices" on labor:

“EU best practices” on labor is very disconcerting, since it implies a forced embrace of “labor flexibility” as in further reduction of labor protections and bargaining rights. That would seem to be inconsistent with earlier reports, including a government announcement, that Greece was seeking an increase in the minimum wage. Perhaps that section is more of a mixed bag than the headline for that section suggests.

After the work day was done yesterday, a co-worker, the only one who really pays attention to the news, offered me a ride to the train station. I tried to explain why I felt that even though it would be damaging to us -- because our retirement is in the form of a 401(a) defined contribution pension plan that floats along the waves of the market, and the markets would most likely freak out in a bearish direction upon Greece's leaving the eurozone -- and damaging to the citizens of Greece I wanted to see the eurozone come tumbling down.

I don't think I was very articulate. What I said was something to the effect that if the eurozone cracks then U.S. hegemony is diminished. For instance, the ability of the United States to stampede the EU into Cold War 2.0 by sanctioning Russia becomes much more difficult. And this has to be considered a desirable outcome. No one wants to be incinerated in a nuclear war.

But is this true? If Greece is forced to leave the eurozone -- which I don' think is going to happen, unless Syriza MPs revolt -- does this necessarily mean Greece leaves the European Union? I don't think it does. But even if it does, and Greece is cast out entirely from all European institutions, how does this lessen U.S. foreign policy leverage on the remaining European Union states? It doesn't.

Rather, Syriza can exert more influence, even if only as a "fly in the ointment," if Tsipras and Varoufakis keep Greece in the eurozone and the EU. The EU operates by consensus. Greece can block the TTIP and future Russian sanctions, two big pieces of juicy fruit.

For a not very effective apologia of Syriza's about-face there is Mike Whitney's "Varoufakis Keeps Greece in the Eurozone, by its Fingernails: A Valiant Effort." Whitney brings up an argument I have seen elsewhere: that Varoufakis' negotiations with the eurogroup will be enormously successful so long as he is able to keep the Greek primary surplus target frozen at 1.5 percent:

The new deal also allows Greece to decide its own reform package rather than the troika dictating what government expenses to cut or which publicly owned assets to sell.  Here’s another excerpt from Haring’s post:   “Most important change of the whole document: Addition of 'The institutions will, for the 2015 primary surplus target, take the economic circumstances in 2015 into account.' Excessive, self-defeating austerity is off.  Only the target for 2015 is mentioned, because everything further out would have to be part of a new arrangement, still to be negotiated.”

So Varoufakis has achieved his goal of reducing austerity. Not only is there greater flexibility operationally but, also, Greece will control the levers of decision-making  in the “field of tax policy, privatisation, labour market reforms, financial sector, and pensions”. Naturally, the lower the primary surplus, the more fiscal stimulus is available for economic growth. (Running a surplus during a depression is absolute madness, but this is the lousy hand Varoufakis was dealt.)

Haring’s final comments are a good summary of Varoufakis’s achievement:

“Was it worth the hassle to reject the draft of 16 February, just to accept the statement four days later? For Athens it most certainly was. It got the promise that no self-defeating, excessive austerity would be asked of it any more, the assurance that it could devise its own economic and social policies, as long as they did not impact negatively on the interests of its partners, rather than having to execute and leaving in place all the measures accepted by the former government and strongly rejected by the people. These are huge improvements for Athens, with no significant counterbalancing downside compared to 16 February.”  (“Was it worth it? Concessions to Greece relative to the rejected draft of 16 February”, Nobert Haring)

A reduction in the primary surplus is a big win, no doubt. But we need to wait and see if that is something that Varoufakis really achieved.

For the time being, I am keeping my eyes focused on the veto power a Syriza-led Greece will hold over operations in Brussels going forward. "Better to run away and live again to fight another day."