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Eurocrisis - Four elections and a funeral
Understanding the anti-austerity elections
The hopes of the long-suffering peripherals and other European opponents of the current regime of austerity, were briefly raised by the previous weekend’s French presidential election, which saw the departure of the hugely unpopular Nicholas Sarkozy. The relation between the previous French president and Germany’s Chancellor had become such a cliché that the two had been christened “Merkozy” - a conglomerate reflecting their seemingly indivisible alliance at the core of Austerity Europe. Now the new French president, Francois Hollande, proclaimed it was time for a new strategic era where growth was no longer the poor cousin of austerity. The brief quickening of European social-democrat heartbeats, however, could not disguise that already by the day of the announcement of his victory, the Hollande camp were already backtracking on any idea of re-negotiating or rescinding the economically-illiterate Fiscal Compact Treaty of last December. Instead, the new Parti Socialiste regime floated the idea of some vague “addendum” to the existing treaty, which would include fine words about “growth and jobs”.
But the true calling of Hollande’s “anti-austerity” bluff was taking place in Greece, where the shock election results saw the destruction of the two-party system that has ruled Greece since the fall of the dictatorship of the Colonels in 1974. Both establishment parties of PASOK (“Panhellenic Socialist Movement” - centre-left) and Néa Dimokratía (“New Republic” - centre-right) who had agreed the ruinous Memorandum of Understanding of the IMF/EC/ECB bailout, saw their combined vote fall to less than a third. Even with the insane Greek electoral rule that awards an extra 50 seats (on top of the 250 elected by proportional representation) to the (non-coalition) party with the biggest vote, the two pro-memorandum parties could not muster a majority in coalition together.
The biggest winner of the 6 May election, was SYRIZA, a coalition of Eurocommunist, Trotskyist and other far- or libertarian-left parties. SYRIZA’s firm rejection of the Memorandum terms, while still advocating staying in the Euro, led to it gaining the second-largest share of the votes, from a previously tiny base. Despite the overall majority of the vote cast for anti-Memorandum parties though, SYRIZA was also unable to put a majority coalition together. This is because two significant chunks of the anti-bailout vote had gone to the neo-Nazi Golden Dawn and the old-school Stalinists of the KKE (“Greek Communist Party”). That no-one from the left will deal with the neo-nazis is reasonable enough, and not in itself a barrier to forming a left-leaning coalition against the rule of the Troika. However the KKE presents a more intractable problem.
The KKE is Europe’s last living species of proper old-school, pro-Soviet Stalinism. It split from the more reformist “Eurocommunist” wing of the party that went on to engage constructively with the anti-globalisation movement in the 90s and now forms Synaspismos, the biggest component of SYRIZA, and the party of Alexis Tsipras, the coalition’s leader. A further split from Synaspismos in 2010, is the Democratic Left party, who gained a few PASOK defectors earlier this year. Both SYRIZA and DL, then, are anathema to the KKE whose violent sectarianism has led to it’s stewards fighting pitched battles against the anarchists and rest of the left on street demonstrations for many years. If the parties to the left of PASOK refuse to countenance coalition with the Golden Dawn, with the KKE it is they who would refuse to consider any alliance with the rest of the anti-austerity left. KKE has set its cap for a full exit of Greece from both the Euro and the EU - following the long-standing hostility of the Stalinist parties to European unification and their attachment to “socialism in one country” politics. From its perspective any aid they give to SYRIZA - who are still maintaining the position that Greece can knock back the ruinous terms of the Memorandum without exiting the Euro - is not only aiding “splitters” and “renegades” (as they consider them) but bolstering illusions in a course that is bound to fail, in the medium term.
This intransigence by the KKE is not likely to be overcome by the second election now seemingly inevitable on June 17th. Whether or not their expectation that Greece’s exit from the Euro is now inevitable - and in this, they are oddly objectively allied with the Hellenophobic right in Germany, Netherlands and Finland - is true, is besides the point. So long as it keeps them implacably opposed to a SYRIZA-led anti-austerity block, then continuing political impasse in Greece is assured. And that means the game of the Greek politicians in re-arranging the deck chairs on the Titanic is likely to be overtaken by events sooner, rather than later, is assured.
The Myth of “Structural Reforms”
The conventional medicine prescribed by the right-wing economists and politicians, for Greece’s ills is the ill-famed “Strutural Reforms”. This term is familiar to many Third World countries who suffered devastation at the hands of the IMF during the 1980s and 90s, under the auspices of the so-called “Washington Consensus”. This is the idea that if goods and services produced by a countries workforce are not competitive in the world marketplace, then the solution is to “reform” away “structural” barriers to improving competitivity. That is, in practice, the removal of “supply-side” costs to production, by breaking wage agreements, smashing unions, abolishing minimum wage and other labour protection legislation, reducing company taxes by slashing state spending on education, health and other vital social services. In brief the entire neo-liberal programme, red in tooth and claw. This is effectively what the IMF and ECB are trying to impose on Greece now.
But there is a basic problem with this plan, when it comes to labour productivity. Where you have, as in Germany, a starting point of a relatively high level of unit productivity combined with relatively high wages, then it is possible, as Germany did in the late 90s / early 2000s to address flagging competitiveness through, say, a 10% cut in wages. But, on the other hand, if you start with a level of low unit productivity and low wages, like in Greece, your room to restore price productivity - particularly in competition with a high unit productivity economies like Germany - by cutting wages, is much more limited. Beyond a certain point, pushing wages down, in a low unit productivity environment (i.e. many more worker-hours per unit of product) hits the basic minimum cost of living limit long before output prices can be made competitive with a higher unit productivity environment. Even if Greek workers were put on starvation wages, they could not produce cars that would compete with the German ones, because the far fewer hours of labour-time incorporated in a German car more than compensates for the higher level of wages there. The only thing that can restore competivity is serious capital investment. And that is not going to happen in the middle of an economic depression with falling output and dearth of loan credit, such as is currently afflicting Greece. So “structural reforms”, which in the end is code for cutting wages, cannot restore Greek (or Spanish, Portuguese or Irish) competitivity with the core economies, without serious transfer of funds and investment in new plant - such as West Germany did for East Germany, following re-unification.
Nordrhein Westfalen - the Core’s beating industrial heart
Meanwhile, back in the core, things are not going so well for the newly de-Sarkozyfied Angela Merkel either. A snap by-election in the largest States (Länder) that makes up the Federal Republic - Nordrhein Westfalen - has ended up with a disaster for the very CDU politicians who caused it. An election in Nordrhein-Westfalen (NRW) has been implicated in this sorry saga of the Eurozone “Greek” crisis before, back in 2010. Two years ago, at the very outset of this crisis, it became clear that Greece was hopelessly underwater, financially speaking, and would have to be bailed out. If the EU had bitten the bullet at that early stage, then many commentators estimate that the deal could have been closed with a dozen or two billion. But Germany delayed the process because of the looming 2010 May general election for the NRW diet (Landtag) in which the CDU - Merkel’s party - was worried about losing control. It was three months later, the Monday after the NRW Sunday election, that the German’s finally consented to an EU bailout of Greece, by which time the price tag had risen to 110 bn euros. An expensive price tag for the EU to wait on Germany’s local elections timetable - an election that in the end the CDU lost in NRW, despite delaying the politically unpopular Greek deal for three months.
Nordrhein-Westfalen is the symbolic industrial heartland of the European project. It incorporates the Ruhr district, that coal and steel urban conglomeration that stretches Eastwards from the Rhein, along the Ruhr river and the rich seam of coal that lies beneath it. Control over this powerhouse of German industrial might was a bone of contention between the World Wars in the 20th century. After WW1 the Versailles treaty insisted it should be de-militarised and held in hostage to German war reparations. The French and Belgians actually invading and annexing the area in 1921. Finally they withdrew under the terms of Dawes Plan of 1925, but not before the occupation had increased support in Germany for right-wing and revanchist parties like the NSDAP. In the aftermath of WW2, despite its status as one of the most bombed parts of Germany, tensions still arose over its control after the eventual withdrawal of allied military forces. The solution eventually arrived at, was to “internationalise” the coal and steel industry of the area by incorporating it into the European Coal and Steel Community - the original European body, from which eventually grew the EEC and then the EU itself. Historically then, the Ruhr is both the birthplace and the industrial heart of the EU core.
Although the old coal and steel industries have suffered relative decline since the 1970s, due to the march of productivity and foreign entrants into the industry, the wider Nordrhein-Westfalen Land still remains the heart of German manufacturing, producing 20% of Germany’s total exports. 25 out of Germany’s top 50 corporations have their headquarters in this region and with a population of 18 million, it is larger than many of the smaller Eurozone countries.
This time it is Merkel’s anointed heir and successor, Norbert Röttgen, who initiated the vote, by getting the opposition parties to oppose this year’s budget set by the local Red-Green coalition of the SPD and the Greens. In the last weeks before Sunday’s vote, Röttgen, who all agree ran an incompetent and rotten campaign, tried to push the vote as a referendum on Merkel and the CDU’s handling of the Euro-crisis and Austerity politics. The CDU grandees in Berlin rushed to say that Röttgen was losing the campaign on his own bat, rather than on behalf of national CDU policy on Eurozone austerity. Nonetheless, the CDU took a humiliating bath Sunday, losing 8.3% of their vote share, compared to the already poor 2010 results. Much as the national press insist that Röttgen’s failure to regain the NRW Lantag for the CDU had nothing to do with Merkel’s current course on Euro-austerity, the result is another blow to the once unassailable Merkozy axis.
The GdF put the frighteners on
All through last week, as the baton for forming a government got handed down the Greek parties in order of their vote - starting with Nea Dimokratia, then SYRIZA and finally PASOK - the big mouths of the EU’s self-appointed steering committee - the Frankfurt Group (GdF) - maintained a dignified silence, in the hope that PASOK might be able to persuade the Democratic Left to join a pro-bailout coalition with themselves and ND. The DL wavered, initially saying that they were not against an agreement in principle, but finally declaring that they could not go in unless SYRIZA joined them. This for the reasons of self-preservation. I.e. if the DL went into a pro-memorandum coalition, and SYRIZA stayed outside, then the next elections would see their complete annihilation (just as the crypto-fascist LAOS party were rewarded for their support of the “government of national unity” by being wiped out by the previous Sunday’s vote). SYRIZA have so far had the sense to refuse to enter any pro-memorandum coalition. This meant that the DL, albeit split down the middle over the question, reluctantly decided in favour of the self-preservation option of refusing PASOK & ND’s poisonous embrace.
Once the situation became clear, this weekend, the previously silent ECB bankers and the German Finance Minister started sounding off. For the first time, ECB board members were briefing the press about considering Greece’s exit from the Eurozone. This Monday, the EU’s spokesman on Economic Affairs (and GdF chief mouthpiece), Ollie Rehn, who only two days ago had said that a Greek exit was not on the cards, was now reassuring investors that the Euro was much more capable of managing a Greek exit and that “It would be much worse for Greece and Greek citizens, especially for the less well-off Greek citizens, if Greece did leave the euro than for Europe as such. Europe also would suffer, but Greece would suffer more”.
In Athens itself, PASOK ex-minister Michalis Chrysohoidis, ratcheted up the fear-mongering to levels of hysteria, speaking on a radio station he warned that failure to pay up the bailout terms would lead not only to an exit from the Euro and return to the Drachma, but also “What will prevail are armed gangs with kalashnikovs and which one has the greatest number of Kalashnikovs will count … we will end up in civil war.". What could the cause of this sudden increase of panic and pressure?
June 17th is a long way away
At the time of writing the spread between Spanish 10 year bonds and German 10 years was up to 475 basis points. It had already crossed the crucial 450 bps threshold last Friday. This is the “death zone” threshold whereby, if you stay above it for 5 or more working days the largest bond clearing house in the business - LCH Clearnet - raises the margin call for covering repurchase (repo) agreements on these bonds. This leads traders to dump these bonds (and big holders like the banking sector of the country concerned, have to sell some to cover the increased margin calls on their huge holdings) which leads to the downwards spiral that forced both Ireland and Portugal into a bailout. In other words, Spain’s current position can’t hold for much more than a week at the most. This is why the GdF is screaming down the megaphone at the Greek politicians. They just can’t wait for June 17th, this current seizure needs a resolution within days, not weeks.
Ask not for whom the bell tolls...
So much for the four elections then. What of the funeral? Well whether its the death of Greek aspirations to remain within the Eurozone, Merkel’s opposition to fiscal unity or the beginning of the end of the Euro itself, is yet to be seen. In the 1980s in the home town of the author, situationist-inspired stickers were seen around town, bearing the simple but provocative question - “The end - is it near?”. The crisis-battered Greeks may be forgiven for asking themselves that same question today. The answer is, “Not quite yet. But soon. Soon...”
WORDS: Paul Bowman
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