The left must answer: What does refusal of payment mean?-Haris Savvidis

Το ιστολόγιό μας δημοσιεύει σήμερα στα αγγλικά το πάντα επίκαιρο άρθρο του Χάρη Σαββίδη: »Η Αριστερά οφείλει να απαντήσει: τι σημαίνει η άρνηση πληρωμής του χρέους; »https://contramee.wordpress.com/2012/05/18

 Πήραμε την πρωτοβουλία για την μετάφραση του άρθρου , λόγω της ιδιαίτερα  μεγάλης και συνεχούς  αναγνωσιμότητάς του. Το άρθρο δημοσιεύτηκε πρώτη φορά στις 16.5.12 στην ιστοσελίδα της πολιτικής ομάδας ΞΕΚΙΝΗΜΑ**

Ο Χάρης Σαββίδης είναι οικονομολόγος, επικεφαλής του διεθνούς οικονομικού ρεπορτάζ στην εφημερίδα Ημερησία και συνδικαλιστής. Το κείμενο μετέφρασε η Δήμητρα Αγγελοπούλου. 

The left must answer: What does refusal of payment mean?

By Haris Savvidis

KKE, ANTARSYA, a big part of SYRIZA (e.g. the Left wing of SYN), as well as a series of left-leaning groups not represented in parliament, that do not belong to any of the above mentioned parties, in other words, the majority of the left, supports “proudly” the non-recognition of the debt (and therefore refusal to pay it) in one way or another. The majority of the leadership of SYN, is talking about a “re-negotiation” which will take place in the Eurozone.

Although the majority of the left supports the non recognition of the debt as a whole (or at least of the bigger part of it) and an increasing part of the society is moving towards that direction, there doesn’t seem to be an agreement on what would be the consequences of such a move. There is a lot of confusion on that matter and on the solutions the left suggests in order to face the possible repercussions.

Therefore, it is really important to describe what is about to happen, if Greece refuses to pay the debt and to suggest solutions to the problems that may arise. It is a political responsibility of the left, not only to propose the refusal of payment, but also to inform the Greek people about what that means. To say what would happen if the left was the government, either as a result of a declared aim, or as a result of its strategy against the payment of the debt.

This conversation is not abstract or theoretical anymore. In a few weeks from now, there is a serious chance of formation of a left government in Greece.

Let ’s suppose: The left in power

Supposing that, after the upcoming election, a left government refuses to repay the bonds issued. Let’s also suppose that Greece remains in the EU and the Eurozone, as Greeks wish (according to the opinion polls) and there is no legal way to push them to the exit against their will.

Assuming that the suspension of payments is not going to be supported by the Troika, it is obvious that the European governments and the community institutions will be extremely hostile.

“Bank run”

Even if the Greek government insists on remaining in the Eurozone, one thing is for sure: there is going to be intense anxiety about the country ’s place in the euro. Probably, there is going to be a “bank run”. In other words, thousands of depositors in panic will rush to the banks in order to take out their money. No banking system is able to survive this phenomenon, because the banks can dispose in cash only a very small part of their deposits. Moreover, the banks (as well as the insurance funds) are also going to be affected by the suspension (or the abeyance) of payments, because they own a lot of Greek bonds.

Consequently, there is an objective need for nationalization of the banking system. That’s what the Troika foresaw in its plan, despite the fact that the bankers managed to retain the control of their banks, after having been bailed out by the state.

Nationalization of the banks

Therefore, we could not possibly suggest the refusal of payment (of the whole debt or of the bigger part of it) without also proposing the nationalization of the banks.This alone is not going to solve the huge problem of available funds that the economy will have to face.

In Greece, as well as in each and every one of the states of the Eurozone, the funds enter the economy through the eurosystem created by the central banks, following the plan of the European Central Bank.

The function of the financing in the Eurosystem

Everyday, the European Central Bank (ECB) calls all the banks for borrowing as many funds they wish in a predetermined rate(which is usually 1%) and time(usually ranging from one night to 3 years)in return for collateral (usually sovereign bonds). As a result of the suspension of payments, the Greek bonds will no longer have any value as collateral. So, Greek banks will not be able to receive funds from the ECB.

In the Eurosystem, there is a second channel for funding, the mechanism of Emergency Liquidity Assistance (ELA), which allows the national central banks to lend money to the banks of the country. It is possible, that the Bank of Greece (and not the ECB in Frankfurt) lends the Greek banks. However, only the administration of the ECB can decide the activation of ELA. As long as ECB is hostile towards Greece, the mechanism will not be  activated, so there is no way for new funds to enter the economy.

Flight of funds

Possibly, this will happen in case of a massive flight of funds, because, whoever has funds in euro is going to try to smuggle it abroad.

In order to avoid such a situation, the government will have to impose controls in the movement of funds, breaching one of the fundamental rules of the EU, the free movement of capital.

Even if the Greek government manages to support it legally, calling upon, for example, national security clauses included in the EU treaty, its practical effectiveness is rather doubtful in the international financial system and in a hostile climate for the country.

Credit crunch

As a result, the Greek economy won’t be able to import currency. Actually, its best chance is to be able to control the outflow of it.

Even this way, the absence of loans from the banks (that won’t be able to pump “fresh” money) is going to entail a severe credit crunch to the vast majority of the small and medium sized companies, and even the big business.

The non- payment of salaries will be widened and the nationalized banks will have to face thousands of enterprises. The inability to find capital will make extremely difficult the supply of raw material and products, even for the biggest companies. The lack of basic goods is going to be a fact, because the currency problem will paralyze the economy.

The paralysis of the financial activity is going to reduce dramatically the tax revenues, which, combined with the inability to borrow, won’t allow the government to pay the salaries and the pensions. However, even under these circumstances, the government should restore the social structures, so that there is security, a satisfactory health system, a telecommunication network and adequate supply in food and fuel.

“New” money –new coin

The government will have to invent some kind of new money, even if they insist on remaining in the Eurozone, so that they can keep on paying the civil servants, who work in the sectors of health, education, police, public administration etc.

They could, for instance, pay the civil servants in new bonds- besides, that’s what the notes are. In other words, the government will be obliged to create a “two coins” economy-so there is going to be a return to the national currency, whether it is called drachma, or not-so that the smooth functioning of  basic services  is ensured.

The main problem that comes up in such situations is that people seem really suspicious about the new currency (the new drachma). The civil servants would obviously prefer to get paid in euro, not being sure about the future purchasing power of drachma. Even if the state enforces this decision, the real value of drachma in the market will be rather doubtful (especially, because of its abstract legal status, as it will be reformed with the existence of two kinds of currency) and every one would like to get paid in euro.

The value of drachma against the other currencies will constantly decline, as long as the demand for the currency will be less than the supply of it. Initially there will also be intensive speculation, with investors ‘gambling’ on the depreciation of the drachma. Having succeeded, two decades ago, to bring the mighty pound on its knees within a few days, obviously they will be able to devalue the  drachma if they try. In the midterm, however, the exchange rate will be determined from supply and demand, which arise from imports (supply of drachmas to buy goods valued in foreign currencies) and exports (demand for drachmas to buy Greek goods, valued in it). Until the trade balance turns positive, the value of the drachma will continue to depreciate.

Basically this means that prices in the Greek economy will rise for imported goods and that Greek exports will become cheaper in the international markets. That is goods will become more expensive in the domestic market, while domestic production will become more competitive internationally. What this implies for workers / consumers will depend on the way domestic production will be reorganized – that is whether domestic resources will be employed quick enough to cover the increasing inability to buy imported goods. For example, if the Greek economy will prove capable of producing TV sets competitive to the imported ones, then Greek consumers will not be affected negatively and the economy will be better off.

Debt writedown

The majority of the households won’t be able to repay the loans they have received from the banks, especially if the debts remain in euro. Having nationalized the banks, the government will probably need to “delete” those debts (housing, consumer, personal loans etc.). In order for the smaller companies to survive too, the writedown of their debts will probably be a necessity. Big or medium companies would be dealt with in a different way, as the Public Sector will have the chance to gain the control of the means of production.

Fuel and medicine

The government will, also, be in need for all the euro currency that it has, because this way, it will ensure the supply of the country in basic products, such as food, fuel and medicine. Given the deficit to the energy balance of the country, there will be need for special concords (coupons ?)  for fuel purchase. As far as medicine is concerned, it is going to be very difficult for the health system to be supplied with medicine from the international pharmaceutical cartels in outrageous prices, or to save money by being supplied by alternative sources (e.g. Cuba) or by national pharmaceutical production. But, this way, Greece, will, once again, be obliged to break international rules about the “patent” and the problem of challenging the international treaties related to the protection of “copyright” will come up.

De facto: an alternative economic model

What is really complicated is part of the struggle of the government about the normal supply of the market, with food, in the first place, and with other goods , afterwards. It is going to have thousands of properties and companies available (because of the seizures) and there are going to be millions of unemployed. So, its real mission is going to be the organization of the production from the beginning, and first and foremost, the market’s food supply.

The financial system that it will create will offer the basic goods for drachma, so there will be demand for the new currency. In order that the economy keeps on “functioning”, there will be de facto the need to move towards a direction, where the society and not the markets dominate.

 Consequently…

The suggestion of refusal of repayment of the debt, or even arraignment of the memorandum, as well as the refusal to enforce policies demanded by the Troika and the markets, cannot be made by itself. It necessitates a series of political choices of a great range, such as:

-nationalization of the banking system and the big companies

-suspension of the Eurotreaty and of other international Treaties

-national currency (either exclusive, or collateral)

-writedown of the debts of the households and the compact companies

-social transformation of the economy

 Without those clues, the restoration of the normal operation of the society, will either never happen, or will cost a lot to the majority of the citizens. There will be , for instance, lack of fuel, basic goods, medicine, there may be the phenomenon of black market etc.

 What does conflict with the EU and the markets mean

 It needs to be clear in the society, that the powers of the left who suggest these solutions, don’t do it because of some kind of mental firmness. It is not accidental that the left, for decades, made suggestions towards that direction. On these subjects, there was a fierce intensity in the contradictions of the system, and that ’s why that was the sector on which the left suggested the more solutions-answers.

 Nowadays, however, all these are suggested, not just because of a policy of “kids will be kids”, but because they consist the only realistic way to exit the impasses of the Greek economy.

 As a result, even if the incoming government insists on the country remaining in the EU and the Eurozone, people will demand the implementation of the political choices above, if someone is determined to come into collision with the memorandums and the policies of the Troika. The clearer it is, in advance, that this is the only alternative way, the stronger the international negotiating position of the country will become. The matter of the “negotiating power” of the country will exist under any circumstances-whether there is a government of capitalists, or a left government, coming from a working people’s power. And that’s because it doesn’t make any sense to choose to remain in the Eurozone, unless our goal is the empowerment of the movement of solidarity in the world, of the common and organized struggle with the rest of the workers in Europe, especially those who are attacked in a similar way as the greek workers.

 Balances of power, in ’n’ out

 No matter what kind of government, populist or proletarian or left there will be in Greece, it is going to start from a really difficult negotiating position, against governments and markets.

 Its only hope is going to be the scenario that the european public opinion will be motivated on behalf of the struggle of the Greek people, putting pressure on the governments. Moreover, its hope is going to be the impact of the struggles of the Greek people, that hopefully, will be inspiring for similar struggles in Europe, in the perspective of a fight for a socialistic Europe, rather than the EU of the capital and the multinational companies. The circumstances in Greece are about to define the intensity of the fight of any left government during the negotiations. If there is lack in basic products, such as medicine, food, energy and so on, the government will be in an extremely tough position and may fall or be obliged to do painful compromises. If , on the other hand, it has a reliable “plan B”, its negotiating position will be empowered.

 The absolute need for the alternative socialistic economic model

 Whoever agrees with the deletion of the debt (even if when it comes to everything else, he believes, for example, that the crisis can be outreached with the Eurobonds) has to suggest an alternative solution. And, as long as he wants this solution to be in favor of the Greek society, he will make the political choices described above.

 The subject of overthrowing the power of the bankers and of the capital is not-especially, nowadays- the privilege of a group of “incorrigible” and “romantic” rebels. It consists the only way to deal with the aggressiveness of the Troika and the markets, who enforce their strategies using an extortionate dilemma: OR you do what we demand or we stop the funding, and one way or another you will be obliged to return to the drachma. This alternative program is what we want from the left who wishes to overthrow those policies. Even if the left declares that it doesn’t want the overthrow of the system, it has to move towards the direction mentioned above, in order to avoid becoming a subordinate of the EU and the IMF.

 Likewise, this is what we need from the part of the left who refers to the exit from the euro and the EU, without completely understanding that, this alone would not offer any solutions to the extreme financial and social impasses the Greek people faces.

 Consequently, the only perspective for a better future is the struggle for the overthrow of the capitalistic system, not in an abstract way, in the distant future, but today.

 On this base, the different kinds and colors of the left should co-operate, if they wish to help the exit of the society from the barbarism of the Troika policies. Otherwise, they will share the responsibility.

 https://contramee.wordpress.com/2012/05/18

**http://www.xekinima.org/arthra/view/article/i-aristera-ofeilei-na-apantisei-ti-simainei-praktika/

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