Supporters of Syriza wave party flags. Photo: Oli Scarff/Getty Images
Show Hide image

I agree with Syriza: the way back to prosperity is not austerity but debt relief

This is Europe’s choice.

Syriza’s victory has injected a ray of clarity into the eurozone’s fog. The Greek people have said “enough is enough”. So, we have a new situation – and an opportunity to do things differently.

The Greek election confirmed what everyone knew but wouldn’t say: most of the Greek government’s external debt of €317bn will never be repaid. It would be best if Europe’s leaders openly acknowledged this and stopped trying to “pretend and extend”. They should convene a European debt relief conference, as Syriza has suggested. This would agree to cancel a percentage of the external debt of all heavily indebted eurozone countries. Italy, Spain, Portugal and possibly Ireland would qualify. The percentage would vary with the amount of the outstanding debt and the economic plight of the different debtors. For Greece, a debt write-off of about 50 per cent, leaving it with a debt/GDP ratio of close to 90 per cent, would give a real chance of a fresh start.

Angela Merkel and the Swabian housewife she claims to represent will be appalled at any such open “breach of contract”. But provided the substance of the breach is accepted, it can be dressed up to look as if no breach has occurred. Bankers are experts in devising suitable instruments for deception. 'Here is a chance for them to earn their keep. Bonds of varying types can be issued. Some of them will be fictional – ie, give rise to no claims for, say, 20 years. This is as good as cancellation.

The morality of debt forgiveness can be endlessly debated. It will be claimed that it is unjust to the creditor, that it will remove the incentives for the debtor to reform; in the case of Greece, to tackle corruption and non-payment of taxes. This is reasonable. That is why there should not be complete cancellation: enough debtor discomfort should continue to keep up pressure to maintain fiscal discipline.

Yet the outcome will not be decided by such fine apportionment of moral blame. In practice, whether debts are paid in full, paid in part or repudiated depends not just on the size of the debts but on the political clout of the creditor and debtor forces.

Decisive creditor victories have been increasingly rare since military conquest and slavery ceased to be acceptable ways of extracting tribute. Successful debtor revolts have become the norm. Germany, itself the beneficiary of big debt write-offs after the two world wars, would be wise to remember this.

Morality and politics aside, there is a compelling economic argument for debt forgiveness. The huge external debts of countries such as Greece menace the recovery of the eurozone from the Great Recession. They can only be repaid by transferring resources from the debtor to the creditor countries. To do this, the heavily indebted countries will have to run export surpluses of up to 10 per cent or more over several years. (Greece’s current account surplus is under 1 per cent.) No one supposes that they will achieve productivity gains sufficient to make this possible. This means that further large cuts in their living standards will be required to generate the necessary exports.

While foreign creditors can spend the repaid money in the debtor countries, there is no need for them to do so, or even spend it at all. Repaid debts can be used to buy goods from east Asia or to pay down bank debt. Such uses represent a net subtraction from eurozone GDP.

So, any honest attempt to “pay back the debt” will almost certainly create a Europe-wide depression. To avoid this, the IMF and ECB will have to lend the debtor countries more money on condition of more austerity and “structural reform”; and so the debts will pile up, accompanied by ruinous political, economic and financial turmoil, as Europe spirals downwards. What a mad way to run our affairs!

Aren’t we forgetting the benefits promised by quantitative easing (QE)? Mario Draghi of the ECB has just announced a €1.1trn programme of government bond purchases, to be phased over a year and a half, starting in March. But it is naive to see this as a magic bullet.

As John Maynard Keynes warned in 1936: “If . . . we are tempted to assert that money is the drink which stimulates the system to activity, we must remind ourselves that there may be several slips between the cup and the lip.” The recent experiences of monetary infusions in the US and the UK confirm this. Much of the money received from the sale of bonds never got into circulation at all: it went straight into bank reserves. A lot of what was spent went not into GDP-related purchases but into the “financial circulation” – bidding up the prices of existing assets (stock-market securities and houses). As a result, the “bang per buck” delivered by QE was relatively meagre. There is no reason for Draghi to expect anything better – and some reason to expect worse.

A securer form of monetary stimulus would be to give time-limited spending vouchers to the households of all those eurozone countries whose national economies are still below their 2008 level. First proposed by the 19th-century economist Silvio Gesell and endorsed by the American economist Irving Fisher, the “stamped money” experiment has never been tried and is not about to be tested.

So, we are thrown back on public investment. The Juncker plan, about to be approved by the European Parliament, would provide €21bn of European Investment Bank and EU Structural Funds money for approved investment projects, chiefly infrastructure. Its supporters claim that this will leverage €315bn of private investment over three years. As well as increasing aggregate demand, such a supply-side measure would also enhance future growth.

I agree with Syriza: the way back to prosperity and solvency is not debt collection and austerity but debt relief and public investment. This is Europe’s choice.

Robert Skidelsky is a cross-bench peer and a leading biographer of J M Keynes. His most recent book is “Britain Since 1900: a Success Story?” (Vintage)

This article first appeared in the 06 February 2015 issue of the New Statesman, An empire that speaks English

Show Hide image

Jeremy Corbyn supporters should stop excusing Labour’s anti-immigration drift

The Labour leader is a passionate defender of migrants’ rights – Brexit shouldn’t distract the new left movement from that.

Something strange is happening on the British left – a kind of deliberate collective amnesia. During the EU referendum, the overwhelming majority of the left backed Remain.

Contrary to a common myth, both Jeremy Corbyn and the movement behind him put their weight into a campaign that argued forcefully for internationalism, migrants’ rights and regulatory protections.

And yet now, as Labour’s policy on Brexit hardens, swathes of the left appear to be embracing Lexit, and a set of arguments which they would have laughed off stage barely a year ago.

The example of free movement is glaring and obvious, but worth rehashing. When Labour went into the 2017 general election promising to end free movement with the EU, it did so with a wider election campaign whose tone was more pro-migrant than any before it.

Nonetheless, the policy itself, along with restricting migrants’ access to public funds, stood in a long tradition of Labour triangulating to the right on immigration for electorally calculated reasons. When Ed Miliband promised “tough controls on immigration”, the left rightly attacked him.  

The result of this contradiction is that those on the left who want to agree unequivocally with the leadership must find left-wing reasons for doing so. And so, activists who have spent years declaring their solidarity with migrants and calling for a borderless world can now be found contemplating ways for the biggest expansion of border controls in recent British history – which is what the end of free movement would mean – to seem progressive, or like an opportunity.

The idea that giving ground to migrant-bashing narratives or being harsher on Poles might make life easier for non-EU migrants was rightly dismissed by most left-wing activists during the referendum.

Now, some are going quiet or altering course.

On the Single Market, too, neo-Lexit is making a comeback. Having argued passionately in favour of membership, both the Labour leadership and a wider layer of its supporters now argue – to some extent or another – that only by leaving the Single Market could Labour implement a manifesto.

This is simply wrong: there is very little in Labour’s manifesto that does not have an already-existing precedent in continental Europe. In fact, the levers of the EU are a key tool for clamping down on the power of big capital.

In recent speeches, Corbyn has spoken about the Posted Workers’ Directive – but this accounts for about 0.17 per cent of the workforce, and is about to be radically reformed by the European Parliament.

The dangers of this position are serious. If Labour’s leadership takes the path of least resistance on immigration policy and international integration, and its support base rationalises these compromises uncritically, then the logic of the Brexit vote – its borders, its affirmation of anti-migrant narratives, its rising nationalist sentiment – will be mainlined into Labour Party policy.

Socialism in One Country and a return to the nation state cannot work for the left, but they are being championed by the neo-Lexiteers. In one widely shared blogpost on Novara Media, one commentator even goes as far as alluding to Britain’s Road to Socialism – the official programme of the orthodox Communist Party.

The muted and supportive reaction of Labour’s left to the leadership’s compromises on migration and Brexit owes much to the inept positioning of the Labour right. Centrists may gain personal profile and factional capital when the weaponising the issue, but the consequences have been dire.

Around 80 per cent of Labour members still want a second referendum, and making himself the “stop Brexit” candidate could in a parallel universe have been Owen Smith’s path to victory in the second leadership election.

But it meant that in the summer of 2016, when the mass base of Corbynism hardened its factional resolve, it did so under siege not just from rebelling MPs, but from the “Remoaners” as well.

At every juncture, the strategy of the centrist Labour and media establishment has made Brexit more likely. Every time a veteran of the New Labour era – many of whom have appalling records on, for instance, migrants’ rights – tells Labour members to fight Brexit, party members run a mile.

If Tony Blair’s messiah complex was accurate, he would have saved us all a long time ago – by shutting up and going away. The atmosphere of subterfuge and siege from MPs and the liberal press has, by necessity, created a culture of loyalty and intellectual conformity on the left.

But with its position in the party unassailable, and a radical Labour government within touching distance of Downing Street, the last thing the Labour leadership now needs is a wave of Corbynite loyalty-hipsters hailing its every word.

As the history of every attempt to form a radical government shows, what we desperately need is a movement with its own internal democratic life, and an activist army that can push its leaders as well as deliver leaflets for them.

Lexit is no more possible now than it was during the EU referendum, and the support base of the Labour left and the wider party is overwhelmingly in favour of free movement and EU membership.

Jeremy Corbyn, John McDonnell and Diane Abbott are passionate, principled advocates for migrants’ rights and internationalism. By showing leadership, Labour can once again change what is electorally possible.