George Katrougalos: Greece’s fate was to discourage others from breaking with neoliberal politics [SEE VIDEO]

By the end of August 2022, the EU’s „enhanced surveillance” over Greek finance was finally lifted. But is the crisis really over or is Greece heading towards another turmoil period, now when inflation and high energy prices are reality of all European countries? Cross-Border Talks invited George Katrougalos, the last foreign minister in Syriza’s government of Greece, to discuss the situation of Greek state and society after the shock therapy imposed by European Union. Katrougalos explains mechanisms that led to the Greek debt crisis, including structural factors resulting from how the Eurozone works, sheds light at the role of Germany when austerity was imposed on Athens, and recalls how Syriza struggled to save what could have been saved from Greek economy. We also sum up the results of the shock therapy in the long term and ask: can European Union be reformed from within, or will it be always neoliberal and unfriendly towards economic alternatives.

See the video or read the full transcription below.

Malgorzata Kulbaczewska-Figat: Hello, everybody. Welcome to another episode of Cross-Border talks that I am going to conduct together with my friend Veronika Salminen from Czechia. My name is Malgorzata Kulbaczewska-Figat, but the most important person in today’s episode is George Katrougalos, the last foreign minister in Syriza’s Greek government, the government which gave a lot of hopes to left-wing thinking people everywhere in Europe, and the government whose story is an example of how progressive experiments end up in European Union. We ask the question: can the European Union reform itself from within? And the story of Greece is very important to understand, is it possible or not. 

But today we are going to discuss more current events connected to Greece as by the end of August, the 12 years of enhanced surveillance over the state’s economy, over the Greek economy, the surveillance exerted by the European Union is finally over. The Greek prime minister, Kyriakos Mitsotakis, claimed that now a new horizon filled with growth and prosperity opens for Greece. Together with our guest, we are going to assess how realistic it was and what Greece and its society need now. So, George, thank you for being with us.

George Katrougalos: Thank you. Thank you very much for the invitation. I hope that we are going to have an interesting discussion for all those that are going to listen to us.

As you said, Greece had a very hard, harsh ten years, at least ten years of crisis, beginning from 2010. We have managed that during the last year of our government, in August 2018, to put an end to the last memorandum, the last agreement between Greece and its creditors. And now, as you said, we have also the final episode, that is the end of the surveillance that all countries that have been into these programs of adjustment had to suffer. It was a new episode of neoliberalism that we have seen applied in all European countries the last decades. It was just more violent and concentrated in Greece.

 If you want to make a little historical reference to what has happened, Greece, together with other countries of the South, had very difficult reactions, very difficult adjustment to the economic crisis that started globally in 2008. That was a result of both the structure itself of the European Union,  economic policies of the Eurozone. We get economies like those of the periphery, of the European South, having problems to cope with the new economic rhythms, the competitiveness that the Eurozone implies to everybody. Former tools that the national governments had at their disposal were not available any more. I mean here, for instance, the devaluation of the currency.

In addition, Greece also had internal political problems. It had two main political parties, one a social democratic, one conservative, that alternated each other in  power in the framework of policies of clientelism and patronage, which in a way exacerbated the economic problem I mentioned before. What I would like to stress is that

although in Greece we had a very particular political system, which was partly to blame for the crisis, for what has happened in my country, this reflects basically general trends.

Neoliberalism by definition is an economic doctrine and applied to economic policy which exacerbates inequalities, basically makes the poor poorer, the rich richer, and undermines the structures of the welfare state. We have seen that clearly in Greece and the remedy of the adjustment economic programs, the so-called memoranda, was also another version of neoliberalism – very hard, very concentrated. Some scholars have called these policies sadist monetarism, monetarism with some sense of sadism implied to them. 

As a result of these programs, Greece has lost one fourth of its GDP, one fourth of its national wealth. That is without precedent in times of peace for any Western economy. Add to this the suffering of the Greek people. There was unemployment of almost 30%, a very dramatic fall in salaries and pensions, and as a result, the debt, which was the reason that we have entered this so-called adjustment, saved the safety mechanisms, has actually increased. It was at the level of 120% when we entered the program. It is now something less than 200%. And with regard to the GDP and also in absolute numbers, it has increased. So in summary, history of Greece is a history of failure of both the neoliberal policies applied everywhere and also of the remedies that suggest globally the IMF, the International Monetary Fund.

Veronika Sušova-Salminen: I would like now to develop this this idea which you are offering us,  I would like to ask you more precisely about that…  because we in our region, in Central Europe and in South Eastern Europe, when the crisis happened and when the problem the crisis in Greece was in full, we were told, basically, that ‘lazy Greeks’ were responsible for all that happened to them. But you clearly said that ther ewere some problems structurally vis a vis the structure of the Greek economy. And I would like to hear from you more precisely what you mean by this. What are the structural problems of Greek economy, and maybe how these structural problems of Greek economy were shaping, first of all, position of Greece in the European Union, in the European economy, and then, of course, your political system, because these two things are together. It is not enough to say that we have problems  because we have such and such culture. By the way, clientelism is everywhere, even here in the north, here is also clientelism. It’s everywhere. So maybe if you put more grasp on this issue that people can understand more.

First of all, fortunately, we have statistics on how many hours different people in Europe work. And according to the OECD data, Greeks are the most hardworking in Europe regarding the number of hours. The reason is very simple. As salaries are relatively low in Greece, most Greeks have to have not just one job, but one job and a half. That’s why they work not just the standard eight, 8 hours that somebody in more prosperous societies in the north or in the center of Europe do. But there is a lot more than that. 

Now, let’s go to your basic question. When I am speaking about structural problems, what do I mean?

The Eurozone practically implies a unified economic zone like the one that exists, for instance, in a federal country.

What’s a problem in all cases is that we have a unifying economic zone or in a case that is not just within one country, any time that a stronger economy connects its currency with the currency of a weaker economy. For instance, in Latin America, we have many countries like Mexico, like Argentina, which connect the pesso with a dollar. What’s happening? Well, in such a unified economic sphere the following happens: stronger economies have the possibility because of their higher competitiveness and productivity, to score better than the weaker economies. So we have a flow of money from poorer to richer countries or parts. In a federal state, such as in Germany or in the United States, in order to readjust this situation, we have transfers of money from the richer parts to the poorer. In the European Union, we have structural funds which are supposed to work just like these, transfers, but compared to the amount of money that exists within a federal state, such in Germany or in the United States, even in the liberal United States, they are not enough. That’s why we have seen, instead of a convergence of stronger and weaker economies in the European Union, a very strong divergence.

This is the general trend. We have also taken into account that this competitiveness implies also that as a golden rule that permeates all economies is that competition is becoming the number one rule of the economy. Protection that in the past existed for national monopolies like the electricity have been obsolete because of the European Union law. And also that goes for the financing of the welfare state. Now when the profits are supposed to be undermined, when we have social investments such as in pensions, in schooling, in the health system, we have also a process of undermining these structures of the welfare state. Put on that also the relative undermining of the power of trade unions to have collective agreements and to negotiate wages with their patrons, which is also under crisis. And you have in a miniature what was happening not just in Greece but throughout Europe.

If we look, the numbers are really fascinating in the bad sense.

For instance, in the UK, to put the developed capitalist country in perspective, the number of the workers that were covered by a collective agreement in the eighties, just when Madam Thatcher entered power, was about 70%. Now it’s less than 20%. If we look at the taxes imposed on the richer citizens and the companies, we see that it is now less than 20% than in the eighties. And if we compare with the seventies, which was the peak of the welfare state, it is even worse. So we have the situation that the goal is to make the rich people within every state richer, the rich countries within the European Union richer and consecutively the poor countries even poorer.

Greece entered  the crisis with this disadvantage. Its huge debt was really imposing on the previous government before the coming in power at this time – a conservative government, has ballooned the deficit of the budget at 15% of the GDP, which of course is enormous. Normally at this time, the IMF imposes a default on the economy in order to restructure the debt. The European Union did not want something like that because they were afraid of a domino effect that could be contagious for Spain, Portugal and Italy. 

The classical recipe of the IMF, that is default restructuring of the debt, would mean that the private creditors of this time, so German banks or French banks, Swiss banks who had the major part of the Greek debt would suffer the consequences. Instead of doing that, it has imposed to us a program of monstrous economic austerity, which managed to do with the devaluation of the currency, could do in a normal economy by cutting salaries, pensions, social expenditure. This resulted in a very fast shrinking of the economy. As I said before, we lost one fourth of our GDP and it was kind of a vicious circle: every time that we had a cut of salaries and pensions, then the market was shrinking because people could not buy things. Taxes have been reduced, and that led to a new set of measures. That was practically the history of the Greek debt.

There was an effort of restructuring three years later in 2011. But at this time, most of the banks had already sold the debt to the European Central Bank, so it was not possible anymore for the private banks to bear the cost.

It was again the Greek citizens who had bonds of the Greek of the Greek state or the European taxpayers through the money that we have received through the save mechanism.

 I must add that these measures imposed to us did not have an economic side. It also has a very strong institutional side, reducing the power of the trade unions to negotiate about salaries. In Greece, we had a tradition for many years, stipulated by law, that the minimum salary has been agreed by employers and employees, by a national trade agreement, a labor agreement. This was eliminated. We had to introduce a sub-minimum wage for people below 25 years old. The meaning of that was that the salary was not anymore negotiated. It was defined by a decision of the Minister of Labour. It was much lower, by 30% lower than in the past. And in addition to that, we had a special salary for young people, which was even lower. 

From this, we had about 12 waves of cuts of pensions. It is very characteristic that the European Committee of Social Rights, the organ which supervises the European social sector, has found that Greece has violated its commitment to the European social sector by adopting and implementing these measures.

At this point I wanted to ask about alternatives, because I know that the Syriza government suggests a number of different measures to European creditors, to the troika. Most of those suggestions were rejected. So at this point, I would like to ask, was it possible to avoid the social catastrophe in Greece? Was it possible to introduce some other measures? I don’t mean speaking about a social revolution,let’s put it aside for a moment. But was it possible to stay in the framework of the European Union and free market economy and still introduce some measures that could not lead to such disastrous social consequences? Or, in other words, what were Syriza’s proposals? What else could have been done?

As you said, we did not  propose a social revolution. Our program, the program by which Syriza was elected in January 2015, was, by any comparison, a very mild social democratic program. We wanted to alleviate the pressure on the Greek people, especially the more vulnerable. And we wanted to renegotiate with the European Union the terms of repayment of our debt. 

We were hoping that we could successfully use the argument of democracy, that is what the European Greek people wanted. And in addition, also the fear that a Grexit could, let’s say, put the European Union into a situation of institutional danger.

We hoped that we could negotiate with our creditors. To put it clearly, we do not intend to have a Grexit. We believed that it was possible to have a solution  within the European Union. However, we tried to explain to our creditors so that they could themselves push us to a Grexit if they were insisting on measures that would be unbearable for the Greek people. 

As we understood towards the end of the negotiations, that there were personalities in the European Union that were afraid of a Grexit as a possible danger for the survival of the European Union. But there have been also other politicians, the most extreme circles of the European right, especially, for instance, the most prominent personality among them has been the former finance minister of Germany, Mr. Schauble. We knew he had the Grexit at the core of their strategy. They wanted to expel Greece from the European Union for different reasons. They believed that Greece was not fit to enter this club, which in their mind was a club just for the most powerful and rich countries of the area.Towards the end of the negotiations, we understood that the strategy – not of all European leaders, but of most extreme political circles in Europe, was exactly to victimize Greece, to expel Greece from the European Union, and to make us a kind of example of what’s happening if a country deviates from the neoliberal orthodoxy. In some months, we had the elections in Spain with Podemos having a similar program to Syriza. They wanted to show that only one solution is possible. What Thatcher was saying is that there is no alternative – TINA.

Towards the end, when we refused their terms, they blackmailed us basically by strangling the Greek economy. They have stopped insuring liquidity to the Greek banks. Although the Greek banks have just recently passed the stress tests that the European Central Bank imposed to all banks of the European Union. And by doing that, practically, they were asphyxiating our economy. During the last weeks of July, we had to impose very strict financial capital controls. Any Greek citizen could withdraw just some money from the ATMs, €60 per day.

At this stage, as they have used this, let’s say the atomic bomb they had at their disposal. We could survive for a few months, maybe less, a few weeks,as a capitalist economy. We tried to use our atomic bomb. That was a referendum. And the referendum we put into question, if the Greek people were to agree to accept the new proposal for a new memorandum, a new program of adjustment formulated by the commission. And as you know, the Greek people by a huge majority of 68% has rejected this proposal. Then we had to negotiate again the results of the referendum.

 The strategy of the extreme neoliberal circles in Europe was obvious. They would continue to struggle with our economy till the end. We tried to renegotiate terms of the new adjustment programme and we managed to have a relatively mild form of what has been proposed to us still a neoliberal program – but still something that, in our understanding, was not what the Greek economic people needed. We accepted because the alternative, as I said, was the violent termination of the normal functioning of the Greek economy in order, as I said before, to make Greece an example of what’s happening when alternative, non-neoliberal policies are applied. 

The new program, in comparison to the previous, had some advantages. There was a possibility to keep a public control over the electricity or the water, public services, some or possibility also to have a parallel program of our own in some spheres of the economy. It was not what we had promised to the Greek electorate. We went again to new elections in September 2015. I remind our listeners that the first elections have been the same year, 2015, but in January. And although everybody understood that what we have done was a very painful compromise not to what we were hoping to achieve during the first six months of our government, again, the Greek people trusted us with practically the same percentage that we have taken in January. And then our efforts were to apply to this program. 

As I said, it had our signature, but we were also trying to neutralize its more severe consequences for the Greek people, applying a program, a parallel program of our own, to the possibility that left open the provisions of this program. We had in our scope back, first of all, vulnerable people.

The first law we passed, even during the first six months of our government, was, for instance, immediate measures to face the humanitarian crisis.

This law provided for free access to health, to everybody who was not insured, who was unemployed, and who at this time were representing about one third of the Greek population in immediate aid in the form of a special credit card, so as not to be stigmatized. The recipients of the help end with a card that gives up the access to basic amenities, food, clothes and so on. In a nutshell, we have tried to impose a part of the program by which we have been elected in a very difficult new environment which was dictated by this compromise we have to take in July 2015.

Now perhaps we could have a look more on the present and the future perspective of Greece. Of course, the surveillance program has ended, but as you already said, and as we could see in the statistics, the consequences are still here. These huge losses of economic performance are continuing and there will be long term. If you speak about the crisis in Greece, we can speak about the crisis, which was mostly about the debt and financialization. But now the European Union and Greece, together with it, is coming to the next type of crisis after the pandemics, which was another pandemic crisis. Now we are in the crisis, which is related much more to the real economy, connected with the sanctions against Russia, with the energy crisis and the high cost of living crisis, which is, of course, for everybody, a huge problem. We started our talk with the quotation of your Prime Minister Mitsotakis speaking about unity and prosperity. So what are, in your opinion, the perspective of Greece in this new situation? I know it’s very difficult to grasp it because we really don’t know what is going to happen, maybe even tomorrow. So what are the possible ways to economically develop? What are Syriza’s proposals in this context?

Well, the basic lesson we have learned during the crisis and the aftermath of the crisis and also from our experience with the government, is that it is not possible to change the European Union just by the efforts of one country and especially a small country. We still believe that it is possible to reform the European Union, but to have this goal achieved, we need to change the balance of forces globally in the European Union. 

That means that we should replace the existing consensus that only neoliberal policies could be applied, by a different, social oriented one. And again, for doing that, we need a huge alliance of the left, of the forces of the ecology, the greens, and also of this Social Democrats who have rejected neoliberalism. There are now two flavors, two types of Social Democrats in Europe, social Democrats like of the type of Blair, Schroeder, the former head of Eurogroup Dijsselbloem, which goes in many cases more on the right of President Juncker, who was Christian Democrat. These policies have also weakened their parties. PASOK in Greece, for instance, used to be a party that was taking 48% of the votes and exactly because of its identification with the neoliberal policies. It has been lowered to a party of 6%. It has lost practically all its influence on the Greek people. It is also a trend that other social democratic countries who have implied neoliberal policies have seen. 

As a reaction to that, we have seen other social democratic parties like the Portuguese, like the Spanish, trying to deviate from this, let’s say, neoliberal orthodoxy. And these countries also have a kind of alliance with the forces of the left I mentioned before.

What we are trying to do as Syriza is to expand this paradigm to all Europe. That’s why our political family is, of course, the Left. But Alexis Tsipras is also participating in the summits of the Social Democrat leaders which are taking place before the summits of the European Union. And the similar strategy we have also in Greece is trying to have an alliance between us, the Social Democrats, other forces of the left and ecology. 

This is necessary, first of all, in order to change the EU policies. It is also necessary in order to change national policies. It is not just countries like Greece which are suffering from this mixture of economic policies that is applied. I was reading the statistics. The Germans are poor, which has increased during the years of the crisis, even for those who are employed. Because as you know, in Germany one can have a mini job being paid €300 per month. That’s still not considered to be unemployed. But of course, for €300 or €500, one can barely survive in Germany. To summarize, we believe that it is necessary to get rid of these neoliberal policies. That and if we want to do that, we want this broader front having not just the left inside, but the left at all, those that reject the neoliberal consensus.

I think that it is clear now for everybody who thinks in a rational manner that neoliberalism is not a solution anymore, for it has never been a solution. But definitely it is not a system that can work under modern conditions. It is not a system that has answers for the climate crisis. And if we want people in Europe to live in some decent condition, we need to find a different formula of political and social life. 

I think that the example of Greece is an example that we all must, must learn a lot from, starting from how the democratic voice of Greek people was treated by financial institutions and finishing at this very point of Greece being put under surveillance and no attention for the social needs of the society. So this is an example we can really learn a lot from, and I was happy to host you today in the programme. Thank you very much for being with us. Thank you for your answers, for your insight, and knowledge that you shared with us. And if you like the program, then please subscribe to Cross-border Talks. There will be a lot of other interesting guests visiting us in the future. Once again, George, thank you very much for being with us.

Thank you. Thank you very much. One of the things that we must develop is exactly this cooperation, the exchange of ideas. We do not need a lot of increase about what you the powers of the left are doing in Poland, in the Czech Republic. So it’s very, very necessary to have this communication between us in unity. We have strength. Many thanks for the invitation.

Thank you very much and goodbye.

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