Greece: October 26th agreement, coalition government and exit from the euro – Part One

Yesterday, the former vice-president of the European Central Bank, Lucas Papademos was named as Greece's new prime minister. He is to lead a national unity government whose task is to implement sever austerity measures and then take the country to elections in February. We are publishing here an analysis by Greek Marxists as to what this means for Greek and European workers.

The recent events in Greece and Europe demonstrate that we continue to be on a knife’s edge between two key processes: the rapid conversion of the Greek, European and international capitalist crisis into an uncontrolled default, followed by a collapse of the euro, and the transformation of today's pre-revolutionary situation in Greece – as we have highlighted, not a smooth, linear process, but one that inevitably will see also setbacks, contradictions and pauses – into an openly revolutionary situation.

These two factors, namely the deepening crisis and the emerging revolutionary symptoms in society, determine the fast pace of political developments in the bourgeois political superstructure. The special way the Troika has dealt with the outgoing prime minister and the leadership of New Democracy ultimately determine only the forms of these developments.

However, there is another, third, determinant of the overall developments in Greek society. And this is the absence of a decisive revolutionary leadership within the Greek labour movement and the Left. This explains why the ruling class in Greece, while it is currently immersed in the biggest economic and political stalemate in recent history, can still remain safely in power, having the luxury of negotiating various government schemes and scenarios, in a desperate the attempt to impose stability on the system.

October 26^th agreement

The October 26^th agreement in the EU summit is at the heart of present political developments. That is why we need to look briefly at what constitutes the essence of this agreement and what impact its implementation will have.

1) The agreement provides for a controlled – i.e., with the consensus of private lenders, bondholders (mainly banks) – partial bankruptcy of Greece, that is a controlled partial cancelling (or "haircut") imposed by the recent developments, as Greece toboggans towards a full-blown default and private lenders may not get anything from the bonds they hold. With such an agreement they are assuring that the lenders will get 50% of the value of the bonds they hold by the day they lose their value and become junk.

2) However, from this partial cancellation of the debt they exclude loans from the Troika, bonds held by the ECB and those who hold Treasury bills, who have made a short-term loan to the Greek state. This is scandalous because, for example, the ECB with its main partners France and Germany, had previously bought Greek bonds from their owners at 40 to 50% of their original value, but now it has the right to recover this debt from Greece at 100% of their value, making large profits from this difference.

So this agreement does not all mean that there is going to be a general cancellation of 50% of the debt. The 50% cut will only apply to the value of some of the bonds that have been issued. This means that on average there will be an overall cancellation of around 30% of the debt. That means that the Greek debt which currently stands at around 370 billion euros, will be cut by 100 billion. However, because this also involves cutting the value of bonds held by Greek banks and Greek pension funds this will increase the losses of the state, and therefore the net reduction of the debt in reality is going to be about 60 billion, only 20% of the current debt.

The recession this year in Greece, with a reduction of GDP of 7%, and becoming deeper day by day, this real cut in the debt by 20% is at best anaemic. It will simply postpone for a brief period the emergence of a global insolvency or of an uncontrolled default in Greece.

3) The agreement of partial cancellation reveals a conscious policy of fraud against the workers by the government, the Troika and in general the mouthpieces of capitalism in Greece and internationally. It demonstrates clearly that the policy of multiple taxes, drastic cuts in wages and pensions, the sacking of civil servants and draconian cuts in social spending is a class option. The government and the troika are not making a mistake here. They are not following an ineffective prescription.

They have deliberately attacked the masses in order to place the burden of the crisis of capitalism on the working class and the petty bourgeoisie in order to mitigate the consequences for the banks, large corporations and capitalism as a whole. Two years ago, when they were assuring that any cancellation would be a disaster, they deliberately lied. They understood very well that the Greek debt could not be serviced. What they needed was to gain time to put in place as many reactionary measures against the working majority as possible, before moving to some sort of cancellation.

4) The agreement provides another loan of 130 billion euros with the idea that that by 2014 Greece should be able finance itself and achieve primary surpluses and thereby the debt would be brought down to around 120% of GDP by 2020. This, however, means cuts in public spending estimated at 100 billion euros until 2020! Since the austerity measures so far have been close to 25 billion euros over the past two years, the implementation of such measures would literally unleash an unprecedented social disaster.

The implementation of the October 26^th agreement now appears as the “only salvation for the homeland”, by which is meant that new cuts in wages and pensions are on their way, together with many tens of thousands of layoffs and complete privatisation, not of one or two state companies, but of whole municipalities, health and education services.

5) The agreement that leaves everything open to negotiation between the bondholders and the government is ephemeral and for two reasons.

The first reason is that the agreement is “voluntary” and no one can say whether the banks and other individual bondholders would accept it. The 50% cut will lead some banks close to bankruptcy, especially those that were exposed in the previous phase of the international crisis which was centred on the banking system.

The second reason is that many of these banks had already bought Credit Default Swaps (CDS), i.e. risk premiums, from a Greek bankruptcy and thus they would gain more from an uncontrolled default, rather than a 50% haircut.

6) The agreement provides for an increase in the amount of funds in the European Financial Stability Facility (EFSF) from 440 billion to 1 trillion euros, which is supposed to increase the guarantees for the over-indebted countries and the banks, with the help of China and other "emerging" economic countries outside of Western capitalism. Apart from the fact that this amount is insufficient to ensure the bailout of countries with gigantic debts like Spain and especially Italy, the increase has also proven to be ephemeral. This emerged clearly during the fiasco of the G20 last Friday to agree on who will do what and by what amount.

7) The agreement has also created a precedent for cancellation, which is making the borrowing rates for the heavily indebted countries of the Eurozone to rise as the “markets” understand that after a partial cancellation for Greece, the alarm bells will soon ring for the others. So immediately after the agreement we saw the spreads of Italy and Spain shoot up, forcing Italy to accept IMF monitoring.

This is not, a some would like us to believe, an “extreme” or “immoral” act on the part of some speculators in the markets. It is a normal reaction of capitalists faced with increasing insecurity created within the system by the recession and the huge debts. This is capitalism and how it works. Nobody can convince the capitalists to behave in any other way by moralising about the need to stop speculating. What is required is to take economic and political power out of their hands! This in essence is the political task of the working class in modern times in Greece and internationally.

The Italian spreads therefore did not shoot up because of Papandreou’s proposal to call a referendum, which allegedly jeopardised the implementation of the agreement; it was because of the “haircut” created by the same October 26^th agreement!

No bourgeois analyst dares to say it, but the general conclusion from the latest economic developments in the eurozone, and especially the dramatic developments in Italy, are that the October 26^th agreement has already been overtaken by developments. Even if it were applied, in practice it does not mean anything substantial in terms of the effects it can have on the crisis. While the European bourgeois have not yet closed the small hole of Greece, they are already facing the opening of an enormous crater in Italy! Everything indicates that the film of bankruptcies and collapse of the Eurozone has begun to unfold and the bourgeoisie cannot do anything to avoid disaster.

Moving towards complet default and exit from the euro

Two years ago we responded to those who argued that Greece was supposedly anchored to the eurozone, that the exit of Greece from the eurozone was likely to be the first major step towards the inevitable total undermining of the euro, on the basis of the deep crisis of capitalism.

The prospect of the possible exit of Greece from the euro was placed for the first time officially on the table last week by Merkel and Sarkozy. This is the desire of a large part of the ruling class in Germany. It is also promoted openly by the Austrian and Dutch bourgeoisie.

Why is the north-European bourgeoisie now moving down this road? The reason is that given the current depth of the recession in Greece and its level of debt, and the desperate measure of the exclusion of the country from the markets for at least a decade in an attempt to avoid an uncontrolled default in the coming years, the second loan provided by the October 26^th deal will not be sufficient and will undoubtedly require a third or fourth loan. There is also the fact that in the conditions of the emerging global recession that is threatening more and more heavily indebted Italy and Spain, but also France, the European and especially German bourgeoisie will draw the conclusion that there is no point in continuing to give loans to Greece, a country which represents the weakest link and which is not going to recover.

They will also be seeking to cover for the direct losses of their banks, and they will try to “tie” Greece as tightly as possible to guarantee repayment of the loans already given, they will cut the new tranches of the loans and will push Greece out of the euro, accepting the lesser evil of an inevitable Greek default rather than certain instability for the euro. The argument that they will use in this scenario would be that they want to “protect the single currency” and at the same time send a harsh message to the other over-indebted countries that unless they adopt the strictest of austerity measures there will be no mercy for them.

There are already signs that Germany is moving in this direction, because of the fact that their banks are particularly exposed to Greek debt and also because if things develop as described above, France, which is even more exposed to Greek debt would no longer be able to resist.

The exit of Greece from the eurozone will confirm of the position of the Marxists, that in times of crisis you cannot keep together in a single currency economies which are moving at totally different speeds. This prospect has already caused great shock among the Greek bourgeoisie, who rightly recognise this as an abrupt downgrading of Greek capitalism. But no matter how much they may blame the politicians or the “harshness of Brussels” for this crisis, the exit from the euro is not the product of “bad Greek or European operations”. It flows logically from the very reality of capitalist crisis.

Posing the option as being one of “either in or out of the eurozone” is false because in reality this is posing the question as if these were two alternatives, when in reality they are simply different stages of development of the crisis, the current one and the next. An exit from the euro is the inevitable consequence of the next stage of the crisis and not its cause. It is not an undervalued and hyper-inflated Drachma that will bring mass misery in capitalist Greece; it is simply the form in which this misery will present itself.

The return of Greece to the Drachma on the basis of the crisis of European capitalism will not be an isolated case. Objectively, it will set the tone for a general spreading of the movement back towards national currencies in Europe. On the basis of the historical inability of capitalism to develop the productive forces in the same way that it did in the second half of the last century, it will inevitably lead in an explosive manner to protectionism. And protectionism cannot be put in place without the different national European bourgeoisies having control over their own currencies. In conclusion, we can say that the European bourgeoisie – including that of Germany and of course of Greece – is now beginning to plan for the troubled times of a return to national currencies.

Strikes and events on October 28^th “No Day” led to the proposal of a referendum

Papandreou’s proposal for a referendum was presented by the bourgeois press as the cause of economic and political instability in Greece. But this proposal did not fall from the sky. The announcement was the result of the tremendous pressure exerted on the government by the great autumn strike wave which culminated in the 48-hour general strike and the emergence immediately after that of the symptoms of a revolutionary mood developing within society, namely the spontaneous conversion of the 28^th October No Day into a nationwide anti-government demonstration. (Greece: revolutionary anger turns parades into protests!, 1 November 2011).

This event was unprecedented in the annals of Western capitalism. Thessaloniki and other major Greek cities provided a vivid image of the revolutionary future: with officials and representatives of civil institutions thrown off the platforms they would traditionally occupy by the angry people.

Following these dramatic events, the bourgeoisie in Greece and Europe began to be seriously concerned. Papandreou, their man in power, however, had every reason to feel the most uncomfortable of all. On the eve of the new and even more stringent measures to meet the October 26^th agreement, he had every reason to begin to have nightmares of revolution. In a state of panic he came up with the idea of calling a referendum, and as we know, panic is never a good advisor.

The call for a referendum was a risky manoeuvre, from a bourgeois point of view. It was an attempt to save Papandreou’s image before the people and to find the means by which to defuse the revolutionary wrath of the masses. But the trick proved inflammatory, precisely because of the current “flammable” state which capitalism in Greece and Europe finds itself. It sparked off uncertainty in the “markets” and accelerated the preparation of Greece's exit from the euro.

The Greek elite and the officials of European capital did not forgive Papandreou’s attempt to “play” with the stability of the system and quickly pushed for him to be removed, provoking the rebellion within his parliamentary group. The result was a “coordinated” fall of the government, with the vote of confidence going through parliament only as a means of avoiding elections.

This particular turn of events must not fool us. The fall of the Papandreou government was ultimately the result of one and a half years of struggle on the part of the workers and youth. It was the result of the pressure on the ruling class being brought to bear by the revolutionary anger of the masses.

[To be continued...]