Just as Julius Caesar crossed the Rubicon River because he could, in spite of the warnings of the Roman Senate not to, so Alex Tsipras, leader of the anti-austerity party, Syriza, has decided to try to end austerity in Greece, in spite of Europe’s leaders saying he shouldn’t.
by
Mark Blyth and Cornel Ban*
Whether Tsipras will succeed is still unclear, but whatever happens, his
victory represents a crucial turning point for Europe—a signal that time has
run out on austerity policies.
A “Tsipras”
had to happen somewhere eventually, because there’s only so long you can ask
people to vote for impoverishment today based on promises of a better tomorrow
that never arrives.
If voting for impoverishment brings only more
impoverishment, eventually people will stop voting for it—and the timing of
“eventually” will depend on when people’s assets run out.
In the Greek case,
backers of the incumbent New Democracy party and its austerity policies constitute
that quarter of the electorate who still have assets (pensions, paper, and
portfolios) after five years of depression and who want to preserve what they
have.
The 36 percent that voted for Syriza were the young, the asset-less, and
the unemployed—people who either lost what they once had or never had much to
begin with.
Greece’s 1.9 percent of growth last year means essentially nothing
to a society that has lost nearly 30 percent of GDP in a little over half a
decade; on the current course, it would take, by latest estimates, two
generations for the country to get back above water. Syriza’s
victory presents two lessons for the rest of Europe.
First, no one votes for a
15-year-long recession. Second, you can’t run a gold standard in a democracy.
Either the gold standard goes, or democracy goes, and that is the choice Europe
may face sooner than it thinks.
The Euro is
the gold standard that pretends that it’s not one—and therein lies the rub.
While Europe has a plethora of national parliaments and free and fair
elections, as well as a European parliament and multiple institutions with
delegated power to represent the interests of citizens, once a country is a
member of the Eurozone, certain things happen that bypass any possible
democratic checks.
On the upside, its credit history gets rewritten. Greece and
Italy get to borrow like Germany (with predictable results).
On the downside,
when a Eurozone country is hit with an economic shock, it cannot respond to it
through the exchange rate (devaluation) or by using the printing press
(inflation).
It must choose between default, which is not allowed, and
balancing its books through internal devaluation (austerity).
And if that means
a couple of constitutional coups d’état have to happen in the heart of democracy
to get the policies through, as happened in Italy and Greece in 2011, then so
be it. So
austerity becomes the only game in town.
Although it may be rational for any
one country to be austere, when multiple countries that share the same currency
with no common fiscal policy do so, the result can only be a massive
contraction of GDP and a corresponding increase in debt—which is exactly what
has happened in Europe in recent years.
The boost in consumer and investor
confidence that austerity was supposed to provide never materialized, and the
Eurozone as a whole slid into recession, and then, in the periphery, into
depression and deflation.
Now that all of this has occurred, however, the
politics of sustaining the euro have changed, and changed utterly.
Until now,
Eurozone policymakers’ obsession with fighting inflation has given them a
one-sided understanding of politics.
In fact, Europe has not had an inflation
problem of any magnitude since the 1970s. What it now faces is deflation—and
since the politics of inflation and deflation are very different, the wrong
policy choices produce Syrizas.
Inflation,
after all, is not a general malaise that hurts all members of society equally,
but a class-specific tax.
Those with assets, particularly paper assets, lose
harder and faster than other groups that can pressure the state to accommodate
them, which is why under inflation creditors suffer and debtors prosper.
Consequently, periods of inflation produce a type of politics where creditor
interests come to the fore and the state is forced to retreat.
The 1920s were
one such period and the 1970s another—which is when Europe, and the euro, began
to take their current form.Deflation
is different.
Rather than creditors losing and debtors benefitting, in a
deflation almost everyone loses, regardless of asset class. Consider the choice
of whether to work.
A worker who decides to take a pay cut to price herself
into a job is individually rational. But collectively, if all workers try this,
the result is a collapse in consumption.
Employers get cheaper labor, to be
sure, but also less demand for their products. Their logical individual
responses are to cut prices to spur sales—but once again, the aggregate effect
of such responses is to lower prices further.
This increases real wages at a
time when the economy is shrinking, which leads to more layoffs. In such a
world, with practically everyone losing, calls ring out for state intervention
to stop the bleeding, and eventually, they are heard.
It happened in the 1930s,
and it is happening once again today. This is
what Tsipras and Syriza represent: the moment Europe drifted from ever-deeper
and ever-wider open capital markets and institutionalized neoliberalism to a
system in which the state comes back to reassert sovereignty over markets.
At
that point, either democracy trumps markets (which need not be a progressive
move, as Syriza’s immediate choice of coalition partners demonstrates) or
markets undermine democracy to protect their asset values.
Which course
European countries choose will be determined in the next few years, but a
glance around the continent suggests that such a choice is indeed coming.
Greece may
have crossed the Rubicon first, but due to its size in the European economy,
Spain may be the game changer.
In Spain, Podemos is likely to form a winning
left-wing coalition after that country’s general elections this fall,
especially after the demonstration effect of Syriza.
In Ireland, Sinn Fein is
cut from the same anti-austerity cloth and has risen substantially in the polls.
Although such parties are often called extreme, it is important to stress that
their support bases, regardless of their leader’s dodgy connections, are
democratic political forces whose core claims—an end to self-defeating
austerity and impoverishing wage policies—echo mainstream social democracy and
the recommendations of many prominent economists on both sides of the Atlantic.
With regard to debt relief, these parties are merely restating the standard
economic case that their countries’ debt overhangs are too big for investment
to be resuscitated to levels that would permit high growth.
Maturities can be
extended indefinitely, but unless growth is restored, the game is over, and not
just for Greece.
For those
who fear Syriza and its left-wing counterparts, it is worth looking at the
alternatives on the radical right.
From Britain to Hungary, political
parties—whose ideology spans the spectrum from the explicitly Nazi (the Golden
Dawn in Greece) to the nationalist–populist (the United Kingdom Independence
Party and the French National Front)—are busy working to channel public anger
in a different direction.
Harkening back to Europe’s darkest days, they
translate negotiable conflicts over economic policy into non-negotiable
conflicts over ethnic identity.
They attack European integration even more than
the left-wing parties, question the democratic rights of existing citizens, and
fan the flames of xenophobia toward ethnic minorities and immigrants.
If
Europe’s ruling elites want to save the European project, and the Euro at the
heart of it, they need to start actively engaging with democratic left-wing
parties such as Syriza and Podemos rather than shunning them.
If they don’t,
they will drive some of these parties into volatile left–right alliances, or,
if they fail in their mandates, leave the stage open to political forces whose
goals will be far more radical than mere debt restructuring and opposition to
austerity.
What is at
stake now is not simply Syriza’s next moves or even a possible “Grexit.”
These
are symptoms, not causes. The problem is that European authorities, driven by
Germany, are enforcing a politics of deflation under a pseudo-gold standard,
expecting citizens to vote indefinitely for their own impoverishment in order
to save the asset values of creditors.
In such a world, both radical left- and
right-wing forces can only stand to gain ground across many supposedly stable
countries, and quicker than we think.
To avoid that fate, the continent’s
powerbrokers should make some sort of deal with Syriza now—because what may
follow it may be far worse.
*Mark Blyth is the Eastman Professor of
Political Economy at Brown University. Cornel Ban is Assistant Professor of
Political Science in the Frederick C. Pardee School of Global Studies at Boston
University.