Marica Frangakis is an independent researcher and a member of the European Economists for an Alternative Economic Policy in Europe (the EuroMemo Group) as well as a member of the Board of the Nicos Poulantzas Institute, Athens.
Marica Frangakis talked to Greek News Agenda* about the proposals of the EuroMemorandum 2017 report, how the Greek crisis could have been averted, the necessity of a substantial restructuring of Greek debt, the concept of burden sharing in order to deal with increasing European debt, as well as the how the European Commission’s White Paper on the Future of Europe overlooks the inherent contradictions and tensions of European societies and economies. Frangakis concludes that in order to undo the harm done by the crisis there needs to be decisive shift away from the tried and failed policies of the past: the role of the Left is to push in that direction.
Could you talk to us about the EuroMemorandum 2017 report of the EuroMemo Group on European economic policy? What are the biggest problems identified in the report? What are the basic tenets of an alternative economic policy proposed in the report?
The European Economists for an Alternative Economic Policy in Europe (also known as the EuroMemo Group) is a forum for the exchange of critical ideas and the formulation of alternative proposals to those of the European Commission on economic and social policy. In fact, 2017 marks the twentieth year of the publication of EuroMemorandum reports, as the first one appeared in 1997 (also in Greek in https://www.euromemorandum.eu). It is worth noting that this year’s conference will be held in Athens at the Harokopeio University on 28-30 September.
The EuroMemorandum 2017 Report deals with a range of issues, such as the inadequacies and the lack of democratic accountability of the EU’s economic and monetary policy, the refugee crisis and the lack of EU solidarity, the rise of right-wing forces and economic nationalism, TTIP and more recently the equally regressive CETA, as well as the ineffectiveness of the European Neighbourhood Policy.
In each of these areas, the Report makes alternative proposals for a high and sustainable level of employment, for a substantial EU level budget to finance EU-wide investment, for overcoming disparities among regions, for a strategy of wage growth and against tax competition, for the democratic accountability of the ECB, for the support of refugees, for the establishment of mutually beneficial cooperation between the EU and its neighbouring countries in the south and especially in the south-east of the Mediterranean Sea.
Has Europe learned any lessons from the way the Greek debt crisis was handled? Is there still a chance for a substantial restructuring of Greek debt? What does it take to make Greek debt “sustainable”?
The EuroMemo Group has been especially vocal in its criticism for the way the Greek debt crisis was handled by the EU and by its failure to learn from it. The Greek crisis could have been averted, had the speculation on the government bond market been dealt with in 2009/2010 and had the ECB intervened in the decisive way it did in 2012, when the Italian and Spanish government bonds came under pressure. Even today, Greece is the only Eurozone country to be excluded from the ECB’s quantitative easing programme.
Further, once started, the Greek crisis could have been contained, had the debt restructuring of 2012 been implemented at the beginning of the crisis, i.e. in 2010. Instead, Greece was given large loans at market rates in order to bail out its creditors. Further, these bail outs were conditional on harsh austerity and deregulation measures, which have ravaged the Greek economy and society over the past seven years.
The short-run debt restructuring measures agreed in 2016 and implemented in 2017 go some way towards reducing the risks faced by the high public debt of Greece in the case of an increase in interest rates. However, they do not solve the long-run problem of reducing the debt burden and boosting economic and social development.
Debt sustainability may be defined in a number of ways. The Stability and Growth Pact takes a static view in setting an upper limit of 60% of GDP, above which a member state is in breach of the EU fiscal rules. The IMF defines debt sustainability in relation to the Gross Financing Needs, which should not exceed 15% of GDP. The ECB takes a similar view. In view of the fact that the maturity of the Greek public debt reaches the year 2059, a substantial restructuring of the debt is deemed necessary in order to secure its long-run sustainability. The EuroMemo Group is an advocate of such an approach, which however meets with the resistance of the dominant forces of the EU at present.
What would be a good systemic policy to deal with the European debt issue as a whole?
As shown by historical experience, a systemic financial crisis of large proportions is followed by an economic crisis, which results in increased public finances, i.e. government deficit and debt. This is the result of the automatic stabilisers coming into play, as tax receipts are reduced while public spending is increased due to higher unemployment benefits and other crisis-related spending.
Most EU member states have in fact witnessed a significant increase in their public debt level as a result of the crisis. In this sense, the European debt issue concerns not only Greece but many more EU countries. A good systemic policy to deal with it needs to be based on the notion of burden sharing, which is absent from the conceptualization of the Eurozone, as well as from its architecture.
Assuming that there is the political will to introduce such a notion, there are many proposals as to how this can be done. One such proposal relates to the issuance of Eurobonds. The precise structure of the Eurobonds and their relation to the part of the debt that remains with the originator state are subject to discussion and negotiation by the parties concerned. In essence, this proposal would monetize part of the public debt of the Eurozone member states. Objections raised in connection with the risk of inflation are unfounded, in view of the fact that the Eurozone suffers from too low a rate of inflation, bordering on deflation in certain cases.
The multi-speed scenario for the future of Europe seems to be gaining traction. The European Commission’s White Paper on the Future of Europe, presented five scenarios for how the Union could evolve by 2025. Could you comment on these scenarios?
The European Commission’s White Paper on the Future of Europe lays out different options/scenarios for the future. However, it commits the common error of a typical EU approach. It overlooks the inherent contradictions and tensions of European societies and economies. This raises the question of who the Paper is addressed to. We contend that it is primarily addressed to the European elites who seem to be obliviously slipping into a very uncertain future for European society, themselves included. Examples of issues not discussed by the White Paper include the following:
a. The working conditions in a post-crisis working environment, characterized by heightened insecurity and an increasingly deregulated market environment;
b. The role of finance in post-crisis conditions; the five reports to be prepared by the Commission in the next few months do NOT contain finance!
c. The growth of a ‘subaltern’ class across the EU but with a greater emphasis in certain areas; pressing questions of increasing poverty and inequality and lack of opportunities for a full-filling life are not touched upon;
d. The growing appeal of ultra-right political forces, which was already evident in the 2014 European election results;
e. The marginalisation of new immigrants and the growth of racism.
Overall, the EU is indeed at a crossroad. The White Paper needs to undo the harm done by the crisis and the inadequacies/prejudices of the EU policy response to it. Populism and the rise of ultra-right forces may serve as a wake-up call for the European leaders and the class interests they represent; but, will they? Only a decisive shift away from the tried and failed policies of the past and especially the response to the crisis will do. Such a task takes resolve and vision on the part of the ruling political class; the role of the Left is to push in that direction. As the SYRIZA experience has shown this is not a linear process, neither a straightforward one. In this type of process, resolve and vision is paramount, on part of the Left also, so as not to lose one’s strategic direction amidst everyday political setbacks and compromises.
*Interview by Ioulia Livaditi