This Sunday, 25 January, Greeks will vote in parliamentary elections of potentially historic importance, with Alexis Tsipras’s Syriza coalition currently ahead in the opinion polls. But according to Frédéric Lordon, Germany’s grip on the situation and the Greek radical Left party’s own inconsistencies might condemn it to some painful acrobatics.
For a long time Europe has been caught in a constitutional trap of its own making, with its neo-liberal treaties offering just two ways out of the current impasse: 1) the financial collapse of the European project, under the weight of its own internal contradictions; or 2) some political mishap coming along that will overthrow the whole system. The ECB’s announcement of the OMT programme  has avoided the first of these eventualities – for now – which leaves the second. And that’s the reason why the ‘European-institutional party’ has come to see democracy not as a normal state of political life but rather as a permanent source of threats – and it thinks itself justified in using any means necessary to stamp them out.
From this point of view, the Europeans must need something of the North Koreans’ ‘inner striving’ in order to reassure themselves of their democratic credentials. For example, the President of the European Commission showed his democratic stripes by expressing his decided preference for ‘familiar faces’ winning the Greek election, and Commissioner Moscovici even ventured to visit the country to encourage people to vote the right way (for want of the right living conditions). Such interference tells us quite a lot about what the European institutions think of popular sovereignty.
Without here questioning any further the real solidity of the barrier erected to outcome 1 (the OMT), let’s ask if it can really be true that, despite the degree to which political institutions have been taken away from us in almost all countries, there remains the slightest possibility of outcome 2 (short of an uprising proper, of course)? The Syriza experience (if there is one) will soon give us the answer. We can hardly say that the circumstances that Tsipras faces are ideal.
After all, Germany is very conscious of the present danger, and has tried to trip Syriza up already by saying that the Eurozone is indeed prepared to deal with a Grexit scenario. This is a way of fixing in advance the terms of the power relations that will inevitably take shape when a Syriza government makes known its plans for renegotiation.
On ‘the CDU’ and ‘selfishness’
In general these are difficult days for the pro-EU commentariat, dispirited as they are by its stubborn, rigid approach which – they understand well enough – ends up giving Europe a bad name. Seeking to contain their despondency, they have found just one solution – a two-sided one laying blame at the door of the CDU  (‘It’s not Germany doing it – it’s the German Right’) or indeed ‘selfishness’ (‘the Germans don’t want to pay for anyone else’). Clearly, this double explanation is a double error, as is immediately obvious when we note that the French ‘Left’ is a zealous member of the neo-liberal European project, as are all the parties of the Left (or rather, the left wing of the Right) in Europe. These parties are the functional equivalents of the CDU’s opponent, the SPD  – which is itself just as right-wing as they are. But we can also see this error in the lasting influence of a feeble ‘intellectual’ response that systematically relies on only moral explanations, or explaining things in terms of morality – in this case, ‘selfishness’, as if ‘sharing’ would resolve all our problems… Such is the poverty of a political construct that can only hope to mask its congenital flaws through appeals to virtue.
Nothing about what Germany is doing has anything to do with ‘the Right’ or ‘selfishness’; and it has everything to do with standing up for principles – which have nothing to do with morals. These are monetary principles, ones inscribed in a collective, cross-party belief that took shape after the trauma of hyperinflation in 1923. Rightly or wrongly (wrongly, as it happens) they see this hyperinflation as the antechamber of the greatest disaster of all – Nazism.
So in the recurring negotiations with Greece, for Germany it’s not really a question of ‘paying’ or ‘not paying’. Rather, it’s about defending orthodox principles – balancing budgets, the complete independence of the central bank, forbidding any monetary financing of deficits – that Germany has made into an economic constitution, a substitute national identity, an imaginary rampart against social chaos, and the sine qua non condition of its participation in the single currency. Losing billions of euros – well, Germany would accept that without hesitation if Europe ever abandoned the monetary imperatives Germany has thus far imposed on it, forcing Germany – Germany! – to leave the Eurozone at the cost of reintroducing the Mark and torpedoing the country’s trade surpluses. Better that than transgress its principles. Better alone with its principles than having to put up with the company of the irresponsible.
Is Merkel bluffing? No.
We often defend the most sacred values by way of the murkiest of manoeuvres. It will escape no one – especially after Angela Merkel’s statements – that a high-stakes game of poker is being prepared, with pre-emptive attempts at intimidation and efforts to shape the relations of force in advance. As we know, the art of poker lies in recognising who is bluffing. Is Merkel bluffing?
There’s good reason to ask ourselves this, when we know all about the anxiety that surrounded the possibility of Greece leaving the Eurozone in 2012. Has anything changed that might give some credibility to Germany’s apparent new-found light-mindedness on this score? Yes, indeed, one essential thing did change: that is, thanks to the restructuring of the Greek debt in 2012. Its effect – after the private lenders had digested the haircut  – was to shift the greater part of the Greek debt onto public creditors, with the EU, the European Stability Mechanism (ESM), the IMF and the ECB together now holding some €254bn of the debt, as compared to €44bn for private creditors. The fears that a Grexit scenario inspired at that time were essentially linked to the reactivated systemic risk should the country default on a €360bn debt of which almost 85% was owed to private creditors. The very fact of restructuring showed that this fear had probably been overestimated, since the private creditors absorbed losses of between 50 and 70% of the debt’s nominal value without this causing any apparent damage. All the more so given that systemic risk is no longer on the table – ‘we can keep going’, concluded Germany, which has never stopped thinking about its own banks throughout this whole affair .
If it seems possible enough to control the specifically financial collateral damage resulting from a Greek exit/default, then how about the collateral political effect – the risk of contagion? We can be sure that one country leaving the Eurozone would be a thunder bolt, and there is every possibility that it would be emulated elsewhere. Not least in Portugal and Spain, which are set to hold elections in November and December respectively. But what would be the contagion effect of the Grexit experience at that point? It probably wouldn’t be at its most enticing, you’d have to fear. We must be honest enough to say that as well as the logistical difficulties of bringing back the Drachma, the imperfections in the imposition of capital controls, de facto super-devaluation, the immediate effect of imported inflation, the slower effect on Greece’s exports, and so on, would all mean the exit/default process likely beginning with a period of chaos. And it would take at least twelve and more likely eighteen months not just to stabilise the situation but also for the benefits of this to materialise. Whereas at the end of 2015 it would be at the bottom of the abyss – the worst possible image for a Euro-exit strategy, whereas the ‘we told you so’ pro-EU champagne socialists would be popping corks.
Isn’t there a weak point in the German gambit, though, marked as it is by an obvious contradiction? After all, Germany has declared in advance that it is opposed to any restructuring of the debt owed to public creditors if Greece does stay… but if it ever did leave, the Greek debt titles would be worthless. To announce that the slightest concession is intolerable, before then saying that you’d in fact agree to losing everything, at the very least shows a rather wobbly grip of logic. It’s not a very credible position. Yet there is no contradiction, here, unless you take a restricted view: I repeat, Germany holds its principles closer than its loose change. Refusing to give in on the Greek debt has nothing to do with a selfish desire to save money and everything to do with saving a monetary dogma. The same one that Germany imposed on the Eurozone, scrupulous adherence to which is the condition of its own participation, and for which it is ready to pay billions.
What will Tsipras be negotiating?
So in these conditions we can say right away that a Syriza government is going to have a breech birth. Indeed, Tsipras’s party has got into itself into a difficult state, entirely inconsistently trying to follow both its plan to renegotiate the memorandum and its desire to stay in the Eurozone. This is a contradiction that its left wing, as represented by figures like Stathis Kouvelakis, has not failed to make clear, for some time now indeed. The restructuring that was imposed on the private creditors wiped out any room for reaching an accommodation on the debt with the Europeans/Germans. And to imagine that it could be extended to include the public creditors is living with the fairies – particularly if we’re also counting the ECB.
Syriza thus faces a simple choice: to bend over backwards, or turn everything upside-down. There is no third option. And if Tsipras imagines that he can keep Greece in the Euro and get anything more than a few peanuts, he is telling himself tales. Without doubt, we can count on the pro-EU commentariat to rave about great breakthroughs and perhaps even victorious triumphs – in any case, a living demonstration of the European institutions’ great flexibility. The truth about the negotiations is that Tsipras won’t even still be in the room when the starters arrive: the Europeans/Germans will make no meaningful concessions – and the more he demands, the sooner Merkel will show him the door.
But what exactly does Tsipras want? The tendency seems to be to demand increasingly little. In two years Syriza has gone from utterly rejecting the memorandum to seeking an oh-so reasonable rescheduling of the debt held by public creditors. Certainly, once Tsipras has watered down his programme to this degree – not to say capitulated – the contradictions are less acute… Nonetheless, any attempt really to offload the debt and to shake off the economic policy straitjacket would lead to de facto ejection from the Eurozone. And there will be no need for an article in the European treaties in order to go ahead with this (and there isn’t one), as the Cypriot case already began to show us. If the ECB placed the Greek banking system under embargo – concretely: refusing it fresh funding – within 24 hours that would suffice to bring about such a liquidity crisis that the urgent re-constitution of a national central bank would be the only way to save its banking system from total meltdown. And to set up such a bank would amount to setting up a national currency, since there could be no question of the ECB recognising money issued from autonomous sources – outside of its own control – as euros. The Greek banks could be re-integrated into the international interbank payments system quickly enough, but whatever they issued would be considered Drachmas. If need be taking a one for one exchange rate for the moment t=0, in the interim period preceding the inevitable nosedive.
The direct route from normalisation to disillusionment
So Syriza has to accept an economic straitjacket if it wants to keep the euro – or else it can reject both. There doesn’t seem to have been much preparation for this latter option, given both the party’s political drift and the justification it can draw from surveys showing that the Greek population remains strongly attached to the single currency. And we can see why. In its drift, Syriza has given up on making any effort to get the public to see abandoning the euro as a possible option. For example, such as would fit with a strategy based on gradual confrontation and a clear indication that the ultimate threat of leaving is part of its overall armoury.
It’s baffling to see such a series of retreats, which have led a promising movement to such rapid normalisation. And they will soon condemn the party to painful disillusionment: you’d have to be pretty stubborn to keep imagining that merely rescheduling the debt, under an economic policy that doesn’t change overall, could have any significant effect on the Greek economy. That is, an economy that’s seen a 20% fall in its GDP since 2010 – at the level of the US Great Depression in the 1930s, but without there being any New Deal to bring the country out of this situation.
It’s baffling to see all this – actually, no, we can understand it very well. All this is nothing more than the crushing effect of parliamentary institutions: the rules of the game inevitably condemn political troublemakers – suddenly entranced by electoral goals – to betray everything that made their arrival so sensational, as they instead turn to the centre ground. Just like how Syriza moved to try and pick up Pasok’s atomised troops – and doubtless the same fate lies ahead for Podemos (in fact it’s already begun).
After two years in which it’s watered down its programme so heavily, wouldn’t it be something of a political miracle if Syriza had the internal strength to return to its initial radicalism? That is, again preparing to leave the euro, in the (probable) eventuality that the renegotiations over the memorandum only deliver a few crumbs? Politics isn’t often home to miracles, and the crushing of Syriza under the joint weight of the European institutions and Greek parliamentarism – with its de facto abandonment of any ambition to throw off the neoliberal straitjacket – is the entirely predictable result of this story of normalisation (indeed, a normalisation that we’d seen coming). It’s a tough – but salutary – lesson for all those parties on the (real) European Left like the Front de Gauche, who haven’t finished dancing around the issues (if they’re still dancing at all), lost in the dream of ‘transforming the euro from within’. A chimera that Syriza are about to blow open, showing both its inanity and the political costs that result from it.
The pro-EU reaction, between the carrot and the stick
In truth, this lesson will ultimately be a bitter one for all concerned. A worn-down Syriza government forced to implement a mildly watered down austerity programme will not prove the merits of European compromise in action, as much as it will show that the Eurozone is a prison that doesn’t allow any hope of clemency. That is why pro-EU ideologists will have to work to limit the fallout. They can do so in two ways. The first is the fundamentalists’ approach – determined never to give in on anything, they will insist that it was ‘economically’ impossible to satisfy the Greeks’ demands. The second is the response of those who feel rather distressed, the last four years having raised the shadow of a doubt in their minds. They’ve already started getting agitated about what they can do to try and save their beautiful Europe, proposing yet another constitutional merry-go-round.
In a certain sense EU fundamentalism has it easier, here. The decision to stick by one same belief, come what may, does make your response rather simpler – and you can just paper over any cracks that might appear. Here, EU fundamentalism tells us that the most precious, the most vulnerable, the most delicate of the public creditors is the ECB. To cancel the Greek debt would risk the ECB going into the red, and this would condemn the EU member states – meaning, the taxpayer (and this word is written in flashing lights…) – to having to recapitalise it.
Right away we can see the inconsistency in an argument that makes a big deal about the ECB losses but has little to say on the ESM’s losses or indeed those of the EU itself (though they are owed €27.7bn, €141bn and €53bn respectively). But ‘central bank’ includes the word ‘bank’, and that allows the fundamentalists to bring to mind all sorts of associations with the 2007-8 financial crisis, as if the ECB were some kind of larger scale version of Lehman Brothers. (More) ‘banks going bust’ and the renewed spectre of a ‘great crash’ – well, that’s the phantom being whipped up by the too-clever-by-half defenders of European monetarism.
These prophecies are 100% wrong. Out of all banks (and indeed, all economic entities), the central bank is the only one for which losses are entirely innocuous, and for which it makes no sense at all to speak of bankruptcy. For a simple reason: bankruptcy is a state of illiquidity… and the central bank could never get into such a situation, because it is itself the source of all liquidity! The central bank creates liquidity. It creates it ex nihilo: not by magic, but through an operation expressing a collective belief that currency symbolises a general equivalent. This collective belief is inscribed within particular institutions (which, moreover, are distinguished by their ability to reproduce this belief more or less effectively). The central bank stands at the very top of liquidity, and is the summit of the refinancing pyramid, with nothing else above it (yes, some innocents might feel a bit of vertigo up here), so it has no need to be ‘refinanced’ or ‘recapitalised’. This is a conceptual nonsense, which speaks to a profound lack of understanding of monetary mechanisms. If need be the central bank can balance its own losses and recapitalise itself by issuing currency, so to speak, pro domo.
But just like so often happens, immediately next to the half-wits there are the cynics – and the ideologues. They know well enough that the central bank can make up for its losses by its own ability to issue currency, but they don’t want it to. This is the very essence of the monetarist dogma that considers any ‘abnormal’ issuing of currency as a catastrophe waiting to happen. But what is so ‘abnormal’, here? Applied monetarism invariably answers this question by saying that everything that goes beyond private banks’ need for refinancing –particularly anything that might mean a more or less indirect effort to support states – is abnormal. And indisputably, cancelling Greece’s debts to the ECB would be ‘abnormal’ according to this definition.
So that’s why, we might add, monetarism is a lot less concerned about the EMS’s losses than the ECB’s, despite the clear mismatch in the size of the debts concerned. The former debts would be write-offs for member states, who would have to cover for them with other financial resources, which they would have to take out or borrow – and that would cost them. The ECB, however, could simply cover the losses by turning paper into money, in the interests of a state: Greece.
In any case, the proponents of so-called ‘quantity’  theory are here strangely ignorant of any considerations of quantity, instead only thinking in qualitative terms. They declare it perfectly ‘normal’ that the ECB’s LTRO  programme is flooding Europe’s private banks with a thousand billion euros at close-to-zero interest rates and with maturities that go way beyond the usual standards of monetary policy. Whereas the idea of the Greek state wanting the ECB to write off €27bn of debt is apparently just the beginning of a permissiveness that the media immediately labelled ‘printing money’ – suggesting that we’d soon be heading out with wheelbarrows full of banknotes just to buy a loaf of bread.
Eurobonds, or the politics of fixing leaks
While it’s never as clear as in these concrete situations – when the flexible use of the same arguments appears in all its glory – the hobbling of public power is the ever-present unspoken assumption of the European project. For sure, the EU treaties only express its intentions in a technical, insipid, unrecognisable way. But from the EU’s ban on state aid to the straitjacket it imposes on countries’ economic policy, there is indeed a methodically-organised effort to emasculate public power, better to clear the way for private powers. Currently distressed pro-EU types feel rather troubled when they see this (unlike the ‘fundamentalists’, who are getting exactly what they want). It is indeed true that for decades, convinced that Europe is by its very essence designed to do good, their whole field of vision has been nothing but an enormous blind spot. So having got past the moment of distress (doubtless a little belatedly) they hurriedly set to calming things down. Unfortunately their only intellectual prescription expresses an idea of politics that oscillates between the image of a plumber fixing a leak and a more childish impulse to draw pretty pictures on an Etch-a-Sketch.
First is their line of steepest descent, a bit of technical DIY – as if fitting some new financial pipework could bring real solutions to what are fundamentally political problems. The disaster of the single currency is already a pure product of this way of thinking. But no worry, the problem must be that ‘we haven’t gone far enough’: if the single currency has proven to be a bit unsteady, the reason is it’s incomplete – we forgot to complement it with a single debt. And not one of them notices that the missing element isn’t to be found in some miraculous, undiscoverable instrument of monetary or financial policy – eurobonds or anything else – but in an authentic political community. That’s what’s still lacking, even after all these years. And without which any combination of technical instruments, far from bringing some progress, will have no effect other than to deepen the chronic political crisis, which is the symptom par excellence of the hole in the European project.
This political crisis is a crisis of sovereignty, a crisis of the attempt to lift economic policy out of democratic debate and reduce it to an automatic mechanism enslaved to the values/instructions enshrined in the European treaties. In these conditions, the European institutions’ relationship with the member states can be nothing other than a matter of surveillance, and, indeed, taking them under administrative supervision when they go too far off course. That’s the same logic that the mutualisation of the debt – the fetish solution advocated by engineer-economists lacking in any political vision – would take to unheard-of levels. Even if Germany did agree to eurobonds (which it would initially have everything to lose from) it would only do so in exchange for an unprecedented disciplining mechanism, as soon as a formal joint guarantee was established.
Can we imagine Germany (indeed, not only Germany) agreeing to put its signature on notes issued by Greece, Spain and Portugal… or even France, without being certain of the absolute rectitude of their economic policies? Meaning, these countries’ absolute submission to draconian regulations that would make today’s situation look like a holiday camp. So the Eurobonds would have the same characteristics that the single currency does now – including the pure and simple dispossession of sovereignty. After all, the EU institutions would take over direct control of the economic policy of any member state that made the slightest infraction. Or there would be an aggravated version of the current rule-by-troika, this now having been established as a permanent EU institution. And you’d have to have a serious tendency to daydream in order to see this new version of the knout as a major step forward.
An Etch-a-Sketch drawing of ‘democratic advance’
It may be in a state of distress, but the one thing pro-EU thinking can do is keep on dreaming. ‘Only a democratic refoundation of Europe would allow it to carry out policies bringing social progress’, Thomas Piketty insists . Without doubt – and if my aunt had balls she’d be my uncle. Sadly (?) she doesn’t. So we need to recognise that the wiping out of popular sovereignty is no mere accident, or some unfortunate turn of events. No, it is a deliberate, constitutionally-enshrined decision, principally at Germany’s behest, in order to guarantee absolute respect for the principles that are the condition of its participation in the single currency.
Just as Syriza is dreaming when it imagines that it can both keep the euro and break with austerity, distressed pro-EU types are dreaming when they think it can combine German participation with handing economic policy back to the full discretion of democratic decision-making. After all, there could be no worse nightmare for German ordoliberalism (now transplanted to a European scale) than leaving things up to member states’ discretion – meaning, the sovereign and flexible use of the tools of economic policy, particularly monetary policy. If democracy and member states’ discretion here amount to the same thing, and Germany is intransigent in its refusal to leave things up to member states’ discretion, then the emphatic call for the democratic refoundation of Europe is about as solid as the idea of reforming the Holy See on the model of a nudist club.
Clearly these are questions that go some way beyond an economist’s view of things, and they demand a prior investigation of the conditions of possibility for the constitution of a pluri-national democratic community. It’s not that it’s impossible on principle. But in turn, there’s nothing at all to suggest that this community is self-evident . If we remember that Germany only entered Europe’s monetary ‘community’ on condition of being able to impose its own principles on this currency – principles that most German parties agree with and which are thus, so to speak, meta-political ones – then we really ought to be ready to ask ourselves some questions, in particular how compatible such an ultimatum is with any democratic project.
Well, questioner, the EU project has long forgotten that it’s meant to be democratic. It’s true that the world of constitutional abstractions is much more comfortable than reality. That’s why its defenders get so impassioned about promoting armchair constitutionalism like the ‘Manifesto for a Eurozone political union’ : a political manifesto lacking in any political thinking. It is unable to see any of the things that the construction of political institutions requires as its prerequisites, not least that this community should have at least some minimal level of real existence – this being the condition for accepting majority decisions, which concretely is the very heart of democracy. But never has pro-EU thinking, which now dreams of a Eurozone parliament, cared to think whether Germany – which thus far has subjected the whole European monetary project to its imperatives only – could accept any challenge to the independence of the central bank, the ban on state monetary financing, the dogma of balancing budgets, the permanent exposure of economic policies to financial markets (considered to be an auxiliary disciplining mechanism), etc. That is, whether it could accept being in the minority on these subjects, which it is more than sensitive about.
Syriza’s salvation won’t come from any European compromise nor from the chimera of the EU reflecting for a bit and deciding to reorganise its institutions. Such a proposal is as lacking in political realism as it is certain to be put off till some future point that never stops drifting further away. But the inanity of these false solutions doesn’t mean that there aren’t real ones. There is always an alternative. And in this case, the alternative is not to bend over backwards for the EU’s sake, but to overthrow the whole thing.
For all those people who feel a mix of worry, doubt and hope as they ruminate from afar on what might happen in Greece, there’s really only one thing left to do. Countering the gravitational pull of the institutions that work to bring deviants to order, they have to remind Syriza – at its current crossroads – of everything that’s depending on it, which is no small thing. It has to really fight austerity in the only way possible, with a rupture; it has to stand for open sedition against the ‘Union’s’ neoliberal order. That its, it must create a liberatory event that will free not only the Greek people, but also the many others who share its hopes.
 Announced in July 2012 and implemented that December, the OMT (Outright Monetary Transactions) programme authorises the EBC to buy up potentially unlimited volumes of Eurozone sovereign bonds. This decision had an almost instant effect on investment, and it was probably this that saved the euro during its third crisis point (June 2012), which had looked like it might be fatal.
 Germany’s governing Christian Democrats.
 German Social Democrats.
 A haircut means the reduction of a borrower’s debt within the terms of a restructuring of that debt.
 Which breaks down as EU, €53bn; EMS, €141.8bn; IMF, €32bn; ECB, €27.7bn (according to Flash Natixis, 5 January 2015, no. 12).
 Much like all other countries.
 Monetarism is based on the so-called ‘quantity’ theory of money, according to which the volume of money supply alone determines prices.
 Long Term Refinancing Operations, a special programme for refinancing European banks established in late 2011-early 2012.
 Thomas Piketty, ‘2015 : quels chocs pour faire bouger l’Europe ?’, Libération, 29 December 2014.
 For a more substantial discussion of this problem see La Malfaçon. Monnaie européenne et souveraineté démocratique, Chapter Six, ‘Un peuple européen est-il possible?’.
 ‘Manifeste pour une union politique de l’euro’, Le Monde, 16 February 2014.
By Frédéric Lordon
Translated by David Broder.
See original piece here.
For more on Left organisation in Europe see our Eurozone Mobilization Reading List.
For more on the crisis of capital and its alternatives see our Post-crash Economics Reading List.