Varoufakis during negotiations. Pretending the Greek question is administrative, rather than ideological, is tantamount to bullying. Photo: Milos Bicanski/Getty Images
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Slavoj Žižek on Greece: This is a chance for Europe to awaken

The Greeks are correct: Brussels' denial that this is an ideological question is ideology at its purest  and symptomatic of our whole political process.

The unexpectedly strong No in the Greek referendum was a historical vote, cast in a desperate situation. In my work I often use the well-known joke from the last decade of the Soviet Union about Rabinovitch, a Jew who wants to emigrate. The bureaucrat at the emigration office asks him why, and Rabinovitch answers: “There are two reasons why. The first is that I’m afraid that in the Soviet Union the Communists will lose power, and the new power will put all the blame for the Communist crimes on us, Jews – there will again be anti-Jewish pogroms . . .”

“But,” the bureaucrat interrupts him, “this is pure nonsense. Nothing can change in the Soviet Union! The power of the Communists will last for ever!”

“Well,” responds Rabinovitch calmly, “that’s my second reason.”

I was informed that a new version of this joke is now circulating in Athens. A young Greek man visits the Australian consulate in Athens and asks for a work visa. “Why do you want to leave Greece?” asks the official.

“For two reasons,” replies the Greek. “First, I am worried that Greece will leave the EU, which will lead to new poverty and chaos in the country . . .”

“But,” interrupts the official, “this is pure nonsense: Greece will remain in the EU and submit to financial discipline!”

“Well,” responds the Greek calmly, “this is my second reason.”

Are then both choices worse, to paraphrase Stalin?

The moment has come to move beyond the irrelevant debates about the possible mistakes and misjudgements of the Greek government. The stakes are now much too high.

That a compromise formula always eludes at the last moment in the ongoing negotiations between Greece and the EU administrators is in itself deeply symptomatic, since it doesn’t really concern actual financial issues – at this level, the difference is minimal. The EU usually accuses Greeks of talking only in general terms, making vague promises without specific details, while Greeks accuse the EU of trying to control even the tiniest details and imposing on Greece conditions that are harsher than those imposed on the previous government. But what lurks behind these reproaches is another, much deeper conflict. The Greek prime minister, Alexis Tsipras, recently remarked that if he were to meet alone with Angela Merkel for dinner, they would find a formula in two hours. His point was that he and Merkel, the two politicians, would treat the disagreement as a political one, in contrast to technocratic administrators such as the Eurogroup president, Jeroen Dijsselbloem. If there is an emblematic bad guy in this whole story, it is Dijsselbloem, whose motto is: “If I get into the ideological side of things, I won’t achieve anything.”

This brings us to the crux of the matter: Tsipras and the former finance minister Yanis Varoufakis, who resigned on 6 July, talk as if they are part of an open political process where decisions are ultimately “ideological” (based on normative preferences), while the EU technocrats talk as if it is all a matter of detailed regulatory measures. When the Greeks reject this approach and raise more fundamental political issues, they are accused of lying, of avoiding concrete solutions, and so on. It is clear that the truth here is on the Greek side: the denial of “the ideological side” advocated by Dijsselbloem is ideology at its purest. It masks (falsely presents) as purely expert regulatory measures that are effectively grounded in politico-ideological decisions.

On account of this asymmetry, the “dialogue” between Tsipras or Varoufakis and their EU partners often appears as a dialogue between a young student who wants a serious debate on basic issues and an arrogant professor who, in his answers, humiliatingly ignores the issue and scolds the student on technical points (“You didn’t formulate that correctly! You didn’t take into account that regulation!”). Or even as a dialogue between a rape victim who desperately reports what happened to her and a policeman who continuously interrupts her with requests for administrative details.

This passage from politics proper to neutral expert administration characterises our entire political process: strategic decisions based on power are more and more masked as administrative regulations based on neutral expert knowledge, and they are more and more negotiated in secrecy and enforced without democratic consultation. The struggle that goes on is the struggle for the European economic and political Leitkultur (the guiding culture). The EU powers stand for the technocratic status quo that has kept Europe in inertia for decades.

In his Notes Towards a Definition of Culture, the great conservative T S Eliot remarked that there are moments when the only choice is the one between heresy and non-belief, ie, when the only way to keep a religion alive is to perform a sectarian split from its main corpse. This is our position today with regard to Europe: only a new “heresy” (represented at this moment by Syriza) can save what is worth saving in European legacy: democracy, trust in people, egalitarian solidarity. The Europe that will win if Syriza is outmanoeuvred is a “Europe with Asian values” (which, of course, has nothing to do with Asia, but all with the clear and present tendency of contemporary capitalism to suspend democracy).

 

***

 

In western Europe we like to look on Greece as if we are detached observers who follow with compassion and sympathy the plight of the impoverished nation. Such a comfortable standpoint relies on a fateful illusion – what has been happening in Greece these past weeks concerns all of us; it is the future of Europe that is at stake. So when we read about Greece, we should always bear in mind that, as the old saying goes, de te fabula narrator (the name changed, the story applies to you).

An ideal is gradually emerging from the European establishment’s reaction to the Greek referendum, the ideal best rendered by the headline of a recent Gideon Rachman column in the Financial Times: “Eurozone’s weakest link is the voters”.

In this ideal world, Europe gets rid of this “weakest link” and experts gain the power to directly impose necessary economic measures – if elections take place at all, their function is just to confirm the consensus of experts. The problem is that this policy of experts is based on a fiction, the fiction of “extend and pretend” (extending the payback period, but pretending that all debts will eventually be paid).

Why is the fiction so stubborn? It is not only that this fiction makes debt extension more acceptable to German voters; it is also not only that the write-off of the Greek debt may trigger similar demands from Portugal, Ireland, Spain. It is that those in power do not really want the debt fully repaid. The debt providers and caretakers of debt accuse the indebted countries of not feeling enough guilt – they are accused of feeling innocent. Their pressure fits perfectly what psychoanalysis calls “superego”: the paradox of the superego is that, as Freud saw it, the more we obey its demands, the more guilty we feel.

Imagine a vicious teacher who gives to his pupils impossible tasks, and then sadistically jeers when he sees their anxiety and panic. The true goal of lending money to the debtor is not to get the debt reimbursed with a profit, but the indefinite continuation of the debt, keeping the debtor in permanent dependency and subordination. For most of the debtors  for there are debtors and debtors. Not only Greece but also the US will not be able even theoretically to repay its debt, as is now publicly recognised. So there are debtors who can blackmail their creditors because they cannot be allowed to fail (big banks), debtors who can control the conditions of their repayment (the US government) and, finally, debtors who can be pushed around and humiliated (Greece).

The debt providers and caretakers of debt basically accuse the Syriza government of not feeling enough guilt – they are accused of feeling innocent. That’s what is so disturbing for the EU establishment about the Syriza government: that it admits debt, but without guilt. They got rid of the superego pressure. Varoufakis personified this stance in his dealings with Brussels: he fully acknowledged the weight of the debt, and he argued quite rationally that, since the EU policy obviously didn’t work, another option should be found.

Paradoxically, the point Varoufakis and Tsipras have made repeatedly is that the Syriza government is the only chance for the debt providers to get at least part of their money back. Varoufakis himself wonders about the enigma of why banks were pouring money into Greece and collaborating with a clientelist state while knowing very well how things stood – Greece would never have got so heavily indebted without the connivance of the western establishment. The Syriza government is well aware that the main threat does not come from Brussels – it resides in Greece itself, a clientelist, corrupted state if ever there was one. What the EU bureaucracy should be blamed for is that, while it criticised Greece for its corruption and inefficiency, it supported the very political force (the New Democracy party) that embodied this corruption and inefficiency.

The Syriza government aims precisely at breaking this deadlock – see Varoufakis’s programmatic declaration (published in the Guardian), which renders the ultimate strategic goal of the Syriza government:

A Greek or a Portuguese or an Italian exit from the eurozone would soon lead to a fragmentation of European capitalism, yielding a seriously recessionary surplus region east of the Rhine and north of the Alps, while the rest of Europe would be in the grip of vicious stagflation. Who do you think would benefit from this development? A progressive left, that will rise Phoenix-like from the ashes of Europe’s public institutions? Or the Golden Dawn Nazis, the assorted neofascists, the xenophobes and the spivs? I have absolutely no doubt as to which of the two will do best from a disintegration of the eurozone. I, for one, am not prepared to blow fresh wind into the sails of this postmodern version of the 1930s. If this means that it is we, the suitably erratic Marxists, who must try to save European capitalism from itself, so be it. Not out of love for European capitalism, for the eurozone, for Brussels, or for the European Central Bank, but just because we want to minimise the unnecessary human toll from this crisis.

The financial politics of the Syriza government closely followed these guidelines: no deficit, tight discipline, more money raised through taxes. Some German media recently characterised Varoufakis as a psychotic who lives in his own universe different from ours – but is he so radical?

What is so enervating about Varoufakis is not his radicalism but his rational pragmatic modesty – if one looks closely at the proposals offered by Syriza, one cannot help noticing that they were once part of the standard moderate social-democratic agenda (in Sweden of the 1960s, the programme of the government was much more radical). It is a sad sign of our times that today you have to belong to a “radical” left to advocate these same measures – a sign of dark times, but also a chance for the left to occupy the space which, decades ago, was that of the moderate centre left.

But, perhaps, the endlessly repeated point about how modest Syriza’s politics are, just good old social democracy, somehow misses its target – as if, if we repeat it often enough, the Eurocrats will finally realise we’re not really dangerous and will help us. Syriza effectively is dangerous; it does pose a threat to the present orientation of the EU – today’s global capitalism cannot afford a return to the old welfare state.

So there is something hypocritical in the reassurances about the modesty of what Syriza wants: in effect, it wants something that is not possible within the co-ordinates of the existing global system. A serious strategic choice will have to be made: what if the moment has come to drop the mask of modesty and openly advocate the much more radical change that is needed to secure even a modest gain?

Many critics of the Greek referendum claimed that it was a case of pure demagogic posturing, mockingly pointing out that it was not clear what the referendum was about. If anything, the referendum was not about the euro or the drachma, about Greece in the EU or outside it: the Greek government repeatedly emphasised its desire to remain in the EU and in the eurozone. Again, the critics automatically translated the key political question raised by the referendum into an administrative decision about particular economic measures.

 

***

 

In an interview with Bloomberg on 2 July, Varoufakis made clear the true stakes of the referendum. The choice was between the continuation of the EU politics of the past years that brought Greece to the edge of ruin – the fiction of “extend and pretend” (extending the payback period, but pretending that all debts will eventually be paid) – and a new, realist beginning that would no longer rely on such fictions, and would provide a concrete plan for how to start the actual recovery of the Greek economy.

Without such a plan, the crisis would just reproduce itself again and again. On the same day, even the IMF conceded that Greece needs large-scale debt relief to create “a breathing space” and get the economy moving (it proposes a 20-year moratorium on debt payments).

The No in the Greek referendum was thus much more than a simple choice between two different approaches to economic crisis. The Greek people have heroically resisted the despicable campaign of fear that mobilised the lowest instincts of self-preservation. They have seen through the brutal manipulation of their opponents, who falsely presented the referendum as a choice between euro and drachma, between Greece in Europe and “Grexit”.

Their No was a No to the Eurocrats who prove daily that they are unable to drag Europe out of its inertia. It was a No to the continuation of business as usual; a desperate cry telling us all that things cannot go on the usual way. It was a decision for authentic political vision against the strange combination of cold technocracy and hot racist clichés about lazy, free-spending Greeks. It was a rare victory for principle against egotist and ultimately self-destructive opportunism. The No that won was a Yes to full awareness of the crisis in Europe; a Yes to the need to enact a new beginning.

It is now up to the EU to act. Will it be able to awaken from its self-satisfied inertia and understand the sign of hope delivered by the Greek people? Or will it unleash its wrath on Greece in order to be able to continue its dogmatic dream?

Slavoj Žižek’s is a senior researcher at the University of Ljubljana in Slovenia and international director at Birkbeck Institute for the Humanities. His latest book is “Trouble in Paradise: from the End of History to the End of Capitalism” (Allen Lane)

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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?