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Leftists: the debt crisis trapped Greece in Catch 22

11 March 2011 / 20:03:50  GRReporter
3531 reads

Victoria Mindova

Greece is in a Catch 22 situation. On the one hand, Europe insists the external debt to be reduced and on the other, the country to become sufficiently competitive by resorting to internal devaluation. Devaluation, of course, can not come from the currency, but from demand reduction, negative economic growth, thus losing any opportunity for development of competitiveness of public expenditure. In other words, reducing spending on salaries, pensions, investments, which inevitably leads to recession. This was the conclusion of the independent MP Vagelis Papahristos who spoke at the forum "The European Left response to the external debt crisis and strict economic policy."

The debt of a country depends not only on its volume but also on the interest rate and the conditions of repayment, said the Socialist. At the same time, strict economic policy restricts any possibility of positive economic growth and the government's plan to form a primary budget surplus in 2015 is not applicable under these conditions. "To reduce the external debt to 130% of GDP by 2020, Greece must have a primary budget surplus of at least 4.5% or 8% in the best case," said Papahristos. To show that this plan is very difficult to be implemented he gave as example Norway, which is the only state that supports this rate and only because of the fuel deposits it has.

Papahristos believes that debt restructuring is unavoidable, but it is not yet clear in what form. According to him, Germany will finally force the Greek government to accept the haircut option - to reduce the debt against more stringent conditions. He stressed that private investors who hold Greek government bonds should be split into categories so that stronger economic creditors to bear the greater burden of haircut, not the smaller ones.

The leader of the parliamentary group of the far left SYRIZA Todoros Paraskevopoulos talked about the problems of fiscal consolidation and the need for reorientation of tax policy. He said all countries in the European Union should have a uniform tax policy focused on profits of large companies and billionaires in order to have equitable distribution of capital. Transfer of funds from rich European countries to poorer ones is required so as to ensure equal status and living conditions.

Even the discussion about the Euro-bonds is being led not to facilitate the external debt issue in the European periphery, said the right wing representative. He said that speculative banks lend to European Commission and European support fund at a certain interest rate and they, in turn, lend to Ireland for example at 6.8% and it is not supportive in fact. Thus, the external debt problem of countries is increasing, not decreasing and the decision of the debt crisis is not found.

In the case of Greece, tax evasion and criminal tax liability is the reason for the growth of external debt, said Todoros Paraskevopoulos.

Belgian Socialist Eric Touche said that the discussion about whether the external debt must be paid or not can not be avoided. This is an important topic and should not be missed, he said. This question must be present in public and should be subjected to a debate which is the responsibility of the left. The Greek side, however, does not respond to this appeal because the representatives in the forum say they are not yet ready to put the matter publicly.

Touche talked about the experience of other European countries in the fight against stringent economic policies. He gave the example of France and Spain, which also came under severe financial restrictions in 2010 and there was serious social unrest especially in Spain. Eric Touche understood in a conversation with French Communist leaders that the extreme right are not ready to assume the power if the government falls. "If Sarkozy resignes tomorrow, the Left is not ready to assume power," Touch cited his anonymous interlocutor.

The situation in Greece is similar as neither the Communists nor the leftist radicals are prepared, and inclined to take over the country ruling. Evklidis Tsakalotos - Professor of economics and member of the leftist radicals of Sinapismos - said that the leftist parties do not want the power today. In his opinion the European economy and capitalism are in a new transition period and search for a new model. "We are now in a period of changes that need more time to change attitudes and views. It takes a long time to change capitalism," said the economist, adding: "We want many small wins to change people’s ways of thinking to get to a new model."

 

Tags: EconomyMarketsLeft wingDebt crisisGreece
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