Greece – five pictures of a troubled country

In a special long-read, Paul Mason offers five pictures of Greece.

A divided population?

As the crunch approaches the atmosphere has changed. For six months the centre right in Greece was prepared to wait and let Alexis Tsipras try – and fail – to secure a letup on austerity. Now the old political establishment has understood he intends to take this to the bitter end: a default on Greece’s June payment to the IMF, with possible dire consequences for the banks as early as Monday night.

The ECB’s life support facility – known as Emergency Lending Assistance (ELA) – is conditional on Greece being “in a programme” agreed with lenders. I understand on Friday it was only the intervention of Mario Draghi, the ECB’s boss, that prevented the termination of ELA.

So on Thursday, amid an accelerating bank run that has seen €5bn withdrawn this week, the opposition took to the streets.

The demo was called on Facebook and fronted by technocratic young professionals for whom Greek membership of the Euro symbolises their aspirations for a cleaner, more modernised economy. But the majority of those attending were from  the political establishment that ran up €320bn debts and then signed up for an EU/IMF austerity deal that destroyed 25 per cent of their economy.

When they surged up the steps of the tomb of the unknown soldier, which fronts the Greek parliament, there was not a single uniformed policeman in sight. They chanted for Europe and against Syriza. Their placards denounced the “soviet” aspirations of the far left government. Present were key members of the conservative right, including leadership hopeful Adonis Georgiadis.

The Greek left is suddenly startled. Though the right wing demo was only around 7,000 strong, largely composed of people over 65, and ridiculed by Syriza and its bloggers, for a wider group of voters it has sown anxiety.

The soft left of Greek society – also technocratic, also pro-Euro – voted for Syriza because it promised them to reduce austerity while staying in the Euro; and to attack corruption. It also promised to put the world of tear gas and riot cops and fascist infiltration of the state into the past.

Now, every logical mind in Greece is mulling over the following scenario. If the government can’t reach a deal on Monday, and defaults, and its banks are closed – bringing tens of thousands of enraged conservatives to the streets – what next? Syriza removed the barriers to parliament and demobilised the riot cops. So what if next time, alongside the genteel and the technocrats, there arrives the plebeian base of conservatism, carrying national flags and religious symbols?

The prospect of open conflict between the left and right of Greek society terrifies the young, because their grandparents fought it out with tanks, torture and guerrilla warfare. Though nobody is suggesting it will end that way, it is the unanswered question – can Greek democracy and civil society contain the tensions that will be unleashed this week if Greece defaults?

That may shape the actions of both Alexis Tsipras and the lenders.

Syriza: in the headlights of history?

Syriza in power has been a work in progress. Alexis Tsipras divided up his ministries between three distinct groups of politicians: the pro-Grexit hard left of Syriza, which got the energy ministry; long-standing Syriza lawyers and academics of the post-1968 generation; and no fewer than six independent ministers, with political careers in the left of social democracy (plus three right wing nationalists and a green from his coalition partners).

But what they’ve found in power is an apparatus that barely functions. The civil service, one ministerial aide told me, ranges from hostility to mere leakage of information to the opposition. The Greek state had become so reliant on informal, clientelist relationships that it has very little in the way of institutional shock absorbers between ministers and micro-operational decision making.

When it comes to the banks, the minister responsible is Deputy Prime Minister Yannis Dragasakis, yet the effective bank regulator is the ECB. That means the government cannot exert influence into the banking sector at times of crisis. Meanwhile the governor of the Greek central bank, Yannis Stournaras, is a former conservative finance minister who opposes Syriza’s policy but can’t be removed.

There is, both in the party’s rank and file and among the wider population, frustration at Syriza’s slowness in altering the way the state runs.

As a result of this Syriza’s ministers and aides have developed a management style whereby they are in constant execution mode, and constantly reacting to critical events. Technical and operational tasks consume energy that in a functioning democratic state should be used for political decision making, or taking the temperature of society, or just recuperating.

As for communication this is a party with almost no “outriders” in the mainstream press: their media allies are startup internet news sites, or columnists in the liberal and conservative foreign press.

All these relatively minor dysfunctions will be problematic if a default happens and the banks have to be closed or nationalised.

I watched the British state struggle with a bank collapse in October 2008: 24 hour operations by seasoned civil servants, fuelled by takeaway food; line-open calls to Washington, to the central bank, to individual bank bosses. Drawing on decades of goodwill and personal relationships, built over a decade of receptions and business dinners, Gordon Brown’s civil servants saved or sacrificed the finance system, bank by bank, CEO by CEO.

With the Greek state there is scant capacity to mount such an operation, and no single centre from which it would be launched. Plus there is the implicit resistance of the Greek central bank, which is bound by the rules of the Eurozone to act on behalf of Greece’s lenders, not its people.

I do not doubt that finance minister Yanis Varoufakis has a “Plan B” in the case of a rupture, and a banking crisis. But I doubt the Greek apparatus of government is resilient  enough to manage it.

What crisis will looks like

The British journalist Ambrose Evans Pritchard called the Troika’s coming attack on Greece the economic equivalent of the Iraq War. If so, it will be no joy to be sitting in the bunker. All the dynamics of the situation, rehearsed again and again over the past six months, will get squashed into a few days.

As they look over the edge of the diving board, this is how events might unfold.

On Sunday there’ll be another Greek delegation to Brussels. I have been told by secondary sources that it will offer a plan that retreats slightly from the Greek final offer established two weeks ago, but I have no detail.

However, the ECB has indicated to the Greeks that there will be no more negotiations. The lenders will present a take it or leave it plan, and the best Greece can hope for is that it includes some form of bridging finance or delay.

Syriza’s MPs cannot sell anything more austere than their current offer to their voters. Indeed they are finding it hard to enthuse their own supporters for the deal they have proposed already. On Sunday night there is to be another pro-government demonstration: if it’s small, and the anti-government one planned for Monday is bigger and livelier, that will be a straw in the wind.

On Monday, if there is no deal, the debt and fiscal policy side of the negotiations could quite easily go to the wire of 30 June and beyond – as long as Syriza does not declare a hard default, but simply asks for more time to pay.

However, it is the banking system that’s the problem. Government sources claim the accelerating withdrawals are being orchestrated by business groups, and even encouraged by the staff and management of banks. However no evidence has been published.

But whatever the cause, the acceleration of the silent bank run last week leaves the Greek banks completely reliant on ELA. Unlike the Brits and USA in 2008 the government cannot intervene to takeover and run banks, or nationalise them, or convert shares into capital, or replace their managements – because that is for the ECB to do, and its local representative, Mr Stournaras, is the former finance minister.

Once ELA is pulled the banks would have to close, or severely limit withdrawals, or be recapitalised.

Then the entire problem of the split sovereignty implicit in the Eurozone will be focused into a single moment. The ECB will order, as in Cyprus, a “bail in” of depositors – that is, savers could lose some of their money. If far left government resists that it will be forced to detach itself from the governance mechanisms of the Eurozone.

So even as it pledges to remain in the single currency, it will be at war with – and partially seceded from – its structures. If the ECB throws in, as threatened, the suspension of the Target 2 payment system for Greece, it will effectively be a Euro member in name only.

Alexis Tsipras

The problem for Alexis Tsipras is: everything is now focused on him. In a poll conducted for his party’s newspaper tonight, a staggering 47 per cent of Greek voters polled said they would vote for him in an election were it to be held now.

Those close to him say he is more determined than ever not to surrender, and that if tomorrow’s attempt at compromise fails he will most likely call an election. He may, in fact, have little choice, as the president of the Greek democracy, Prokopis Pavlopoulous, indicated this week he might resign if there’s a default, triggering an election.

But what would the election be about? Tsipras rode to power on a wave of hope driven by the radicalism of his manifesto, the so-called Thessaloniki Programme. In the course of the negotiations he retreated from that, so in the case of a break with Europe, would Tsipras embrace a programme of Grexit, hard default, internal class struggle and a return to the radical programme? Or would he ask Greeks to endorse the 47-page compromise document its negotiators offered to the EU two weeks ago?

A further element contributing to Tsipras appeal in January was his assurance that the right’s warnings of chaos were scaremongering. Even if, as Syriza will argue, the chaos has been created by the ECB, it will be hard to use the same argument again.

And which is the Syriza that will stand? Syriza is an acronym for “coalition of the radical left”, and the experience of the past six months have left the three elements of that coalition drawing different conclusions.

The hard left, led by Panayotis Lafazanis – but whose best known spokesperson in the English world is SOAS professor Costas Lapavitsas, feel vindicated in their call for a negotiated exit from the Euro.

The more social democratic wing of Syriza, including the veteran independents Tsipras drafted into his cabinet, might detach towards the hodge-podge of small social democratic splinters.

That would leave Tsipras and the young activists who form the core of his party facing the question: what are you asking us to vote for?

The Troika

Whatever the outcome of Monday, the credibility and reputation of the Eurozone’s mechanism of governance, and of the IMF, are damaged. To understand why, study the final picture: the graph of the lenders predictions versus reality when it comes to what austerity does to GDP.

The bottom of the three lines is reality. The top two lines represent the delusional economics of bodies whose predictive mistakes led to the collapse of Greek output, the rise of fascism, a fall in life expectancy and a 50 per cent spike in male suicides.

These predictions were made when everything the lenders dislike about Greece was known: its highly protected small business culture, its powerful trade unions, the clientelism of the civil service and the corruption of is business elite. What’s more they were made in the face of open scepticism from journalists and economists, including myself.

Having created the Greek collapse, the European Central Bank and IMF – nominally charged with maintaining stability – will be seen by large sections of the European population to collude in the overthrow of an elected government.

The stakes are high because – if Greek capitalism could be reformed to be more modern, less corrupt, more fiscally stable – it would deliver success. It sits on the strategic crossroads of the Western world, and the Chinese want to buy its ports and rebuild its railways for a reason. The Breugel think tank economist Zsolt Davas has outlined Greece’s potential to recover in a detailed blog post.

If Syriza falls, and a pro-IMF technocratic government takes its place – which it will have to because the traditional parties are in disarray – the lenders stand ready to inject all the cash and structural funds and possibly even quantitative easing money they are denying now. They have said this.

At the same time, they are hastening the government’s fall by interpreting its inability to meet short term debt redemptions as a full-blown, Argentina-style hard default. Officials from the IMF, ECB and the EFSF bailout fund spelled out this week that once Greece misses a payment, they themselves will trigger the default, because – a bit like the Europe in 1914, they all have trigger clauses whereby default on one means default on all.

As this plays out the population of Europe will watch closely. Yes a lot of people are sick of the Greek crisis. But they are also fascinated by it, because what’s playing out on this landscape of burnt-umber, urban decay, torrid nightlife, graffiti and Mediterranean passion the basic dilemma of 21st century capitalism: shall it be for the rich or for everybody?

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