Excerpts from a speech by James K, Galbraith on the SYRIZA government. James K. Galbraith holds the Lloyd M. Bentsen Jr. Chair in Government/Business Relations and a professorship of Government at the Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin.
…what the Greeks have done, and this is what has attracted me to become as engaged as I could be in this situation, what they’ve done in the past few months, is astounding. They have dismantled – I think definitively – and banished an entire previous political class.
They have ended a rather rotten and corrupt previous, two-party duopoly, and they have installed a government of dissidents, activists and professors…..
And the Greek people did this, by the way, in the face of a wall of resistance from their own media, which continues, and in the face of a wall of incredulity from their European partners, which also continues. I would say that possibly nothing quite comparable to this has happened in Europe since the election of Solidarity in Poland at the end of the 1980s. And it is obvious that it has had a galvanising effect on the political atmosphere outside of Greece, in fact, in many places around Europe, and is spreading an aspect of possibility that was not there before, opening up a window of opportunity. I believe the word in Spanish for the atmosphere that is emerging is ‘podemos‘. And that is the breeze which is wafting fresh air over the entire European scene.
I have been, of course, watching the European scene with some care for the last five years especially, and the transformation, the psychological transformation, is already perceptible outside of Greece. Inside Greece it is a fundamental fact that one can observe at any time.
At the same time it is also true that the new government confronts an elaborate, well-laid political and economic trap. It’s more than a trap actually. It’s more like a minefield or an obstacle course that is entirely of human construction. It’s purely artificial.
The trap is comprised of deadlines, deadlines for reviews, deadlines for payment schedules and cash flow hurdles, that were put in place before the 25 January election, in some cases with a view towards the likely timing of that event. It is comprised also of caps on liquidity assistance to the banking system, on issuance of T-bills by the government and the ability to discount T-bills at the European Central Bank – which came into play after the election.The pragmatic intervention of someone, for whom I don’t ordinarily offer a great deal of effusive praise, namely the Chancellor of the Federal Republic of Germany, has to be acknowledged. It’s a pragmatic step which may amount to a turning of the corner.
Each of those measures can be, and has been, rationalised as a measure of supervision or oversight or precaution. We can argue about whether that’s a legitimate rationalisation or not. I would have my questions, my doubts. But what one can say for sure is that the ensemble of these obstacles and, let’s say, precautionary financial measures, is, from a macroeconomic standpoint, from a psychological standpoint, fundamentally counterproductive. It adds materially to the instability that is perceived with respect to the Greek economy, to the instability of the financial system. It adds materially to capital flight, and to the political pressures that have been on the government and to which neither the government, nor the Greek public has shown any inclination to bow.
To get past the trap, to get through the minefield, has required manoeuvres of a fairly high order of adroitness in at least three stages. The first was to establish, in principle, that the previous agreement, the Memorandum of Understanding as it was called – which had subjected Greece to a form of colonial government, according to which practically everything that the government did was dictated from outside, by the institutions known as the troika – was a thing of the past. That it was finished, that the Greek public had rejected being ruled this way in an open and decisive election. And, at least in principle, that proposition was accepted, after some fairly rancorous negotiations that led to the communique on 20 February. This was a major step forward, although one that did come at the cost of deferring certain measures in the SYRIZA election platform, including raising the minimum wage, not reversing privatisations that have previously occurred and accepting a primary surplus target, which, although lower than the previous completely unrealistic one, was and is still constraining on the Greek government.
The second stage, still ongoing, involves establishing this reality at the operational level. It involves establishing a professional, acceptable working relationship between the international teams, which do have a legitimate role. And that role is finding out the facts and assuring the European partners of the good faith of the Greek government. And that has required an adjustment on the part of the international teams who came back to Athens, I think, still hoping that they could conduct business as they have done before, basically under the same operational rules that had governed under the Memorandum of Understanding. They found out that that was not the case and there was a certain amount of friction that was associated with that discovery.
I think it’s fair to report, in the last several days, some progress has been made. Technical discussions were suspended for a while, with the proposition being that the teams would present their request for documents from the Greek government in writing. And the teams are now doing that. They are working to present a list of documents that they require and that request will be responded to. The Greek Ministry of Finance has issued a statement saying that they view this as a constructive development. It’s putting the relationship between the two sides on a proper footing of good order and regular exchange of documents.
A third stage in the process is one which has to be resolved at the political level. And that involves restoring the liquidity of the Greek government and giving enough financial stability to the banking system so that economic activity can begin to resume. That’s been a major problem, especially in these last two months, in the atmosphere of fear that surrounded the election and the atmosphere of uncertainty that has succeeded it. Basically, banks have suspended most of their activity and a great deal of capital has left, requiring, as I say, these intermittent and rather small increases in liquidity assistance to keep the system in function.
But that is not sufficient to allow the government the breathing space, either to develop its programme of reforms, or to begin to open up the prospect of some recovery in the economy. And a decision to move past that mechanism of destabilisation had to be taken at the political level and it is possible that that was accomplished, in part at least, in Berlin (referring to a meeting between Tsipras and Merkel in March).
See full transcript of speech here