Greek Crisis: Very Little Wiggle Room for Syriza

Newsclick interviewed Prof. Jayati Ghosh, Economist, Jawaharlal Nehru University to discuss the possibility of a Greek default in its IMF repayments. Despite the heavy burden of austerity, Syriza is under pressure not to exit the Eurozone as the Greek people don't want it do so. The Greeks have asked for relatively small concessions from the troika -- European Central Bank, the European Commission and the IMF. Greece has very little bargaining power and the EU governments do not want to make any concessions to Greece and it may lead to building up a resistance to the austerity measures they have instituted in the Eurozone. Measures that Greece may attempt such as dual currency -- a kind of IOU's to use internally while remaining in the Eurozone, all depends on whether the troika, particularly Germany will allow her to do so. While a default and a Grexitis is a possibility, the more likely scenario is a slow throttling of Greece and gradual weakening of Syriza.

Prabir Purkayastha - Hello and welcome to Newsclick. Today we are going to discuss the possibility of a Greek default and the consequent crisis that may arise out of it. We have with us Professor Jayati Ghosh, Professor of Economics in JNU. Jayati, do you think, there is a real chance of a Greek default rising out the fact, that seem to be running out of money, at least for the news paper assuming to say?

Jayati Ghosh - Yes, that is certainly true, that is very much present there. The question is really whether the Europeans willing to countenance a default and have a potential to exit. And the extend which they will go actually to ensure that Greece does not do anything that will contravene in the rules of the union.

PP - Now we have two possibilities. One is that they both sides have to bag down and work out something which is at least interim let them stay in the union. Other possibility is, unintended default and unintended exit which both sides may not want. Do you think that because both sides seems to be sticking to their guns at least as of now. Then there is a possibility of unintended exit ?

JG - Well in fact, they haven't really struck to their guns. Syriza has made a number of very major compromises. I would say, European Union also has made a few compromises, not that many as Syriza has. So nobody has really struck to their guns yet. The problem is really that, in a sense you know Syriza is stuck in their bind, where the Greek population is very very clear, it does not want to exit the Euro. Despite all this austerity and all of that. They don't want austerity, they don't want the conditions, they want restructuring of debts but without exiting the Euro. The Greeks therefore have made a pitch for their slight relaxation. It is not even a big relaxation of the terms and conditions. Something that would allow for a slight reduction of the austerity. So at the moment they have to supply a primary surplus of 4.5% of GDP, which is ridiculous. They have said, please allow us to maintain a primary surplus of only 1.5% of GDP. Now when you think about this, still running a surplus. They are still doing austerity but slightly less than before. Thats all they really asking at this point. What is surprising is, the extend to which the Europeans have refused to budge. When I say Europeans, it is really Germany. And in a sense, Merkel, she is the chancellor, is affected by public opinion on this one. And that is affected by the fact that nobody wants Greece to be seen to be getting away with it. And this is true of this Spanish who don't want Syriza to actually succeed because that would give moreclout and heft to Podemos, that is true of various other countries that actually don't want to see that there is a potential of reduction of austerity.

PP - It is also a part of domestic policies as you said, Spain that they give in to Greece. It also puts into question their own austerity.

JG - Absolutely thats why they have been among the toughest in opposing any kind of reduction.

PP - You know, the Greece's argument which is been an ongoing one, Tsipras has given it and various others, that essentially, this was not a bailing out of Greece but this is really bailing out German Banks. Now what do you think this as an argument?

JG - That is absolutely true and that is well known. I mean the German, the Austrian, the Dutch and the other core European country's banks; but that is true of all bailouts. Whenever you have debt crises and you have a bailout, it is usually the banks who have lent, who are bailed out. I mean thats known. All the IMF bailouts, all of the US bailouts, bailout of Mexico, etc, they are all that. So this is nothing new. Something like 85% of the money that the Greece's gone so far has actually gone to repay the Banks. But that is the nature of the whole financial capital has. It is the idea that if you do not repay, you cannot access fresh ones. Now essentially what is being required for very long time is debt restructuring, what they call is a ' hair cut '. And even the IMF has said that, this is necessary. Increasingly many more commentators are calling for this, even in Germany; not the right wing commentators but others for example those representing the Linkeand others. But the strength of that opposition is quite remarkable because in Germany, the same govt. that would actually bailout domestic Banks and would actually restructured domestic debt, is fiercely resisted to restructuring the real debt.

PP - Do you think there is any possibility, for instance what they have raised early that the Greece and raise, reparations for occupation and so on, but that seems to have gone into the back burner completely?

JG - Well, you know I mean, even if they get this money, it doesn't solve the medium term problem. It will be go little bit towards a slightly lower primary deficit, thats about it. So it is not going to make a huge and fundamental difference.

PP - So how the hard choice for Syriza is, whether they accept a slightly diluted form of austerity as you are saying or prepare the Greek public that they have to leave the Europe?

JG - No, at the moment they are being forced to accept the extreme version of austerity, thats the surprise to all of us. Its that we assumed, since Syriza has given in so much that there would be more movement on the part of Germans and you know those who are in-charge of European Union. That really hasn't happened. There has been an attempt actually to grind them down. And I believe the reason for that is political, to prevent similar such movements from arising elsewhere in Europe.

PP - Breaking the working class movements and demands of the working class, the broader popular movement. Last question, is there any possibility of a dual currency? Is that a reasonable possibility for Greece to try?

JG - Well you know, certainly it is there in many minds of official policy makers today. That you have different form of payment at least locally. That if you want to do, let us say an employment program then you pay for it for the IOUs, issued by the local provincial government or some municipality and which can only be paid for locally and which will be redeemed locally. The question is, whether the EU will allow it? and I would have thought that, they could have got away with it earlier at the moment given the hardness of the position taken by the European Union. I don't think they will allow even that.

PP - So essentially, right now the Greeks have caught them sense in this bind. That the European Union decides how much they can access from the financial markets, what the banks can do what kind of capital controls exists; in fact it is one way capital control; no money coming to Greece but Greece's money can go out. But really there is no flexibility for them to play within the economy?

JG - At the moment 'No'. There was some talk when Tsipras went to Russia, that perhaps he was going to seek Russian aid and in fact many people has asked why the Chinese don't pitch in with emergency loan. A bit like Japan did with the Miyazawa Initiative to the South East Asian countries that were effected after that crisis in 1998. I think this can also still happen but at this moment, it is really very tensedsituation, in which I would say the cards are really stacked against the Syriza government at the moment.

PP - So you seem to think that more or less Greece will have to compromise more and more?

JG - You see, this is a fundamental contradiction. You have to have a credible threat when you are bargaining. And if everybody knows that your public doesn't want you to exit, then you don't have credible threat. I think that is affecting the bargaining position of the Syriza.

PP - But you know Syriza itself is very unwilling to exit even they are, Varoufakis given the argument, if we leave, it will lead to the rise ofthe rivals and so on.

JG - Thats right. Many people do believe that, that is a serious threat. Within Syriza, there are of course different groups, there are radical factions that prefers to leave and there are different groups. But the Greek public, thats the most critical thing. The Greek public is very clear. All the opinion polls are suggested that 85-90% do not want to leave Eurozone.

PP - That is also because Tsipras is not building that opinion or Syriza is not building that public opinion either, they are in fact the other side that we can't leave.

JG - You know I believe that it is very complicated in Europe. I have talked to many Europeans who argue that the European Union has many false but it keeps a way dictatorship and fascism. I was recently in Turkey and I have heard Turkish people say that the only reason that they want to join European Union to prevent the rise of popular fascist regime, which some of them think that heading towards, may already have or a military dictatorship. I think the European history is a complex one and this prevalence of military dictatorship is descent enough in their memory for them to see this is serious concern.

PP - And Greece had it in their 70s, the Conal coup and so on. Thank you very much Jayati. I think this is something which is going to go on for sometime. We will come back to you for more discussions on the Greece and whats happening to austerity in Europe. Thank you very much.

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