Reiner Hoffmann
The Greek elections have thrown European politics into turmoil. How do you assess the election result?
The majority of Greek voters have delivered a No to crisis management through austerity which has led the country into a social catastrophe. The massive spending cuts have driven the country into the deepest recession and, at the same time, brought the highest level of sovereign debt in the whole EU. The outcome is an unprecedented social and humanitarian crisis in Europe: a third of the population lives in poverty, social security systems have been hugely depressed, the minimum wage has sunk by 22%, collective bargaining and other protective rights for employees undermined. And it’s of all things the lower income groups who’ve had to take the brunt of higher taxes. Unemployment is now around 27%, among young people it’s even above 50%. More than 800,000 people are no longer covered by collective healthcare and can access medical treatment only in case of emergency. So the election result is a devastating judgment on this failed policy in place since 2010.
The old Greek elite was quite obviously no longer electable. We should take the outcome of the Greek poll very seriously: it’s a demand for a change of political course. This change of course is now being introduced and I can only urgently recommend that EU member states and the Commission sit down around the table with the new government. They should together work out constructive solutions bringing a genuine and lasting way out of the crisis but one no longer unilaterally borne by ordinary people.
The Syriza-led government is now putting forward proposals for a debt haircut and the rejection of a policy of spending cuts – which has unleashed occasionally vehement resistance in Germany. Do you think the demands of Syriza are reasonable?
Using a soccer expression: One game leads to another. That means, the Greek government will, after the election campaign, and you can detect the first signals, get its feet back on the ground. If you listen to the Greek finance minister, Varoufakis, the tone is different and you can definitely see the prospect of finding constructive solutions with this government for a better, more sustainable way of servicing debt. We think a haircut now would be wrong; it’s not even necessary. And it wouldn’t help either Greece or the EU.
So, why has Greece’s level of sovereign debt risen even further? First of all, that’s linked to the policy of cuts and the associated “denominator” effect. If GDP falls in absolute terms because of huge cuts in public spending then, automatically, the debt ratio rises – and that’s even if the country takes on not even one extra euro of debt. That’s what’s happened in Greece in the past few years: The public exchequer has delivered primary budget surpluses, up to 2.4% recently. But when accumulated interest is higher than annual growth there can be no debt abatement.
The key thing now is for Greek GDP to grow again and the interest rate repayment schedule to be more protracted. The country and its people need to breathe again. The moderate proposal of Varoufakis to reduce the EU demand for a primary budget surplus of currently 4% to 1.5% seems to me reasonable and justified. His proposal to couple the rate of interest payments to economic growth in future should be viewed non-prejudicially. Of course, we recognize that getting rid of debt cannot just take three or five years; we should assume a longer period. This is a long-distance race and not the sprint stipulated by the troika for the Greeks. The former ETUC General Secretary, John Monks, whose deputy I was, has already compared the demand for budget cuts with an economic Versailles Treaty and given warning that driving a country into ruin cannot possibly be a sustainable strategy.
So, the DGB (German Trade Union Federation) is demanding an overall solution for debtor countries. We want fresh negotiations within the framework of a European conference on debt for all countries in crisis in order to restore debt sustainability and, thereby, stabilize the Eurozone. We reject this false chatter about Grexit; it would be damaging if Greece quit the monetary union. That, too, wouldn’t be a lasting solution but would simply aggravate problems because of a potential domino effect.
What change of policy would you like to see? What should happen at EU level to finally overcome the euro crisis in a systematic manner and prevent the slide into stubborn deflation?
First, we have to state baldly: The policy of spending cuts has never got close to overcoming the crisis in the Eurozone. Since Mario Draghi’s famous “whatever it takes” of 2012 the crisis has simply paused for breath. But the old Barroso-Commission and member state governments didn’t use this pause to correct the design faults in their crisis strategy. They carried on acting according to the principle of shifting the burden onto the shoulders of the ECB. But, with the Zero Lower Bound in effect, there’s a limit to what monetary policy can achieve. That’s why we’re pretty sceptical about the real impact of the new quantitative easing measures. Monetary policy now urgently requires an assist from fiscal policy. Without any boost to aggregate demand nobody will invest a single Euro. At the end of the day, it’s investments that pay off; when everybody saves nothing is invested.
So, we’re asking the EU for a clear departure from the current anti-social politics of austerity which simply ratchets up the crisis. Unions in Europe have made investments in the EU’s real economy a priority issue. Europe needs a master plan for a pan-European campaign of investment. Jean-Claude Juncker’s investment plan is a first step in the right direction. It sends an important political signal: for the first time in a long while we’re talking in Europe about investment-led growth. Juncker has also thereby taken up the drive of the ETUC and DGB for a European Marshall Plan. Of course, Juncker’s plan is not ambitious enough given its volume, funding and the restrictions built into it. So, we’re demanding improvements and extra funding via the member states in order to ensure it has a genuine impact.
A European investment programme should also be meshed into the industrial strategy of the previous Commission and the climate change summit in Paris this year. If we can succeed in raising the added value of manufacturing back over 20% of GDP then we’ll be better able to face the future and to increase our resilience. The basic lesson for us must be: you cannot save your way out of a crisis, you can only grow your way out.
