Lecture to MOC Brussels by Stavros Mavroudeas

1. Stavros D. Mavroudeas
Dept. of Economics
University of Macedonia
e-mail: smavro@uom.edu.gr
Web: http://stavrosmavroudeas.wordpress.com
9/6/2015
MOC Bruxelles
rue d'Anderlecht, 4, 1000

2. Structure of the lecture
1) What is not the Greek crisis
2) What is the Greek crisis
3) What is the troika Economic Adjustment Programs
(EAPs)
4) What are the alternatives

3.  EU, mainstream media, Greek elite: the Greek is a self-
inflicted debt crisis
 analytical basis: Twin Deficits Hypothesis (TDH):
exorbitant wage increases (ULC)
↑FD (public sector) ↑ trade deficit (private sector)
↑ CAD
Fiscal Deficit (FD) causes Current Account Deficit
(CAD)
(1) What is not the Greek crisis

4. In simple terms:
• Greek public sector workers blackmailed electorally the
government to increase unrealistically their wages thus causing
FD
• Greek private sector workers similarly achieved unrealistically
high wages thus causing falling competitiveness and
consequently increasing the trade deficit and ultimately the
current account deficit
This is a blatant lie:
• FD increased because the state subsidised capital’s profitability
• CAD increased because capital refrained from investing in l-r
competitiveness and resorted to s-r windfall profits
• Wage increases were not exorbitant: they lagged constantly
behind productivity increases

5. This whole argument about wages being responsible for
falling competitiveness is based, in Mainstream
Economics, on nominal Unit Labor Costs (nULC).
This is a faulty argument because economic analysis
knows very well that:
 the most competitive economies are high wages
economies (Kaldor paradox)
 wages are part of cost competitiveness. But
competitiveness depends also crucially on structural
factors (structural competitiveness)
 in Greece, after years of EAPs, wages have fallen
significantly but competitiveness has not increased
(because capital simply increased its profit margins)

6. Greek wages constantly lagged behind productivity
(which increased faster than that of Germany). Thus, real
ULC (i.e. the wage share) have been falling continuously
for several decades.

7. Figure 2. Productivity and Wage
0
10
20
30
40
50
60
70
80
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
Productivity
Real Wage
Productivity: There is a vigorous increase for the period 1960 - 1973 . After 1973 its growth
slows down whilst during the 1980s it remains stagnant. In the beginning of the 1990s it rises
again till the middle of 2000s when it starts to decline bearing similarities with the 1970s’.
Real wage: for the whole period it follows productivity but it never gets higher.

8. (2) What is the Greek crisis?
 It is a systemic structural crisis that hinges upon two
axes:
(a) ‘internal’: a falling profitability crisis, not because of
increasing wages but because capital was unable to
continue finding satisfactorily profitable investment
outlets
(b) ‘external’: an unequal relation between the Greek
economy and the more developed EU economies that
deindustrialized and destabilized the Greek economy
and aggravated trade and current account deficits

9. The general rate of profit
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
General Rate of Profit
Figure 5 depicts the evolution of the general rate of profit and from its trajectory we can
discriminate three phases before the onset of current crisis. The first one is the period 1960 -
1973 where the general rate of profit is at a high level though with a small decline. The second
one is the period of crisis (1973 - 1985) when the general rate of profit falls dramatically. The
third period is that of neoliberalism (1985 – 2009) when the general rate of profit displays a
slight recovery and then remains stagnant.

10.  The unequal core – periphery relationship between
Greece (and other less developed EU economies) and
EU’s core developed countries is effected through two
conduits:
(a) A structural channel: Greek capitals compete within
the Common Market with more developed capitals.
(b) A policy channel: By, directly or indirectly, ceding the
control of monetary, fiscal and trade policy to the EU
Greek capitalism lost critical means for supporting its
competitiveness and development
This resulted in transfers of wealth from the periphery to
the core economies.

11.  Greece’s accession to the Common Market
Shrank the primary sector (that was competitive
(agricultural trade surplus and secured food
subsistence)
Deindustrialized the Greek economy
 Greece’s accession to the European Monetary Union
(EMU) deteriorated further extra-EU competitiveness
(because of its high exchange rate) and intra-EU
competitiveness as it facilitated cheap credit (financed
through external and not internal debt) that fueled
western imports. Consequently, it further worsened the
trade deficit and ultimately the CAD

12. Deteriorating Terms of Trade (ToT):
Compare Greece with Sweden and Austria:
(a) Sweden is an EU euro-core economy but not a member of the
EMU.
(b) Austria is an EU euro-core economy that participates in the
EMU.
(c) Greece, Sweden and Austria have approximately the same
population.
The ToT are estimated as the ratio between exports of goods (fob) to
imports of goods (cif).

13. Intra EU15 terms of trade
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
1.1
1.2
1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
Sweden
Austria
Greece

14. •1963 till 1981 (when Greece becomes a full member of the
EEC): the ToT exhibit an annual growth of 2,1% and
manage to converge with the other two countries, and
especially with Austria.
•1981 to 2002 (when EMU is established): the ToT decline
annually by 0,06% which reveals a loss of competitiveness
in relation with the rest of the EU15.
• Sweden exhibits an annual increase of 0,5% till the 1995,
when it becomes a full member of the EU. From 1995 to
2009 the ToT decline annually by 0,1%.
•Austria exhibits an increase in the ToT till its accession to
the EU (in 1995), by 0,1% per year. From 1995 to 2009 it has
a 1,1% an annual increase.

15. (3) What is the troika Economic Adjustment Programs (EAPs)
 From 2010 the Greek economy in the straitjackets of the
troika (EU-ECB-IMF) Economic Adjustment Programs:
severe austerity
 Results
Fall of GDP by 26% (2008-2015):

16. Staggering increase in unemployment
From 7.8 (2008) to 26.6 (2014)
 Unforeseen increase of the debt to GDP ratio, because fiscal
cuts depressed the economy more than expected (a bigger
fiscal multiplier)

17. 1. EAP strategy
 pro-capital
 systematic failures (not because it is erroneous from its
perspective (destruction & rebuilding) but because it is very
ambitious and violates dangerously the given social,
economic and political limits of Greek capitalism
 Special modification of IMF’s structural adjustment austerity
programmes:
 Longer (4 years)
 Pro-cyclical and front-loaded
 Lacking initially a debt restructuring mechanism
 Lacking an exchange rate devaluation mechanism
 2 aims:
 Short-term: debt viability
 Long-term: transform Greece to a European ‘special economic
zone’ (low cost export hub for EU’s multinationals specialized
in low technology goods)

18.  Systematic failures: 1st EAP failed (milestones, loan amount,
time horion), 2nd EAP is also failing (the 2020 target of 120%
debt/GDP ratio seems unachievable, given that it is also
illogical)
 Causes of systematic failures:
 Wages must be pushed to at least Balkan levels
 Assets costs must be further diminished
 A big part of the Greek economy has to be dominated by EU
multinationals (esp. banking sector, tourism)
These aims imply that:
(a) Workers must be pressed more
(b) The massive middle strata (a traditional systemic support)
have to be proletarianised
(c) Greek capital has to be subordinated further to EU capitals
and lose control of several critical sectors (esp. banking)
These cannot be easily accommodated and a political and/or
social eruption is possible.

19. Basic alternative strategies
Restructuring within
the EU & the EMU
Restructuring outside
the EU & the EMU
EAP
Exit from
EMU
Exit from
EU
Renegotia
tion
(4) Alternative strategies

20. 2. Renegotiation within the EU
2 pillars:
(1) keep one part of the EAP (loans)
(2) renegotiate austerity and structural part for an anti-cyclical, less
austere, more developmental policy
 Loan agreements: a short-time pause in servicing them (until the
Greek economy returns to positive rates of growth) while their
tranches will continue. It is not clarified if the accumulation of
interest (and thus the augmentation of debt will continue during
this pause). Reprofilling of the Greek debt. More radical versions:
consensual haircut of Greek debt.
 Keynesian anti-cyclical policies with (a) limited amelioration of
workers position: increase of minimum wage, reregulation of the
labour market (firings etc.), nothing concrete about
unemployment and work-time and (b) a measured increase of
public investment.
 Structural changes but the different versions of this strategy are
both vague and differ wildly (from acceptance of Memoranda’s
structural changes to radical alternatives).
 A European aid framework (either grandiosely called an EU
Marshall Plan or, more bashfully, a wider use of existing fund

21.  A non-compatible compromise: Logic of pro-cyclical supply-side
restructuring incompatible with anti-cyclical demand
management. The latter requires more time (than EU is willing to
concede) and is unrealistic in a overaccumulation crisis (a huge
devalorisation of capitals is required). Pro-cyclical restructuring is
closer to capital’s internal logic. Anti-cyclical expansive
restructuring was implemented in Greece after the 1973 crisis with
dismal results.
 The only case that there can be a policy mix is if pro-cyclical
restructuring has got hold and proceeds and some measured
interval is deemed necessary.
 Several technical miscalculations:
 Aid framework: ESPA’s rules are already very lax but Greek capitals are
afraid to participate because of the recession
 Pro-cyclical restructuring is organised around the EU ‘special economic
zone’ model: this is incompatible with a rapid revitalisation of internal
demand
 The euro-bond proposal (a mechanism for common cheap borrowing)
does not make practical sense.

22. 3. Exiting EMU (within the EU) and restructuring
 versions: (a) conflictual Grexit, (b) consensual
Grexit
 Short-sighted view: Grexit returns monetary and
currency autonomy but that does guarantee the policy
instruments for a radical productive restructuring
(discreet industrial policy, protectionism etc.).
 Import substitution and export increase cannot proceed
rapidly solely through devaluations and if so possibly
lead to rampant inflation. Private initiative cannot
achieve them adequately and in time.
 A wide and concise plan for the productive restructuring
of the economy requires a very heavy handed and
expansive state industrial policy and other policy
measures that are prohibited by the Common Market

23.  This strategy disregards the deep structural character of the
Greek crisis and tries to confront it only through the
monetary mechanism.
 In its consensual version it faces the institutional and vested
interests’ prohibitions of EU.
 In its conflictual version it cannot proceed unless coupled
with the exit from the Common Market and the institutional
framework (that is from the EU altogether).
 A special problem: consensual Grexit and relegation of
Greece (and other euro-periphery countries) to a currency
one depending on euro (e.g. the pre-euro situation) is the B-
plan of the dominant EU powers. It can be implemented if
the current A-plan goes astray. This is disastrous for
workers’ interests (double devaluation [internal + external],
more severe transformation to a ‘special economic one’).

24. 4. Disengagement from the EU
Recognizes
 the deep structural character of the Greek crisis
the incompatibility of an ascent of the Greek economy within
the EU because of the ‘special zone’ mechanism
Proposes:
A self-centered growth model (with strong backward and
forward inter-sectoral linkages) benefiting the working class
and integrated in a socialist transition program
It is organized in a program of short-term, mid-term and long-
term measures

25.  Short-term and mid-term measures:
(1) Exiting EU
(2) Debt default
(3) Capital controls
(4) Nationalization of the financial system (and especially banking)
(5) Heavily progressive tax system
(6) A managed exchange rate coupled with special instruments (e.g.
a multiple exchange rates system, international barter agreements,
currency swaps etc.)
(7) A price control system
 Long-term measures:
(1) An extensive productive restructuring plan organised by the
state and with state control on the basic and strategic sectors.
This implies an extensive and heavy-handed industrial policy
(2) An autonomous international economic policy.