brusselsnovember2015_lapavitsas

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The Greek disaster
and the future of the EMU
Costas Lapavitsas
SOAS/RMF
November 2015
What kind of crisis in the Eurozone?

Not a public debt crisis

Spain, Portugal, Italy
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A crisis of competitiveness and balance of
payments surpluses

A part of the global crisis of 2007-9
The mechanism of crisis

Loss of competitiveness
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Current account imbalances

Capital flows from core to periphery
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Domestic financial expansion
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Public and private debt accumulation
Nominal Unit Labour Costs (AMECO)
190
180
170
160
150
140
130
120
110
100
90
Germany
Ireland
Greece
Spain
2011
2009
2007
2005
2003
2001
1999
1997
1995
Portugal
Policy response
Germany clung to the Euro and hardened its
mechanisms
 Liquidity to protect the banks - ECB
 Permanent austerity – “six-pack”, “two-pack”
 No significant debt restructuring
 ‘Reforms’ for competitiveness
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There is no ‘good euro’
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No Eurobonds

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Joint and several responsibility is impossible to
include in the euro-mechanisms
No regular ECB financing of state borrowing
Outcomes
Eurozone in long-term crisis – high
unemployment, low growth
 Crisis moves to the core – Italy and France
 Periphery mired in stagnation
 Enormous political and social tensions


EMU not viable
Investment in the OECD
Greek economic and social disaster

25% fall in GDP 2010-15, U/E at 26%,
contraction of industrial output by 35% since
2008.
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Incalculable social consequences


Poverty, primary medical care, homelessness,
emigration of the young
Entrenched social instability
Greek political disaster: Syriza

Complete failure of the ‘good euro’ approach

Full acceptance of EMU policies. Loss of
sovereignty

Long-term economic stagnation. Loss of
national control over banks

Political betrayal and disillusionment
An alternative strategy



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Debt restructuring and write-off
Lifting of austerity – no surpluses, no
balanced budgets, redistribution
Nationalise banks and establish development
banking
Relieving social crisis and restoring labour
condition
Medium-term restructuring of the productive
sector
Deep reform of the state
Exit from EMU

Impossible to adopt such strategy in the EMU
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Exit to give command over fiscal and
monetary policy. No exit from EU

Break out of the trap of the euro


Recover competitiveness
Restructure the economy
Modalities of exit

Capital and banking controls
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Rapid printing of banknotes and use of
stamped existing banknotes

Bad bank to deal with bank balance sheet
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Devaluation and policies to supply energy,
food and medicine
For Europe as a whole

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Dismantle the EMU. Return to monetary and
fiscal sovereignty. No austerity. Redistribution
Management of exchange rates – no free
market
Bank restructuring
Industrial policy to boost investment
Rethinking of EU on a looser basis.