Troika Seeks Regime Change in Greece

As negotiations on debt repayment break down once again between Greece’s Syriza government and its creditors the so called ‘Troika’ (European Central Bank (ECB), European Commission (EC) and the International Monetary Fund (IMF)), this crisis appears finally to be coming to a head. Greece is due to repay its next instalment of 1.6 billion Euros to the IMF by the end of June, to avoid debt default and probable ejection from the Eurozone.

Even for politicos like me, this seemingly never ending saga is starting to wear me down with the sheer tediousness of the whole affair. It could yet be that some kind of compromise is found over the coming weekend but the signs are that push has finally come to shove. But the problem remains that both sides have fundamentally diametrically opposed views on how to deal with Greece’s sovereign debt.

The Troika wants austerity policies like cutting public expenditure, things like pensions and public sector wage cuts, together with sharp rises to indirect taxation (VAT) and the privatisation of public assets to continue. Even though these polices have been implemented for the last five years and not only has this caused poverty and misery for the majority of Greek people, but the debt far from reducing, it is actually increasing. This is classic neo-liberalism, akin the policies pursued in the USA after the great economic crash of 1929, until President Roosevelt introduced growth inducing Keynesian economics in the 1930s which led to a recovery in the US and around the world.

The Greek government wants to try the Roosevelt route to cutting the debt, by increasing direct taxes on the wealthy and corporations whilst trying as best they can to stimulate the economy into growth with public investment. This is what Paul Mason has termed ‘left austerity’.  

Both sides have shifted a little over the last few days with Syriza offering some increases in VAT and cuts to pensions as well taxes on the wealthy and the Troika even less by insisting on further cuts in public spending together with more modest tax increases for the rich and for corporations.

For Syriza to move towards the Troika remedy, even a little, is very risky since they were elected to government on the basis that they would end this fetish with cutting public spending and get the economy to grow, which is the only way that the debt can be paid off. They will need to get any deal approved by the Greek Parliament anyway, which looks to be difficult with opposition within Syriza itself to continuing austerity policies and their coalition partners the Greek Independents (ANEL) against raising VAT for Greece’s islands who get a reduction at the moment due to the extra costs of importing most things (like milk and cooking oil for example) from the mainland.

The Troika for their part are playing something of a good cop bad cop routine, with the IMF agreeing that the debt needs to be restructured (cut) to make it sustainable whilst insisting on the austerity measures mentioned above. The ECB and EC will not countenance debt forgiveness but are more open to raising taxes on the wealthy (if they can be made to pay). In the end in presents Syriza with no room for manoeuver, and basically forces them to continue with the same Memorandum policies agreed by the previous Greek government.

The Troika seem to think that Greece is expendable, and if they won’t tow the line, then they can leave the Eurozone, and they are confident that any damage to the wider Eurozone can be contained fairly painlessly. I am not sure they are right.

Consider this. Greece owes 180% of its GDP in sovereign debt to, apart from the IMF (about 20%) other Eurozone nation's taxpayers. The banks, mainly French and German, who lent money to Greece have been paid off. But Greece also has around 150% of its GDP (around 360 billion Euros) in private debt to banks. If Greece is ejected from the Euro they can kiss goodbye this. To put this into context, the Lehman Brothers financial collapse, which started the global recession in 2008, owed 600 million Euros in private debt. So, not only will the tax payers in Eurozone countries lose their money if Greece defaults, but it could easily trigger another global financial crisis.

Additionally, capital investors will worry which country is next to be ejected from the Euro, causing a run on the Euro, making matters even worse. This then has the potential to throw the Eurozone and the world economy back into recession. I think the Troika are taking a big risk.

Here we come to the rub of this crisis. For ideological and political reasons, the Troika do not want to change their approach to debt financing, it has nothing to do with economics really. If Greece gets a better deal the fear is that other countries, Spain, Portugal, Italy and Ireland will want a similar one, and the government’s in those countries will probably be ejected for putting their people through so much needless pain.

The Troika want to see Syriza kicked out of power in Greece, as a lesson to other countries thinking of challenging the austerity orthodoxy of the Eurozone, and national democracy is dismissed with contempt.

For Greece, and Syriza, they need to leave the Eurozone if they are to implement their policies and start on the road to recovery. Syriza do not have a mandate for this though, so they need to get approval from the Greek people in a referendum or general election. The only other way, is to continue with the austerity and misery of the last five years, for the foreseeable future.