Since the Greek debt crisis broke in early 2010, Costas Lapavitsas has advocated Greek exit from the eurozone. He argued for that in an interview with Solidarity back in May 2010 and has written much about it since then.
He is a Marxist economist specialising in the study of financial systems, a professor at the School of Oriental and African Studies in London, and, since 25 January, a Syriza MP in the Greek parliament.
Straight after 25 January, he published a new book, Against the Troika. It has a foreword by Oskar Lafontaine, who was SPD minister of finance in Germany in 1998-9 and later (until retiring because of ill-health) a leader of Die Linke; a preface by BBC journalist Paul Mason; and an afterword by Alberto Garzon Espinosa, leader of the United Left in Spain. It is co-written with Heiner Flassbeck, a Keynesian economist who was deputy to Lafontaine as a minister and later a top official in Unctad.
The book, perhaps because of Flassbeck’s influence, has a different balance from Lapavitsas’s previous arguments. It poses euro-exit not as the ideal, but a risky fallback which the Greek government should nevertheless see as the main option.
The book argues that in principle “the step to create the European Monetary Union [EMU] was fully justified from an economic point of view” and that when the world moved to a norm of floating currency exchange rates from the late 1970s it was “quite sensible” that “many smaller countries refused to adopt a system of fully flexible exchange rates. For smaller countries in Europe, monetary cooperation has been an important way of avoiding falling victim to the vagaries of the financial markets”.
But Germany’s wage squeeze since 2000 has made the system malign. It means acute competitive pressure on other countries in the eurozone, and chronically weak market demand. Since 2010 the EU leaders have insisted on “asymmetric adjustment — i.e. wage cuts and deflation in deficit countries but unchanged policies in Germany”, and this is “a recipe for disaster”.
“If all countries try to improve competitiveness by cutting wages, the result would be a race to the bottom. In that race, no country could improve its condition, but everyone would lose because domestic demand in the union as a whole would fall”.
Greece’s plight could be eased by an increase in German wages; an official policy aiming at higher inflation in Germany than elsewhere in the eurozone; and cancellation of a large chunk of Greece’s unsustainable debt (which is now, as Lapavitsas and Flassbeck show, mostly held by public bodies of the eurozone: the main effect of the “bail-outs” has been to transfer the risk from commercial banks to those public bodies).
Lapavitsas and Flassbeck dismiss that possibility. They do not say that it is economically impossible (which it isn’t, even under capitalism). But (they say) “there is no European ‘demos’” to sustain such an effort of Euro-democracy. “And nor is there any realistic prospect of such a ‘demos’ emerging in the foreseeable future”.
In other words, they rule out a surge of European working-class solidarity — even, initially, at the level of a surge of anti-cuts, pro-workers’-rights struggles across several countries.
They argue, unanswerably I think, that a left government in Greece cannot extract serious concessions from EU leaders without “raising the spectre of EMU exit. A left government should not be scared or cowed by this prospect”, but use it.
Lapavitsas and Flassbeck see this in terms of a left government saying, at some point: “Well, then, we quit”. But they also give a useful list of gambits for a left government to push the envelope of the eurozone: creating credit, or printing euro-dominated IOUs, within the country, without ECB authorisation; restricting commercial bank operations; imposing capital controls.
Strategically, a left government would do much better to push those gambits to the limit, openly recognising and explaining the risk that the ECB would cut it off (in effect, make “Greek” euros inconvertible to other euros) and simultaneously campaigning for European working-class solidarity to oppose such moves by the ECB, than to save the ECB trouble and undercut solidarity by quietly walking out.
Lapavitsas and Flassbeck are surely correct that a left government which says that it will never take the risk of being forced out of the eurozone, and therefore can always be scared by the EU leaders and the ECB threatening expulsion, disables itself. But, having dismissed the possibility of even an emergent European democracy-in-struggle, they fall back on the idea of exit as a tactical ploy.
And there, where the book needs to be precise, it becomes vague. Lapavitsas always presented his plan as “a progressive exit”, differentiating it both from reactionary exit (which was and is a possibility) and from socialist revolution. It is a plan for a less malign capitalism, with the balance of forces tilted back to labour.
Lapavitsas and Flassbeck register difficulties. The exiting government would find it hard to get its drachmas accepted even by Greek people for Greek transactions, since they would prefer and hoard the euros still circulating in Greece. Getting “medicine, food, and fuel... would become a significant issue in the short run”. “Oil and other commodities have to be imported and would become vastly more expensive...” Improbably (I think), they suggest that the Greek government which had been unable to get concessions from the EU leaders might yet negotiate eurozone assistance to ease the exit.
In the new version, exit is to be followed by nationalisation of the banks. But in fact even a “reactionary” exit would probably require that. And for subsequent policies? An exited Greece is recommended “interstate agreements with sympathetic governments” (Putin’s Russia? China?), “priority on [public] loans to Small and Medium Enterprises in the tradable sectors”, and a tilt in tax policy to favour SMEs. The book tacitly assumes that Greece’s “unit labour costs” would be reduced (mostly, presumably, by devaluation of the drachma) to make Greek capital more competitive.
Defeating capital on a European task is a daunting task. But no lesser aim will serve to guide labour movements in this crisis.