Though Cowards Flinch

There are a striking number of self-declared British socialists expressing the view that Greece will be better off just defaulting on its debts and leaving the euro.  Leaving the euro, goes the argument, will be a victory for the Greek people, and a real slap in the face for the Merkelian forces of austerity.

This is total bollocks.  It’s also totally unsocialist.

Leaving the euro (and re-establishing the Drachma) may well be exceedingly good for a few Greeks, but it will be very bad news indeed for the vast majority.

While it’s impossible to say exactly how leaving the Eurozone might pan out, these will be among the consequences*:

1. Within a day of the creation and flotation of the New Drachma (probably only electronic and virtual at first as it will take three to four  months to print a new currency in sufficient quantities), its value will crash against ‘hard’ currencies, and the purchasing power of Greeks for anything imported will be slashed.  It’s impossible to know by how much, but a cut of 75% purchasing power is certainly not out of the question. 
2. In an internationalized economy like Greece, there is no such thing as ‘out of the euro’. Most rich Greeks able to do so will already have stored their wealth elsewhere and the capital flight will continue to happen.  The idea of proper capital controls is frankly fanciful.  As holders of still-valid euros, or other ‘hard’ currencies, they will then be in position to purchase both the assets and labour of the mass majority of increasingly desperate Greeks at rock-bottom rates. 
3. A dual economy will swiftly emerge, as in pretty well all countries without their own hard currencies.  This will further deepen inequalities in daily life, potentially even with usual services and products only available to those with access to hard currency, as will the emergence of black market currency trading, where the New Drachma is even less valuable than at the official exchange rate.
4. This might be exacerbated by the government seeking (understandably) to gather its tax revenues in hard currencies, although for the long-term it is better off using taxes collected in New Drachma as a way of stabilising and promoting its use within the wider economy (cf. by way of contrast Bristol City Council’s innovative plans to accept business rates payment in the “Bristol pound” as a way of promoting its use as a tool for local economic sustainability).

In short, then, it seems bizarre that socialists should be arguing for a ’resolution’ to the current crisis, whereby ordinary Greeks fall prey to even greater exploitation, and wealth inequalities become even starker.

Fortunately, the signs are that SYRZIA have decent economists, who realise what the official exit from the Eurozone would mean for their constituents.   While they are firm in their commitment to ending self-defeating austerity, they have already stated that they want Greece to remain in the Eurozone.

If British and other European socialists really want to help their comrades in Greece, they would be better off stopping the reality-free anti-German rhetoric, and starting to throw up alternatives that might assist their Greek comrades, as the latter enter an inevitable period of brinkmanship with Merkel and the European Commission.

One alternative already exists, of course.  This, as our very own union economist Duncan Weldon has set out, is through “artificial devaluation”:

By imposing a duty on imports and equal subsidy to exports a country can, in effect, devalue its currency without leaving the Eurozone. A, say, 15% surcharge on imports and a 15% subsidy to exports in Greece would be effectively a 15% devaluation in the currency.

As these countries run deficits it would, at first, be fiscally beneficial as the surcharge on imports outweighed the costs of subsidised exports.

When Duncan mooted this to economist colleagues in Rome the other week, he wasn’t laughed out of the room in the way he might have been a year ago.  Of course there is a reluctance even to think about tinkering with the fundamentals of the Single Market in this way, but as ‘eurogeddon’ approaches for both Greece and the rest of Europe, a temporary fix like this may start to seem an awful lot more attractive, and it might be possible to reach a compromise which includes a fix like this alongside a further debt ‘haircut’ for creditors, in a way which allows both Merkel and co claim that they’ve not let the Greeks of scot-free, but bringing the debt repayments into the realms of the achievable (or at least creating a breathing space while a new haircut plan is developed). 

For ordinary Greeks, artificial devaluation would also mean a major hike in prices, just as leaving the euro would, but at least it would affect ALL Greeks.  That may be preferable to a massive and permanent shift in the balance of financial muscle in favour of the part of the population that got them into this mess in the first place.

The question for socialists outside Greece is whether they prefer an end to this crisis which leave Merkel with egg on her face but the Greek people destitute, or one which lets Merkel leave office without the eggy bits but keeps the Greek people somewhere above the bread line.

Call me a hoary old social democrat washout, but I know which I prefer.  

* For a much more detailed assessment of how the euro would end as the national currency of Greece, and the New Drachma be established, Modern Monetary Theorists like Edward Harrison and Marshall Auerbach are helpful. 

Note, however, that they favour exit from the euro and the establishment of the New Drachma because they fail (or do not want) to see the economic consequences for real people, preferring instead to see Greece as a test case for their theories about how a new currency might be established  through the use of coercive currency switching (aka. theft) and Drachma-based taxation.  They also appear totally unrealistic about the capacity of the Greek government to impose its political will throughout its bureaucratic machinery.