Supporters of SYRIZA wave flags outside a university building on election night. Photograph: Getty Images
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With the rise of Syriza and Golden Dawn, Greece's status quo has been forever altered

Greek democracy will never be the same after this turbulent month.

I am grateful to expert Louise Mensch, who once had a Greek Salad from Waitrose, for analysing the result of yesterday’s election so that I can grasp it. She said: "When push comes to shove, the Greek people voted for austerity and sanity. Are you listening, Labour?" Obviously I cannot compete with this sort of laser-like analysis, which would reduce Shakespeare’s Othello to "interracial marriages just don’t work". But try, I must.

It is difficult to give you a sense of the tectonic plate shift which has taken place in the Greek political geology in the last few years. If you can imagine, between now and 2015, the Tories dropping thirty-two percentage points, the LibDems disappearing into seventh place with less than 5 per cent, the BNP securing 18 MPs, the Greens emerging from nowhere to become the main opposition and the prospect of a Tory/Labour coalition, you may get a taste.

Let us put aside the facile notion that a fragmented election result is "not decisive". It is, in many ways, a healthier expression of democracy than what has happened in Greece for the last 50 years - a polarised sharing of 80 per cent of the vote between two major parties who swap power every few years. It is as valid a decision as any other. In the case of Sunday’s election, it says loudly and clearly "we trust none of you unfettered or unsupervised". Given the history of corruption and mismanagement which has brought my country to its knees, it seems to me a perfectly sensible position.

The nominal victors are the New Democracy right-of-centre party. With 29.6 per cent of the vote, 2.7 per cent ahead of radical left SYRIZA, they have secured the much coveted "bonus" which, under Greek electoral rules, gives the top party an additional 50 MPs. This leaves them in the unenviable position of having to form a coalition and drive forward with the austerity package. To add to their woes, the most likely coalition partner (both in numerical terms and being pro-austerity) is the left-of-centre PASOK; their sworn enemies for a generation. PASOK, who were in power three years ago with 44 per cent, now languish on a paltry 12.5 per cent of the vote. Their fall from grace is truly astounding. The Communist KKE party has been obliterated into seventh place with less than 5 per cent. Other assorted new, coalition or independent parties have largely lost out too, as the vote became concentrated around New Democracy and SYRIZA.

SYRIZA is the real winner. I notice that both the BBC and Sky News yesterday took to describing them as left-of-centre or leftist. They are about as left-of-centre as Norwich is west-of-Japan. They are a radical left party and anti-austerity – a term which is not, as the Guardian seems to consider, interchangeable with anti-euro. They took shape in the debates of the Syntagma Square demonstrations, with little party funding or organisation, to secure 17 per cent in the May election and have increased that to 27 per cent a month later.

SYRIZA have already declared that they are not willing to play ball in a New Democracy led pro-bailout coalition. This leaves them in a uniquely strong position. Untainted by the corruption and dirty dealing of the past, their hands clean from the misery which will be visited on the electorate over the coming months, they can sit back, maintain their ideological position intact and watch their mandate grow in the opinion polls. Many commentators are now confidently predicting that their leader Alexis Tsipras (who British news outlets have taken to describing as "charismatic", presumably because it would be unprofessional to say he’s "hot") will be Prime Minister in Greece within a couple of years.

And SYRIZA have won in another very important way. They have shifted the whole debate on the bail-out package. So terrifying to Troika and their representatives was the prospect of having someone in charge who might put people above markets, that all the pro-bailout parties have had to water down their position during this campaign. Everyone is now talking about, at the very least, a relaxing of the conditions, a renegotiation of aspects of the package and an emphasis on growth.

Even the Euro-cacophony, which has been hollering that any attempt at deviation from the agreement would see Greece sent to the drachma naughty step, is making softer noises. German Foreign Minister Guido Westerwelle said "I can imagine we could do something in terms of the time frame". The Commission and the IMF too, have been talking about helping Greece, using words like "partners" and "family". Are these the same people who told Greece last year to "sell some of its islands" in order to repay its debts?

There was another winner too. The far-right party Chrissi Avgi (Golden Dawn) cemented its position with 7 per cent of the vote and will get 18 MPs. These are not cuddly BNP types. They are a neo-Nazi party with a history of violence which makes Nick Griffin look like Julie Andrews. Their supporters call the leader of the party "Führer" and greet him with the Nazi salute. Their logo is a swastika, thinly disguised as an ancient Greek meander. The country is littered with their graffiti calling for "another holocaust – to clean the place out".

Many had said that the votes they got in the May election were protest votes; votes cast in anger. Many had hoped that their poster boy, Ilias Kasidiaris, viciously beating up a 60-year-old female rival MP live on television, would put voters off. Not a bit of it. Instead Kasidiaris has been elected to Parliament and will sit across from the very woman he assaulted. As one sharp blogger put it, "violence is porn for fascists". And if the woman you’re punching happens to have very loud opinions, happens to be a lesbian, happens to be a communist, happens to be all three, well that’s the "money shot".

Golden Dawn did not just appear out of nowhere. They have been around for a long time waiting for their opportunity. When I left Greece, many years ago, they would be the subject of whispered gossip at the grocer’s: "Did you hear? So-and-so’s son is a Chrissavgitis." It was tantamount to having a criminal in the family; a source of shame. Yesterday, the results from my home-town of Mykonos show that among the four thousand or so voters, 267 people voted for a Nazi party. I probably know some of them. A couple might be my distant cousins. What the hell happened?

Fear and anger happened. And the responsibility must rest squarely with the centre-right parties. Because their reaction to difficult times, their reaction to fear and anger, is to reach for insidious, populist right-wing strategies. More fear. More anger. Attack the immigrant. Blame the unemployed. Demonise the disabled. Wave the flag and clutch at nationalism disguised as patriotism. It’s like an involuntary, political nervous tic. "The mind of the bigot is like the pupil of the eye", said O.W. Holmes, "the more light you pour upon it the more it will contract."

And this is the lesson which I hope the UK reader will take away and ponder. When the leader of New Democracy, Samaras, chooses to say that the reason kindergarten schools are struggling to cope is because of all the foreign kids, he paves the way for Golden Dawn to goose-step their way into Parliament. When Sarkozy courts Marine Le Pen’s voters, when Merkel says multi-culturalism is dead, when Cameron links race and religion to terrorism, they open the Overton window for the far-right burglars waiting outside. They make what was previously impossible, possible.

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On to more important matters now. The deities of football have set up a highly ironic Euro 2012 quarter-final between Greece and Germany on Friday. We should suggest a little bet to Merkel – "Double or Quits. What do you say, Ange?" If by half-time Greece is not performing to Merkel’s expectations, she may well get rid of our manager and appoint a technocrat of her choice. Perhaps Greece will have a government by then. If they don’t do as they’re told, she may do the same. It wouldn’t be the first time.

Greek-born, Alex Andreou has a background in law and economics. He runs the Sturdy Beggars Theatre Company and blogs here You can find him on twitter @sturdyalex

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?