Σπύρος Σακελλαρόπουλος

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REVIEW ARTICLE

THE ECONOMIC CRISIS OF GREECE AND TRANSFORMATIONS INITIATED BY THE MEMORANDA

Science & Society, Vol. 85, No. 2, April 2021, 270–280

The Greek crisis began in 2010 in the form of sudden stop in international lending. It shook the Eurozone, which decided to bailout Greece, primarily for reasons of its own stability, and imposed adjustment programs (the notori- ous Memoranda) as conditionality for loans granted. This turmoil led to the lengthiest and worst depression of Greece’s postwar history, with disastrous effects on income, employment, health, education and social conditions of life. In this essay I attempt to contrast the analysis of the causes of the crisis and its results provided by key Greek policymakers with that offered by Spyros Sakellaropoulos, a critical scholar and activist.

The Governor of the Bank of Greece (2014–), Yiannis Stournaras,1 pres- ents a brief synopsis of these dreadful consequences: between 2008 and 2016, Greece lost over one quarter of its gross domestic product (GDP), and the unemployment rate rose by nearly 16 percentage points. GDP per capita de- clined to 67% of the European Union (EU) average in 2017. As a result, there was a large brain drain, “depriving Greece’s society and economy of a highly productive segment of its population, with immeasurable demographic, economic and social consequences” (Stournaras, 2019, 128). I would add

1 Stournaras also served as Minister of Finance (July 2012 to June 2014) and Minister of Development, Competitiveness and Shipping (May 2012 to June 2012). He was a member of the negotiating team for the entry of Greece into the Eurozone. He is a Professor of Economics at the University of Athens.

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to the devaluation of human resources, the immense devaluation of fixed capital and natural resources of Greece, leading to wealth expropriation by private investors. Furthermore, adds Stournaras, “the deterioration in the macroeconomic environment and the slide of the GDP growth rate into negative territory raised the debt-to-GDP ratio to unsustainable levels despite the fiscal consolidation and caused debt-servicing problems for households and businesses. As a result, non-performing loans (NPLs) rose substantially, weakening the banks’ asset quality, thus making it difficult for banks to fi- nance the real economy. Resolving the Greek crisis took eight years, three economic adjustment programs, one major debt restructuring and three rounds of bank recapitalization” (Stournaras, 2019, 128).

Greece joined the European Economic Community (EEC) on January 1, 1981 with high hopes on the part of the conservative New Democracy (ND) government. In particular, then Prime Minister Constantine Karamanlis saw the accession “as a way of consolidating the newly restored democratic free- doms, as well as ensuring and furthering the social and economic progress  of Greece” — a vision that was challenged and opposed by the Panhellenic Socialist Movement (PASOK) and the Communist Party of Greece at the  time (Alogoskoufis, 2019, 2, 6). Nevertheless, “there is little doubt that the Greek economy was relatively unprepared for participation in the much more competitive EU economy in the early 1980,” admits G. Alogoskoufis, Minister in the ND government in the 2000s (ibid., 11).2 Greece became a member of the euro area in 2001, two years after the entry of the original eleven members, having made efforts through austerity measures in the 1990s (with PASOK in government since 1993) to adapt to the requirements of the Maastricht Treaty on the Economic and Monetary Union (EMU) of  the EU (Vlachou, 1999). According to Alogoskoufis (2019, 2), the country made this adjustment “half-heartedly, as the policy mix that it adopted was inadequate and lopsided. With the exception of the first part of the decade,   it was primarily based on monetary rather than fiscal tightening, while struc- tural reforms were few and in between.” As a result, with Greece’s entry into the euro area, “the problems of low competitiveness and fiscal weakness loomed large” (Alogoskoufis, 2019, 2). It is worthy of note here that when claims of underserving entry surfaced in 2012 in the parliaments of other eurozone countries, Costas Simitis, Prime Minister of Greece at the time     of entry, and Y. Stournaras, chief economic adviser to Simitis at that time, intervened, asserting that

1. George Alogoskoufis was a member of parliament from September 1996 until October 2009. He served as Minister of Economy and Finance of the ND government from March 2004 to January 2009. He is Professor of Economics at the Athens University of Economics and Business.

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in the mid-1990s, Greece made a formidable effort to meet the convergence criteria. It employed all available means: budgetary policy, monetary policy, income policy and extensive privatization of banks and public enterprises.   the decision endors-

ing Greece’s eurozone admission was made after exhaustive scrutiny of the Greek economy and respective reports by the European Commission, the European Central Bank and the Economic and Financial Committee. (Simitis and Stournaras, 2012.)

On the other hand, several mainstream Greek academics and Cabinet members (including Simitis and Alogoskoufis) have challenged the Eurozone architecture. Alogoskoufis recently assessed that “the inherent weaknesses of the euro area, and in particular that fact that it is far from an optimal currency area, also played a significant part in the Greek crisis.” In particular, “some of the problems that plagued Greece were due to systemic weaknesses in the design of the euro area,” calling for reforms of the Eurozone (Alogoskoufis, 2019, 1, 38–42). Reforms in the architecture of the EMU are also proposed by Stournaras (2019, 133). In contrast, it should be noted with interest that many of the pitfalls and risks of the new (EMU) model to be implemented in EU and in Greece were critically debated and well known in Greece and Europe in the 1990s. For instance, the contributions of G. Katiforis, L. Kat- seli, G. Carchedi, C. Lapavitsas and J. Huffschmid to an edited volume by this author had skillfully anticipated the problems of the Maastricht Treaty and EMU, and offered an alternative to the EMU project (Vlachou, 1999).3 Looking for the deep roots of the Greek crisis, mainstream explanations focus on the economic policy cycles since 1980, and especially on the 1980s cycle of “destabilization and stagflation”: “Many of the current problems of the Greek economy, such as its low competitiveness and its high public debt, are the legacy of that decade” (Alogoskoufis, 2019, 45). N. Christodoulakis discusses the cyclicality of public spending and the propensity to increase public spending and tolerate lower revenues in elections times. In particular,

he asserts that

a long history of stabilization programs proved incapable of achieving a lasting fiscal correction and adequately raising competitiveness, as fundamental weaknesses in the economic and political system continue to play a corrosive role. The oversized public sector and the frequent indulgence in pre-electoral spending sprees in ex- change of political support led to protracted fiscal deficits and the accumulation of a large public debt. Equally, the chronic deterrence of productive investment by a multitude of regulatory inefficiencies resulted in a thin tradeable sector and large Current Account Deficits. (Christodoulakis, 2012, 22–23.)4

1. The papers collected in this volume were presented at a conference held at the Athens University of Economics and Business, on October 6–7, 1997.
2. Nicos Christodoulakis was a member of parliament from 1999 to 2007. He served as Deputy Minister of Finance (1996–2000), Minister of Development (2000–2001), and Minister of

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For mainstream economists, it seems that fiscal stabilization (rapid or gradual) along with structural reforms in the forms of privatization, labor market deregulation, reduction in state involvement even in sectors as health, education and social security, dealing with the problem of non-performing loans (NPLs) of many ruined households and crisis-ridden firms are the solu- tion to the deep problems of the Greek economy. For Stournaras, this solution has been significantly achieved, in the words of Alogoskoufis (2019, 1), by “the externally imposed adjustment program” (Stournaras, 2019, 129–130).

Given the depth and length of the depression, one could hardly consider the Memoranda successful (at least from the standpoint of broader society), as Stournaras attempts to convince us. Stournaras attributes the protracted and deep depression to mistakes in the design and application of the aus- terity measures such as wrong assumptions of fiscal multipliers, delays of reforms, blanket moratorium on primary residence auctions and the abuse of foreclosure protection in the case of non-performing loans (NPLs) and the weaknesses of the Eurozone architecture (Stournaras, 2019, 128–129).

On the other hand, Christodoulakis is critical of the memoranda because of the collapse of growth, which in turn inhibits debt stabilization. He pro- posed an alternative scenario in which recession is tackled first and reforms (such as privatizations, which failed under the austerity programs) follow on a steadier path (Christodoulakis, 2012). Alogoskoufis also argues that “despite the great recession and the internal devaluation, competitiveness has not recovered sufficiently so as to bring about significant current account surpluses.” He proposes a new mix of policies for recovery, which should focus on competitiveness, prioritizing a revenue-neutral tax reform, restoration of the banking system (dealing, for instance, with NPLs), structural reforms to attract FDI and retrenchment of the public sector (Alogoskoufis, 2019, 43). Despite their differences regarding the accomplishments of the adjust- ment programs, Alogoskoufis, Christodoulakis and Stournaras concur that an exit from the euro could prove catastrophic for Greece. “Remaining in the euro area is the best and, probably, the only realistic option for Greece” (Alogoskoufis, 2019, 44). Approximately six decades after the formation of the EEC, no account is provided in the dominant mainstream narratives for systemic forces driving EU and global capitalism (such as fierce competition, free markets and creative destruction) which reproduce uneven development and unequal power balances between dominant internationalized capitals backed by their national governments. No understanding is offered that such systemic forces cannot be countered merely by appealing to policy changes

National Economy (October 2001-March 2004) of the PASOK Government. In the mid- 1990s, he worked on adapting the Greek economy to the requirements of the EMU. He is professor of Economics at the Athens University of Economics and Business.

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within the existing structure, or by calls for solidarity made by the weakest countries (in the inferno of crisis) to economically strong EU members.5

Spyros Sakellaropoulos’ book Greece’s (Un)Competitive Capitalism and the Economic Crisis: How the Memoranda Changed Society, Politics and the Economy, by contrast, takes a radical socio-economic standpoint, challenging conventional arguments.6 Its basic position is that the Greek crisis cannot be seen inde- pendently of the 2008 world crisis. When the crisis hit Greece, its economy was weak due to the problematic postwar regime of accumulation in Greece, and worsened when the country joined first the EEC and then the EMU. And when Greece was on the verge of bankruptcy, its membership in the EU became critical in the course of actions taken to handle the problem, argues Sakellaropoulos, who clearly perceives the class character of the EEC/EU. Educated as a sociologist but with multi-disciplinary knowledge, Sakel- laropoulos connects the Greek crisis to the 2008 international crisis rooted in the 1973 crisis and its aftermath, in the first chapter. Conditioned on the so-called liberalization of the banking markets, financialization and increased public borrowing became principal features of the new neoliberal model of capitalist expansion (Sakellaropoulos, 5). However, financialization intensi- fied old contradictions and created new ones, leading to a crisis which quickly spread internationally. Given the logic and the architecture of the EU and the EMU, each EU member could not provide liquidity to its shaking banking system unilaterally. Delayed and biased EU responses exerted great pressure on less developed capitalist countries such as Greece (ibid., 14–19, 259–260). Sakellaropoulos brings evidence that undermines the prevailing nar- rative, which attributed the gloomy economic situation of Greece to high wages, private consumption beyond income capacity, low worker productivity and public sector deficits (chapter 2). He argues instead that there are long- standing factors contributing to the current economic crisis. In substance, it is the growth path that has been primarily molded by capitalists for decades (relatively low wages, strong ship owning capital, a developed banking sector, tourism, European subsidies) which neglected changes in the productive

1. In defense of the deserving entry of Greece to the eurozone, Simitis and Stournaras (2012) wrote: “But the zone is not a club of advanced countries whose common interests are opposed to those of the countries that lag behind. It is a stage of development in the union whose purpose is to facilitate economic co-operation among its members, to create relationships that strengthen the common endeavor to grow, to achieve gradual convergence of their economies and to better exploit the opportunities presented by shared objectives and the abolition of borders. Since it is a joint plan for progress, its design should include both the powerful with their strengths, and the less powerful with their weaknesses. It must take into account the inequalities and the fact that the developed countries not only bear burdens but also obtain significant benefits, thanks to their financial services and exports.”
2. Greece’s (Un) Competitive Capitalism and the Economic Crisis. How the Memoranda Changed Soci- ety, Politics and the Economy, by Spyros Sakellaropoulos. London: Palgrave Macmillan, 2019.

$119.99; paper, 84.99. Pp. xvi, 297.

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base such as shift to high-tech products, resulting in productivity differentials between Greece and other EU countries. Public deficits increased as the state, under capitalists’ pressure, reduced taxation for capitalist enterprises and other affluent social strata and resorted to borrowing. Consequently, the harsh irruption of the global crisis into Greece (the second important factor) worsened the precarious position of the Greek economy. Faced with the likelihood of bankruptcy, the PASOK government under G. Papandreou chose to ask for help from the EU, the European Central Bank and the In- ternational Monetary Fund (the Troika), getting loans and signing the first Memorandum in May 2010. While the author points rightly to the precari- ous development path of Greece as a major factor for the crisis, the forces of competition within the EEC/EU and the global market are not discussed in depth, nor are the choices actually available to Greek capitalists and the Greek state.

Many analysts, including Lapavitsas (2019), have correctly argued that this was the time (end of 2009 through May 2010) when Greece had real negotiating power to reach a beneficial agreement for debt settlement, an opportunity the Papandreou government missed. Such claims are based on the high exposure of foreign banks and investors to Greek debt, at that time, and the potential repercussions of suspension of payments. In tandem with such assertions, Sakellaropoulos argues that the Troika decided to offer loans out of consideration for its own stability and growth (Sakellaropoulos, 261). These loans were backed with three Memoranda prescribing eight pack-  ages of austerity measures of neoliberal inspiration (chapter 3). The crisis and the measures imposed by the Memoranda had serious destructive economic effects on the country between 2009 and 2016 (chapter 4). On the other hand, there were certain developments to the advantage of lenders (in the sense of the increased capacity for debt repayment by the Greek state) or of certain domestic firms: primary budget surpluses, improvement in the current account deficit, and economic progress in certain sectors such as

oil refining, air transport, and auxiliary transport activities.

The social impacts of the crisis were severe (chapter 5): increased social inequalities, material deprivation for a large proportion of the population, worse healthcare conditions, reduced population, and increased emigration, especially of university graduates, mostly towards EU countries. In chapter 6, Sakellaropoulos discusses the significant changes in social stratification that the economic crisis brought about. Although I would like to see a much more well-defined social stratification in conceptual terms, I find the empiri- cal discussion quite illuminating. The crisis led to a reduction in the number of firms with personnel of ten or more people. This means that sections of the bourgeoisie either disappeared altogether or were relegated to petty bourgeois status. A considerable number of self-employed persons were

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forced out of their businesses and into the lines of the working class. The rural sector experienced overall contraction, a development that is assessed to have contributed to greater concentration in landownership.

There have been institutional transformations in the Greek state, which should be understood in the light of wider international changes in the nature of the state since the 1970s in tandem with structural changes in capitalist societies (chapter 7). The author speaks of authoritarian statism, a term coined by Poulantzas, capturing “a mutating form of the classical bourgeois representative state in which the institutions of representation are in the process of being downgraded” (Sakellaropoulos, 264). Greece is the most representative case of this process, given the continuous downgrading of institutions of representation in the era of the Memoranda. A number of internal government functions have passed into the jurisdiction of lenders and, in this sense, Greece is being described as a quasi–protectorate (see, for instance, Varoufakis, 2017).

The imposition of the Memoranda and the consequences of harsh aus- terity policies caused pain and despair but also gave rise to significant social struggles (chapter 8). At the same time, forms of social solidarity emerged to help the people in great need. After the giving-in of the Tsipras government to the Troika’s demands in the summer of 2015, there has been a downturn in social mobilizations and a disintegration of social organizations of opposition to the Memoranda. In my opinion, this was a great damage inflicted on the working-class and social movements by a left-wing government (by origination but not by doing) staying in power and implementing an austerity program. The crisis and the Memoranda brought about a stark shake-up in the political system of Greece, changing the balances of forces as represented by the party system (chapter 9). After the passage of the second Memorandum in 2012, the decades-long bipartisanship of New Democracy and PASOK col- lapsed and a new bipartisanship, more limited in range, emerged, involving New Democracy and SYRIZA. In January 2015, general elections brought SYRIZA to power. The latter promised — with an astonishingly simple politi- cal narrative for experienced left cadres, in my opinion — to put an end to the policy of the Memoranda and to restructure debt through negotiations with the Troika. Following the elections, SYRIZA formed a government to- gether with the right-wing party of Independent Greeks (ANEL). Despite the high hopes of SYRIZA in negotiations for an “honorable compromise,” the lenders proved adamant. Being deprived of any credible threat to the interests of the lenders in 2015, and unprepared to face an exit from the euro (threatened, at the time, by the Troika), the Tsipras government was

forced to sign a Memorandum (Sakellaropoulos, 247–248).

To understand the defeat of SYRIZA in the confrontation with the lend- ers, one has to look to the trajectory of the Greek Eurocommunist Left, of

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which SYRIZA is part. The Greek Eurocommunist Left adopted a favorable stance towards Greece’s accession to the EEC in the late 1970s, based on the argument that, despite its reactionary features, the EEC could be transformed into “People’s Europe” (Sakellaropoulos, 246). The Eurocommunist Left also adopted a favorable stance towards the EMU in the 1990s, despite its clear neoliberal nature. When the Greek crisis erupted, the neoliberal architecture of the EMU imposed its “iron rules” upon Greece, denying any alternative course for the country to exit the crisis. The fact that no EU member country came out on the side of Greece during the negotiations with Troika indicates that, albeit a socialist desideratum, “People’s Europe” does not exist in the present time. SYRIZA shares with other governing parties, in my opinion, a long-standing misinterpretation of the class nature of the EU/EEC, depriv- ing Greek people from developing the appropriate awareness needed for difficult choices that would enable radical social changes. Eventually, SYRIZA decided to sign another Memorandum, instead of refusing, stepping down and leading the country to an election. Austerity policies could be naturally implemented by other political parties (the conservative party or the neo- liberalized social democracy), in my point of view. A Left party could better serve its constituencies from the position of major opposition, if this was the result of the elections.

In the parliamentary elections of September 2015, after the signing of the third Memorandum, high abstention rates (44%) illustrated the loss of hope and the disillusionment with SYRIZA politics. Nevertheless, SYRIZA rose to power with the support of the social democratic constituencies, promis- ing to take the country out of the Memoranda and to legislate social relief programs. Many people voted in favor of SYRIZA out of fear, to avoid the worst possible outcomes, not out of hope.

Sakellaropoulos asks “Could things have turned out differently?” Prob- ably, answers the author and elaborates on certain conditions that had to be fulfilled in advance (252–253). “Naturally, none of this was done in the first six months of SYRIZA government, and everyone knows the results” (ibid, 253). Apart from whether the conditions suggested by Sakellaropoulos are entirely persuasive, it should be recognized that “a convincing and fully elaborated program” challenging the status quo is a tremendous task for any radical Left party, not just for SYRIZA. It would need the collaboration of many experts, politicians and social collectivities with confidence in social- ism. The responsibility of SYRIZA seems to lie in its failure to convene such a collaboration of forces — a deficiency that needs further elaboration but is beyond the scope of this review.

The first years after the Tsipras government’s compromise were char- acterized by the implementation of the Memorandum obligations, while enactment of any parallel poverty relief program could be but quite limited.

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Not surprisingly, after years of suffering imposed on people, SYRIZA was defeated by New Democracy in the parliamentary elections of July 2019. While in opposition, SYRIZA cannot be effective in its critique of the new administration; New Democracy keeps reminding SYRIZA that it followed the same economic policy framework for years.

The prospect for Greece appears to be a sluggish return to low growth rates, with a continuation of austerity policies and a high debt burden, as Sakellaropoulos describes (chapter 10). However, in this context, SYRIZA’s engagement with government unfortunately denotes a significant consensus among the main political parties in Greece on this policy, which is highly detrimental for underprivileged Greeks. Under conditions of intense global competition, internal stagnation and uncertainty, it is not surprising that the dominant class in Greece does not seem to pave a path of development radically different from the past, as Sakellaropoulos affirms.

In conclusion, this is a timely and significant book. It not only reviews the deep roots of the Greek crisis but it also provides a uniquely comprehen- sive assessment of the SYRIZA episode and links the experience with wider strategic concerns about social change elsewhere. Every scholar interested in the international and Greek crises, their causes and their aftermaths, ought to read this book.

Andriana Vlachou

Department of Economics

Athens University of Economics and Business Antoniadou Wing, 3rd floor vlachou@aueb.gr

REFERENCES

Alogoskoufis, George. 2019. “Greece and the Euro: A Mundellian Tragedy.” GreeSE Paper No. 136. Hellenic Observatory Discussion Papers on Greece and Southeast Europe. London: Hellenic Observatory, LSE.

Christodoulakis, Nicos. 2012. “Greek Crisis in Perspective: Origins, Effects and Way- outs.” In Durlauf et al., The New Palgrave Dictionary of Economics. Online Edition. London: Palgrave Macmillan.

Lapavitsas, Costas. 2019. “Political Economy of the Greek Crisis.” Review of Radical Political Economics, 51:1 (March), 31–51.

Sakellaropoulos, Spyros. 2019. Greece’s (Un)Competitive Capitalism and the Economic Crisis: How the Memoranda Changed Society, Politics and the Economy. London: Pal- grave Macmillan.

Simitis, Costas, and Yiannis Stournaras. 2012. “Greece Did Not Cause the Euro Cri- sis.” Guardian (April 26). https://www.theguardian.com/global/2012/apr/26/ greece-europe-north-south-divide

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