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International Initiative for Promoting Political Economy 5th Annual Conference in Political Economy “The Crisis: Scholarship, Policies, Conflicts and Alternatives” September 16-18, 2014, Naples, Italy Stavros D. Mavroudeas Dept. of Economics University of Macedonia e-mail: [email protected] Structure of the paper Part I: Competiting explanations of the Greek crisis (1) Mainstream explanations (2) Radical explanations (3) Marxist explanations Part II: Alternative strategies for surpassing the crisis (1) Restructuring within the EMU/EU (2) Restructuring and exiting the EMU/EU Part I: Competiting explanations of the Greek crisis • • • Mainstream: N-C or N-K perspectives Heterodox: PK and Radical PE perspectives Marxist: classical Marxist perspectives Some overlapping in the margins: e.g.1: non-OCA & non-rectifiable close to PK financialisation e.g.2: class struggle & financialisation and financial expropriation refer to Marxism Distinctions not out of intellectual sectarianism but for reasons of analytical clarity: Mainstream: emphasis on policy errors, no systemic causes, no consideration of the productive structure, OCA, TDH, no relation with global crisis (external influence). Heterodox: emphasis on ‘weak’ structural problems (EMU, neoliberalism), no consideration of the productive structure, taking one side or other of the TDH, weak relation with global crisis (external influence). Marxist: emphasis on ‘deep’ structural problems (CMoP), part of the global crisis, LTV, twin deficits are a result, ‘financialisation’ not a cause Main groups of explanation Mainstream Greek disease Non-OCA & non-rectifiable Non-OCA & rectifiable Heterodox Underconsumption & financialisation Minskian disinflation Class struggle & financialisation Financial expropriation Marxist TRPF TRPF & imperialist exploitation TRPF & underconsum ption Global crisis Causes of crisis Analytical PR focus OCA TDH Mainstream No, external impact Policy errors, some Greek structural problems Exchange relations no yes yes Heterodox Mixed answers Weak structural Monetary problems relations (neoliberal policies) no yes no, FD vs CAD Marxist Yes, internal dimension ‘deep’ structural Productive problems relations (systemic crises) yes dispropor no, twin tionality deficits are results Type of explanation CONJECTURAL STRUCTURAL [emphasis on policy errors (national or supranational)] [emphasis on the structure of the economy] Mainstream explanations WEAK STRUCTURAL [emphasis on mid-term features (neoliberalism, EMU)] Radical explanations STRONG STRUCTURAL [emphasis on long-term systemic features] Marxist explanations MAINSTREAM EXPLANATIONS 3 versions: 1) a special Greek historical accident (Greek ‘disease’) (EC(2010), (2012), Gibson, Hall & Tavlas (2012), greekeconomistsforreform.com (Azariadis (2010), Dellas (2011), Ioannides (2012), Meghir, Vayanos & Vettas (2010)) 2) the Greek ‘disease’ exacerbated by EMU’s unrectifiable structural deficiencies (not-OCA) (Feldstein (2010), Krugman (2012)) 3) a ‘middle-of-the-road’ blend: the Greek disease and EMU’s deficiencies are rectifiable (De Grauwe (2010), Lane (2012), Botta (2012 )) RADICAL EXPLANATIONS 4 versions: 1) Inequalities, latent undeconsumption and financialisation (Tsakalotos & Laskos (2013), Varoufakis (2012)) 2) Disinflation and financialisation a-la-Minsky (Argitis (2013)) 3) Class struggle and financialisation (Milios & Sotiropoulos (2013)) 4) Financial expropriation (Lapavitsas (2012)) MARXIST EXPLANATIONS 3 versions: 1) TRPF (Maniatis & Passas (2013)) 2) TRPF and imperialist exploitation (Mavroudeas & Paitaridis (2013)) 3) TRPF and underconsumption (Androulakis, Economakis & Markaki (2013)) Mainstream explanations: A Critique • Mainstream explanations of the Greek crisis evolved from monistic to a more eclectic mix. The more articulate discern two sets of causes: (a) internal causes: exorbitant public expenditure, weak tax collecting mechanism, corruption and clientelism (even cronyism), over-regulated labor and product markets, high wages, non-market friendly institutional environment, deteriorating competitiveness etc. (b) external causes: EMU’s deficiencies, repercussions of the 2007-8 crisis etc. Behind this eclecticism hide versions (or combinations) of the three previously delineated explanations. The analytical backbone of the mainstream explanations is the TDH: FD → CAD Consider the Greek case as simply a debt crisis Augmented version: exorbitant wage increases (ULC) ↑FD (public sector) ↑ trade deficit (private sector) ↑ CAD Keynesian argument (vs N-C Ricardian Equivalence). Mainstreamers surpassed this, with some grudges Greek TDH empirical studies do not verify it or at least offer mixed and inconclusive results: Vamvoukas (1997) confirms vs Katrakilidis & Trachanas (2011), Nikiforos et al. (2013): confirm for the pre-accession to the EMU period (1960-80), reject for the post-accession period (1981-2007), where the opposite is confirmed: trade (and thus current account) deficit has caused increasing FD. • Wages are posited as the cause for both FD and CAD. • They could be other analytical choices: FD can be rightfully attributed to upper-class’ notorious tax evasion (↓ public revenues) and cronyism (↑public expenditure). Mainstreamers, for obvious reasons to the supposedly high wages causation. • Well-established critiques of this argument: (1) (nominal) ULC is a non-convincing measure of competitiveness. (2) Kaldor paradox: competitiveness depends not only on costs competitiveness but also on qualitative factors (structural competitiveness). (3) ‘Race to the bottom’: A decrease in wages aiming to restore competitiveness presupposes that rival economies will maintain their wages stable or, at least, will reduce (4) Greek wages have been constantly lagging behind productivity (which increased faster than that of Germany). Thus, real ULC (i.e. the wage share) have been falling continuously for several decades. • Mainstreamers’ wider problems: (a) Totally underestimate the role of the 2007-8 capitalist crisis (unanimously considered as a mere financial crisis without origins and causes in the sphere of real accumulation). However, if this crisis is so significant and lengthy as it appears to be, it must surely have some basis on the main sphere of economic activities (the sphere of production). (b) Consider the Greek crisis as independent of the 20078 crisis. The 2007-8 crisis has only an exogenous impact on the Greek economy by worsening the international economic environment and setting off grey expectations about sovereign debts. (c) Fail to appreciate the fundamental structural dimensions of the problem and relegate it either to policy errors and/or to weak structural origins. 1st perspective: considers the Greek case a national specificity created by bad policies 2nd perspective: recognizes a weak structural cause concerning the sphere of circulation (i.e. how the common currency is related to diverse national economies 3rd perspective: also attributes the structural problems to the sphere of circulation (with the additional argument that, contrary to the second perspective, these problems can be surpassed) and neglects the sphere of production RADICAL EXPLANATIONS • Main features: (a) Emphasize the crisis-prone nature of capitalism, thus focusing on its world structure and the 2007-8 crisis (b) Critical of neoliberalism (c) Criticize EMU’s neoliberal architecture and argue either for its dissolution or for its radical overhauling (d) Shy of recognizing systemic deficiencies of the capitalist system; although several of them do mention them but in a rather implicit of disguised manner. They do not think that the immediate problem is capitalism as such but rather its forms of management. • The more popular Radical explanations are based on the ‘financialization’ thesis, which argues that in modern capitalism finance (i.e. the operation of money capital) assumes an increasing primacy in relation to other capitalist activities. • Other versions exist: e.g. as a fiscal crisis caused by the tax-evading and crony nature of Greek capitalists and/or adding the EMU trade imbalances (3rd variant of mainstream explanations). The more traditional underconsumptionist explanations of crises (either of the Marxist Monthly Review (MR) or the Keynesian variant) are not popular as they do not fit to empirical data (the period preceding the crisis’ onset was characterized by a spectacular growth of consumption). In the end they usually add a ‘financialisation’ aspect. ‘financialization’: a problematic theory • Capitalism returned to a pre-capitalist stage: banking in feudalism was based on unequal exchange. Once primary accumulation of capital took place the monopolistic feudal rules were abolished and capitalist competition ruled. ‘financialization’ argues that there is a return to the pre-capitalist modes of operation. Interest ceases to be a part of surplus-value and acquires an independent existence. Concomitantly, money capital is autonomised from ‘productive’ capital but also dominates the latter. If the latter is the source of wealth, this entails a stifling of productive investment and thus of the accumulation of capital. How is it possible in the long-run such a deformed capitalism to exist? • Regarding the 2007-8 crisis, ‘financialization’ argues that it is not an a-la-Marx crisis but a financial crisis (a crisis of financialised capitalism). They agree with mainstream theories. If the current crisis is so deep and prolonged as the ‘financialization’ theories accept then how it cannot be based on the fundamental economic sphere (the sphere of production)? • 3 ‘financialization’ explanations of the Greek crisis: (a) Minskian inflation-disinflation, e.g. Argitis (b) ‘financialization’ in the context of the North – South divide (imbalances that caused the Greek crisis stem from the EMU), e.g. Lapavitsas. (c) ‘financialization’ in the national context; the North South divide is an erroneous dependency argument, e.g. Milios & Sotiropoulos. Empirical problems of the ‘financialisation’ thesis Its main conduits (or channels) are very weak and short-lived in Greece: 1st problem: Greek relatively low household debt New phenomenon (from 2004 and onwards) Lower than in most western economies The crisis ended it (banks do not offer private loans, households cannot pay) 2nd problem: Greece’s low financial leverage Banking sector: relatively low leverage Non-financial corporate debt: relatively low MARXIST EXPLANATIONS 3 versions: 1) TRPF (Maniatis & Passas (2013)): the 1973 crisis (profitability crisis) led to a period of ‘silent depression’/ financialisation artificially prolonged it/ overaccumulation reappeared in 2007-8 as PR started falling again and the crisis erupted/ productive-unproductive labour 2) TRPF and imperialist exploitation (Mavroudeas & Paitaridis (2013)): similar plus imperialist exploitation by the euro-core countries (‘broad’ unequal exchange because of the difference in OCC)/ productive-unproductive labour 3) TRPF and underconsumption (Androulakis, Economakis & Markaki (2013)): falling profitability and underconsumption alternate as causes of crisis/ in any case either OCC or underconsumption affect PR (which is the crucial variable)/ no productiv-unproductive labour distinction Mavroudeas & Paitaridis: A MARXIST STRUCTURAL EXPLANATION • A strong structural explanation of the Greek crisis: the fundamental causes in the sphere of production. • 2 structural components: (a) ‘internal’: the 2007-8 economic crisis is an a-la-Marx crisis (tendency of the profit rate to fall) which rocked the Greek economy (and the other developed ecconomies), (b) ‘external’: imperialist exploitation (i.e. ‘broad’ unequal exchange) within the EU (between North and South) worsened the position of Greece and aggravated the crisis Part II: Alternative strategies for surpassing the crisis Basic alternative strategies Restructuring within the EU & the EMU Memoran da Renegotia tion Restructuring outside the EU & the EMU Exit from EMU Exit from EU 1. Memoranda strategy pro-Κ systematic failures (not because it is erroneous from its perspective (destruction & rebuilding) but because it is very ambitious and rushy and violates dangerously the given social, economic and political limits of Greek capitalism Special modification of IMF’s structural adjustment austerity programmes: Longer (4 years) Pro-cyclical and front-loaded Lacking initially a debt restructuring mechanism Lacking an exchange rate devaluation mechanism 2 aims: Short-term: debt viability Long-term: transform Greece to a european ‘special economic zone’ (low cost export hub for EU’s multinationals specialised in low technology goods) Systematic failures: 1st EAP failed (milestones, loan amount, time horion), 2nd EAP is also failing (the 2020 target of 120% debt/GDP ratio seems unachievable, given that it is also illogical) Causes of systematic failures: Wages must be pushed to at least Balkan levels Assets costs must be further diminished A big part of the Greek economy has to be dominated by EU multinationals (esp. banking sector, tourism) These aims imply that: (a) Workers must be pressed more (b) The massive middle strata (a traditional systemic support) have to be proletarianised (c) Greek capital has to be subordinated further to EU capitals and lose control of several critical sectors (esp. banking) These cannot be easily accomodated and a political and/or social eruption is possible. 2. Renegotiation within the EU 2 pillars: (1) keep one part of the Memoranda (loans) (2) renegotiate austerity and structural part for an anti-cyclical, less austere, more developmental policy Loan agreements: a short-time pause in servicing them (until the Greek economy returns to positive rates of growth) while their tranches will continue. It is not clarified if the accumulation of interest (and thus the augmentation of debt will continue during this pause). Reprofilling of the Greek debt. More radical versions: consensual haircut of Greek debt. Keynesian anti-cyclical policies with (a) limited amelioration of workers position: increase of minimum wage, reregulation of the labour market (firings etc.), nothing concrete about unemployment and work-time and (b) a measured increase of public investment. Structural changes but the different versions of this strategy are both vague and differ wildly (from acceptance of Memoranda’s structural changes to radical alternatives). A European aid framework (either grandiosely called an EU Marshall Plan or, moe bashfully, a wider use of existing fund A non-compatible compromise: Logic of pro-cyclical supply-side restructuring incompatible with anti-cyclical demand management. The latter requires more time (than EU is willing to concede) and is unrealistic in a overaccumulation crisis (a huge devalorisation of capitals is required). Pro-cyclical restructuring is closer to capital’s internal logic. Anti-cyclical expansive restructuring was implemented in Greece after the 9733 crisis with dismal results. The only case that there can be a policy mix is if pro-cyclical restructuring has got hold and proceeds and some measured interval is deemed necessary. Several technical miscalculations: Aid framework: ESPA’s rules are already very lax but Greek capitals are afraid to participate because of the recession Pro-cyclical restructuring is organised around the EU ‘special economic zone’ model: this is incompatible with a rapid revitalisation of internal demand The euro-bond proposal (a mechanism for common cheap borrowing) does not make practical sense. 3. Exiting EMU (within the EU) and restructuring versions: (a) conflictual Grexit, (b) consensual Grexit Short-sighted view: Grexit returns monetary and currency autonomy but that does guarantee the policy instruments for a radical productive restructuring (discreet industrial policy, protectionism etc.). Import substitution and export increase cannot proceed rapidly solely through devaluations and if so possibly lead to rampant inflation. Private initiative cannot achieve them adequately and in time. A wide and concise plan for the productive restructuring of the economy requires a very heavy handed and expansive state industrial policy and other policy measures that are prohibited by the Common Market This strategy disregards the deep structural character of the Greek crisis and tries to confront it only through the monetary mechanism. In its consensual version it faces the institutional and vested interests’ prohibitions of EU. In its conflictual version it cannot proceed unless coupled with the exit from the Common Market and the institutional framework (that is from the EU altogether). A special problem: consensual Grexit and relegation of Greece (and other euro-periphery countries) to a currency one depending on euro (e.g. the pre-euro situation) is the Bplan of the dominant EU powers. It can be implemented if the current A-plan goes astray. This is disastrous for workers’ interests (double devaluation [internal + external], more severe transformation to a ‘special economic one’). 4. Disengagement from the EU Recognises the deep structural character of the Greek crisis the incompatibility of an ascent of the Greek economy within the EU because of the ‘special zone’ mechanism Proposes: A self-centered growth model (with strong backward and forward intersectoral linkages) benefiting the working class and integrated in a socialist transition programme It is organised in a programme of short-term, mid-term and long-term measures Short-term and mid-term measures: (1) Exiting EU (2) Debt default (3) Capital controls (4) Nationalisation of the financial system (and especially banking) (5) Heavily progressive tax system (6) A managed exchange rate coupled with special instruments (e.g. a multiple exchange rates system, international barter agreements, currency swaps etc.) (7) A price control system Long-term measures: (1) An extensive productive restructuring plan organised by the state and with state control on the basic and strategic sectors. This implies an extensive and heavy-handed industrial policy (2) An autonomous international economic policy. Abbreviations OCA: Optimal Currency Area TDH: Twin Deficits Hypothesis FD: Fiscal Deficit CAD: Current Account Deficit PR: Profit Rate TRPF: Tendency of the Rate of Profit to Fall LTV: Labour Theory of Value PK: Post-Keynesianism N-C: Neo-Classicism N-K: Neo-Keynesianism PE: Political Economy CMoP: Capitalist Mode of Production EAP: Structural Adjustment Programme (troika) MAINSTREAM EXPLANATIONS Greek ‘disease’ • Expressed by: EU, ECB, think-tanks of the euro-core countries, Greek politico-economic establishment. • First version (1st EAP): focus on public sector and FD (SAP’s piecemeal application). • Second version (1st EAP’s reviews): added focus on falling competitiveness and private sector measures. • 2 major Greek deficiencies: (a) large and persistent FD financed through borrowing (leading to large external debts and CAD) and (b) falling competitivess. • These deficiencies caused by nationally-specific policy errors, i.e. it is a Greek ‘disease’ (e.g. Greece is a special type of economy prone to fiscal profligacy, clientelism and relatively high wages. Structural deficiencies are a mere consequence of these errors. • First version Greek economy: low productivity, relatively high wages and big public sector. Big public sector (because of clientelism) + High relative public wages (because of clientelism and low productivity) + Reduced tax-collecting ability (because of clientelism) ↓ Increasing FD ↓ Financed via external borrowing (facilitated by low euro interest rates) ↓ Increasing CAD Additionaly: ‘Greek statistics’ & violation of EMU rules The 2007-8 crisis revealed the problem: international financial markets focused on FD and CAD → non-viability of Greek debt → eruption of the crisis • Second version 1st EAP started failing → austerity applied to the private sector also To justify it the problem of competitiveness was surfaced: not only the public but also the private sector is characterized by low productivity, high wages and rigid labor market regulation culminating in a falling competitiveness. Public external debt + ↑ CAD Deteriorating trade account High relative wages fueled consumption which was directed towards imports, since domestically produced goods were uncompetitive. Thus, Greek workers collectively (private and public sector) are overpaid and inefficiently working. • The Greek ‘disease’ suffered a hit when other EMU countries required bail-out. The initial reaction was to attribute the expansion of the problem to contagion from Greece. This, rather weak argument, was supplemented by collectively branding these countries as EMU’s outcasts: economies prone to fiscal and banking profligacy. Instead of a Greek a South ‘disease’ was discovered. • In analytical terms, the Greek ‘disease’ explanation hinges upon the Keynesian TDH: FD CAD EMU is not an OCA and cannot be one • expressed mainly by Anglo-Saxon commentators either N-C or N-K. • Main argument: EMU is a non-OCA which is prone to asymmetric shocks that exacerbate national ‘diseases’. • This view centers only in passim on the Greek case per se. It takes it, as well as those of the other PIGS, as a springboard to spearhead its main criticism: EMU is inherently faulty. • It does not absolve Greece from being responsible for the problem. Particularly the neoliberal accounts reiterate the Greek profligacy argument. But the crux of their argument is against the EMU: ‘It can’t happen, it’s a bad idea, and it can’t last’ (R.Dornbusch). • This anti-EMU emphasis has a twofold explanation: (a) geopolitical: ‘lead to increased conflicts within Europe and between Europe and the United States’ (b) academic: theory of Optimal Currency Area (the closest thing mainstream economics have to the Marxist disproportionality (or uneven development) thesis). • This mainly Anglo-Saxon explanation of the Greek crisis while sharing the fiscal profligacy argument of the first explanation recognizes a rather weak structural cause. It concerns mainly the sphere of circulation (i.e. how the common currency is related to diverse national economies) and has not much to do with the sphere of production per se. Greek disease cum EMU’s rectifiable flaws • Expressed mainly by European analysts in favor of European unification but with ideological or practical reservations regarding its actual process (neo-liberal etc.). Predominantly N-K (or mild PK) origins. • Main argument: the Greek crisis has been caused by a combination of national policy errors (high fiscal deficits and debt) coupled with problems created by the incomplete economic unification of the EMU. A deepening of the economic and political unification of the EU (fiscal and banking union, political union) will solve these problems. • Emphasis on EMU’s imbalances and particularly those associated with the balance of payments (hence the current account). As such it points out to a structural characteristic of the EMU which sometimes it has been branded as neo-mercantilism: the Eurozone is structured in such a manner as to merit the trade surpluses of the Northern countries against the trade deficits of the Southern countries. This argument is close to the more radical PK ‘financialization’ explanations. On the other hand, the current account imbalances argument has been taken up by more conservative theorists that do not ascribe to the ‘financialization’ thesis but aim for a more unified European integration. • It offers a weak structural explanation: structural problems derive from the sphere of circulation but not the sphere of production. It agrees with the 2nd mainstream explanation regarding OCA theory. But it believes that a more unified economically and politically EU can overcome them. In this belief it departs from the harder versions of the 2nd explanation which argue that an economic and political unification of the EU similar to that of the US is impossible. This is the second major problem of this perspective: Its political and economic voluntarist faith in European integration goes against historical wisdom. European national political and economic identities are deeply entrenched and the crisis emphasized them. Argitis: Minskian disinflation Greek capitalism: technological weak Structurally uncompetitive, creating chronic CADs (because of imports) cronyism Greek capitalism’s viability depended on ‘strong state’ (and central bank): they managed debt inflationdeflation process by using FD (not mainly as anti-cyclical tools but as redistributional). EMU kept the ‘strong state’ but without strong bank (the debt management function unfunctional) and financialisation of the economy (growth based on leverage) The 2007-8 crisis broke this circuit. A critique of the Minskian view It is rather phenomenological: • • The crucial factor is the break up of the ‘strong state – strong central bank’ duo and the subsequent inability to manage functionally the debt inflation-disinflation process. Presumably because ECB’s monetary policy followed the euro-core’s prerogatives and failed to accommodate Greek specificities. But that is a reason to argue for leaving the EMU that Argitis rejects. Moreover, why Greek capitalism did not got accustomed to the new functions? Here comes the second problem. Although Argitis gives a characterisation of Greek capitalism as inherently technologically backward, uncompetitive etc. (reminiscent of Dependency th.) he does not show why it remained so within the EU and the EMU. This requires a more thorough study of its productive structure that is missing. Lapavitsas: imported ‘financialization’? • he argues that the Greek is a debt crisis (agreeing with the mainstream) but he adds that its roots lay in: (a) financialised capitalism (that caused the 2007-8 purely financial crisis in which PR has no role) (b) the neo-mercantilist character of EMU, which is not an OCA and is based on three pillars: (1) the ECB which follows euro-core’s prerogatives (2) fiscal austerity (3) relentless pressure on wages to ensure competitiveness Point 3 agrees with the mainstream arguments on competitiveness. Indeed from here (the CAD) begins Lapavitsas’ explanation. • Euro-core pressurized wages more and got a permanent competitive advantage against the euro-periphery. This is the mainstream argument in reverse: not the lazy South but the over-prudent North caused the problem. • Eurozone was polarized in a North with trade surpluses and a South with debts: the North gave loans to the South in order for the latter to buy its products. • The 2007-8 crisis disrupted this structure as international financial markets questioned the creditworthiness of South’s sovereign debts. • Eurozone’s crisis began as EMU transmitted the world crisis in Europe because of the imbalances that were latent within it. Essentially, Lapavitsas’s analysis is identical to PK analyses which accept a North – South divide argument. His main differentiation are the marxisant overtones about ‘financial expropriation’. Lapavitsas’ policy proposals: • EMU cannot be rectified. • Greece’s only solution is Grexit. • Regarding the relationship with the EU (i.e. in economic terms basically the Common Market) he remains agnostic. • Lapavitsas explanation suffers from the general weaknesses of the ‘financialization’ thesis: No reference to the production structure of the Greek and the other EMU economies. Unable to see the existence of relations of economic (imperialist) exploitation between the North and the South (or else relations of ‘broad’ unequal exchange) and he understands only a reversed and problematic version of the ‘narrow’ unequal exchange. Uncritically accepts the mainstream arguments about Greek relatively high wages being the cause of Greece’s deteriorating competitiveness. Analytically, he remains within the problematic mainstream framework of TDH. He posits its one side (CAD) as the cause of the other (FD) and the crisis. A marxisant rather than Marxist explanation. • Lapavitsas’ ‘financialization’ suffers empirically: The Greek financial system was significantly less leveraged than the Western ones. Greek workers’ high debts: a new phenomenon (began with EMU), short-lived and smaller than in the West. Thus ‘financialization’ cannot be discovered inside Greece and has to be imported (through EMU’s neomercantilist structure). • Also problematic policy suggestions: If this is a debt crisis, it can be solved not by exiting EMU but making it a full OCA. If is deeper (grounded to the sphere of production) then exiting the EMU and remaining within the Common Market want suffice. A full exit from the EU is required. Milios & Sotiropoulos: ‘strong Greece’? • Contra to Lapavitsas, it was not the loss of competitiveness that gave rise to high indebtedness, but the other way around. Thus, analytically, they remain within the bounds of TDH: it is the FD that caused the problems. But FD is attributed not to wages but to capital’s notorious tax evasion and cronyism. EMU (bringing together countries with very different rates of growth and profitability) gives rise to high levels of borrowing for the euro-periphery (because it has higher PR which attract euro-core capital). This was facilitated by euro’s low interest rates. Foreign loans boosted euro-periphery’s domestic demand, therefore giving rise to increasing inflation and the deterioration of competitiveness. • Reject the North - South (as problematic dependency theory): Foreign loans boosted growth (agree with the precrisis mainstream argument that CADs were good imbalances because euro-periphery countries with relatively low levels of real GDP per capita were catching up with richer north European economies). This is problematic: Sustained CADs did not finance productive investment but imports from euro-core. Greece’s productive structure instead of being developed it was actually eroded. Thus, Milios & Sotiropoulos implicitly accept the mainstream convergence thesis which has been fully disproved. • Milios & Sotiropoulos replicate the mainstream success story (‘the strong Greece’) presented before the crisis. Then they add ‘financialization’: Modern capitalism is financialised (extreme leveraging and financial bubbles). With the 2007-8 ‘financial’ crisis the till then malevolent euro-periphery’s CADs were blown apart. In order to sustain them FDs were augmented and this led to the euro-periphery’s collapse. EMU played only a peripheral role in this affair (although they accept that it not an OCA and it is a neoliberal project). The crisis exposed its weaknesses and its class nature. However, the solution is not the exit from the EMU but the progressive restructuring of the EU. • Milios & Sotiropoulos ‘financialization’ explanation suffers from the general deficiencies of this approach already mentioned above. They share also the particular errors characterizing Lapavitsas’ analysis and criticized above. On the points that they differ they err on the other side. For example, instead of Lapavitsas’ reversed version of ‘narrow’ unequal exchange they throw out any theory of unequal exchange. Their analysis of the EMU and the EU cannot see the relations of economic (imperialist) exploitation that exist within them (being afraid of ending up with a dependency argument). • In toto, ‘financialization’ explanations have a weak structural emphasis by not considering the problems in the sphere of production. For this reason they fail to account adequately for the Greek case. The ‘internal’ cause: a falling rate of profit • A strong structural explanation of the Greek crisis: the fundamental causes in the sphere of production. • The crisis is a consequence of the imperfect resolution of the 1975 structural crisis. • 2 structural components: (a) ‘internal’: the 2007-8 economic crisis is an a-la-Marx crisis (tendency of the profit rate to fall) which rocked the Greek economy (and the other developed economies): crisis of overaccumulation caused by falling profitability due to the increase of the OCC. ‘Financialization’: a consequence not a cause (b) ‘external’: imperialist exploitation (i.e. ‘broad’ unequal exchange) within the EU worsened the position of Greece and aggravated the crisis 1973-5 crisis: • 3rd global crisis • crisis of overaccumulation of capital caused by a falling profit rate due to the increase of the OCC • structural crisis: requires a restructuring of the internal and external (international) systemic architecture ► ►global waves of capitalist restructuring : (1) conservative Keynesian policies (2) monetarism (national economy) (3) open-economy neoliberalism (‘globalisation’) However, there are national differences and variations to the global trends. ► Successes and failures: ‘silent depression’ • Partial recovery of profitability & accumulation via increased exploitation • Reinvigoration of absolute surplus-value extraction • ‘Globalisation’ • Failure to solve the systemic problem and overaccumulation/ the flight ahead: ‘financialization’ ►The 1973 crisis and capitalist restructuring in Greece • a doubly onerous crisis: overaccumulation crisis plus post-dictatorship radicalism • Contrary to international trends, the belated implementation of progressive Keynesian policies, ‘social-mania’ and the creation of welfare state/ growth and progressive income redistribution • Failure: a successful prescription at a wrong time ►Neoliberal restructuring policies • 1990 ND government: mixed introduction of monetarist and neoliberal measures/ catching up with the international trends • Restrictive macroeconomic policies and regressive income redistribution/ privatizations, opening of the economy, deregulation of labour relations, welfare cuts etc. • PASOK Simitis’ governments: continuation plus religious adherence to the EMU requirements/ the two ‘robberies’: (a) stock-exchange, (b) post-euro mass consumption goods’ inflation • The Balkan ‘Edorado’ and the artificial growth of the 2004 Olympics ►Conservative Keynesian capitalist restructuring and the shift to neoliberal directions • 2nd PASOK governement’s 1985 stability programme: decisive conservative turn→conservative Keynesian restructuring reinforced subsequently • EU accession: promises & dangers • From 1985: gradual increase of actual work-time (broader phenomenon reinforced by Southern specificities) ►Ambiguous esults of Greek capitalist restructuring waves: A partial recovery of profitability (mainly through increased exploitation). An insufficient devalorisation of capital ►Conservative Keynesian capitalist restructuring and the shift to neoliberal directions • 2nd PASOK governement’s 1985 stability programme: decisive conservative turn→conservative Keynesian restructuring reinforced subsequently • EU accession: promises & dangers • From 1985: gradual increase of actual work-time (broader phenomenon reinforced by Southern specificities) ►Results of Greek capitalist restructuring waves: Ambiguous as elsewhere The ‘external’ cause: EU ‘broad’ unequal exchange ► Greece: from the EEC to EU and the EMU • Securing the system after the dictatorship • Imperialist upgrading & the vital space • Danger of the opening the economy and dismantling a coherent productive model • Accession at a lucky moment: political willingness and sweeteners (aid packages etc.) • Grey times: faltering of capital accumulation, expansion to the East and the beginning of troubles ► EU and the EMU • regional imperialist bloc with pyramidoid structure • Competition with the other major imperialist blocs, internal rivalries and co-operation, exploitation of other countries • Internal hierarchical pyramid: North and South ►EU’s North-South divide: • Competition on the basis of absolute advantage • ‘broad’ unequal exchange: capitals from more developed economies (i.e. higher OCC) competing within the same market with capitals from less developed economies (lower OCC) reap extra profits through unequal exchange with the latter. • The ‘commanding heights’ (EC, ECB etc.) follow the prerogatives of the dominant Northern economies to the detriment of the South. Thus, the conduct of crucial policies (monetary, trade, exchange rate etc.) and the institutional arrangements favor the North. ► Greece in the EU: Greek capital’s modern ‘Big Idea’ • Loss of competitiveness within the EU (competition with more developed capitals without protectionism) • Erosion of Greece’s productive structure: Greek capitals could not compete with Western ones since accession to the Common Market. Several industrial sectors hit hard. The agricultural sector was irrationally restructured via the Common Agricultural Policy (CAP): initially thrived through subsidies and then was shrink abnormally. Greek capital’s retreat to the quasiprotected area of non-internationally tradable goods and creation of oligopolistic structures. • 1990s - a period of grace: the Balkan ‘Eldorado’: the collapse of the Eastern bloc and the imperialist expansion to the Balkans and Central and Eastern Europe • entrance to the EMU (2001): celebrated as the ‘national goal’ of participation in the top EU league. However, underneath the euphoric accounts structural problems continued to amass and worsen (e.g. trade and current account balances). The strong Euro diminished further Greek exports, increased import penetration and weakened domestic production. These were covered through the cheap credit gained because of the EMU. • the 2007-8 global crisis and the subsequent EU crisis blew this house of cards apart. ► The eruption of the crisis • The 2007-8 crisis in the developed economies triggered the latent structural problems of Greek capitalism: the unresolved profitability and overaccumulation problems re-emerged and the imperialist ‘subsidies’ from the Balkans diminished rapidly. • State subsidization of faltering capital accumulation (and not excessive wages) → FD/ the current crisis increased the need for such counter-cyclical measures but made them more expensive (because of the upheaval in finance)/ competition with other capitalisms over the burdens of the counter-crisis measures → fiscal crisis • FD financed through external debt (because EMU effectively prohibits internal borrowing, e.g. national bonds etc.) • The loss of competitiveness aggravated both Figure 1. Surplus value, net operating surplus, and unproductive activities 140 Surplus Value 100 80 60 40 Unproductive Activities 120 20 0 Net Operating Surplus 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 In figure 1 we observe a constant rise on the unproductive activities which is estimated as the difference between surplus value and net operating surplus (net profits). Figure 2. Productivity and Wage 80 Productivity 70 60 50 40 30 Real Wage 20 10 0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 In figure 2 we observe a vigorous increase in productivity for the period 1960 - 1973 . After 1973, the growth of productivity retards whilst during the decade of 1980s remains stagnant. In the beginning of the 1990s productivity rises again till the middle of 2000s when starts to decline bearing similarities with the 1970s’. Turning now to the real wage, we can observe that for the whole period it follows productivity but it never gets higher. Figure 3. The rate of surplus value 2.4 2.2 2 1.8 Rate of Surplus Value 1.6 1.4 1.2 1 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 In figure 3 we observe an increase in the rate of surplus value during the period 1960 - 2009 which is characterized by ups and downs. during the 1960s the rate of surplus value increases. At the beginning of 1970s till the early 1980s declines and then it is upturned. Finally, at the middle of the 2000s, the rate of surplus value reaches its highest peak and then it sharply drops indicating the predicament of capitalists to extract more surplus value. Figure 4. The value composition of capital 10 Composition of Capital 9 8 7 6 5 4 3 2 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 Figure 4 depicts the evolution of the value composition of capital (C/V) as this is captured by the ratio of gross fixed capital stock (C) to variable capital (V). As we can see the value composition of capital steadily increases for almost the whole period. But at the beginning of the 2000s it stagnates; which can possibly be attributed to the ‘deindustrialization’ of the Greek economy with the massive escape of Greek manufacturing enterprises to the East. Figure 5. The general PR 0.5 0.45 0.4 0.35 0.3 General PR 0.25 0.2 0.15 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 Figure 5 depicts the evolution of the general PR and from its trajectory we can discriminate three phases before the onset of current crisis. The first one is the period 1960 - 1973 where the general PR is at a high level though with a small decline. The second one is the period of crisis (1973 - 1985) when the general PR falls dramatically. The third period is that of capitalist restructurings (1985 – 2009) when the general PR displays a slight recover and then remains stagnant. Figure 6. Net PR 0.12 0.1 0.08 Net PR 0.06 0.04 0.02 Counterfactual Net PR 0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 In figure 6 we can similarly discriminate three phases for the net rate of profit. The first one is during the ‘Golden Age’ which is described by a high level of the net rate of profit. The second one is the period of crisis when the net rate of profit declines sharply and the third period is the one of neoliberalism which presents an anemic recovery of the net rate of profit. This recovery is mainly attributed to the implementation of neoliberal policies which were introduced by reforms on the labor market Figure 7. Real GDP (2005) and real unit labor cost 2.5 0.9 Real Unit Labor Real GDP 0.85 2 0.8 0.75 1.5 0.7 1 0.65 0.6 0.5 0.55 0 0.5 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 The argument concerning reforms on the labor market which contributed to the slight recover of the net rate of profit becomes more eloquent in figure 7 where we present the real GDP and the real unit wage cost. Without a doubt from the early 1990s, GDP exhibits a positive growth whilst the real unit wage cost declines. Figure 8. Net operating surplus and net investment at 2005 prices 35000 30000 Net Operating Surplus 25000 20000 15000 10000 Net Investment 5000 0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 In figure 8 we can observe that net investment measured at 2005 prices reveals a considerable growth at the mid of 90s’ reaching its highest peak at 2007. At the same time an analogous growth is exhibited by the net operating surplus measured at 2005 prices. Eventually, net investment falls in 2007 and it is associated with the stagnation on the mass of profits. Concluding, a fall in the net rate of profit is not enough to cause crisis but it must be combined with a falling general rate of profit.