Saturday, July 11, 2015

The Greek Proposal on the Heels of the Referendum on Austerity: A Case of Avoidable Betrayal

Only days after appealing to the will of the people, Greece’s prime minister put forward a proposal to the state’s creditors that contradicts the people’s rejection of further austerity. To be sure, the referendum was nonbinding, and the need for compromise was well justified by the seizing up of the state’s banking system and economy after the “No” vote. Furthermore, one of the virtues of representative as distinct from direct democracy is that officeholders can pursue policies contrary to the immediate will of the people but in line with their best interest. Alexis Tsipras faced immanent economic catastrophe, and so he can reasonably be credited with acting in his constituents’ best interest. Nevertheless, the sting of betrayal (and the larger theoretical point of governmental sovereignty being subordinate to popular sovereignty) warrants attention in this case.

The Guardian reported at the time, “Athens is understood to have put forward a package of reforms and public spending cuts worth €13bn (£9.3bn) to secure a third bailout from creditors that could raise $50bn and allow it to [retain the euro].”[1] More particularly, “The Greek government capitulated on [July 9th] to demands from its creditors for severe austerity measures in return for a modest debt write-off.” The spending cuts and tax rises being proposed came “close to what was demanded by its creditors” before the referendum. Writing that “the proposal looks very similar to the draft plan” of June 26th—the one voted down in the referendum—Duncan Weldon makes explicit the element of betrayal. Similarly, Helena Smith wrote that “after the Greeks’ resounding rejection of further biting austerity at the weekend, prime minister Alexis Tsipras has with lightning speed now agreed to put his name to the most punitive austerity package any government has been asked to implement during the five years of economic crisis in Greece.” Although the sudden seizing up of the state’s economy in the wake of the referendum doubtlessly played a role in the speedy about-face, the sting of betrayal cannot be missed.

In the proposal, the Greek government agrees to “sweeping changes to VAT to raise a full 1 percent of GDP, moving more items to the 23% top rate of tax, including restaurants.” The government also made significant concessions on pensions, “agreeing to phase out solidarity payments for the poorest pensioners by December 2019, a year earlier than planned. It would also raise the retirement age to 67 by 2022.” Whereas increasing the VAT tax and cutting the solidarity payments to the poorest of the poor constitute additional austerity, a retirement age of 67 by 2022 is hardly austere. That the plan would increase the luxury tax, implement a tax on television commercials, make changes to reform and improve tax collection, fight tax evasion, and press on with privatization of state assets including regional airports and ports do not constitute additional austerity.  That he proposed to cut military spending by €100m in 2015 and by €200m in 2016, however, would add to the austerity unless the additional unemployed are not accommodated. That Athens agreed to only raise corporation tax to 28%, as the IMF wanted, rather than to the 29% as previously targeted, also does not constitute austerity. In fact, given the government’s need of tax revenue, the 28 percent demand suggests that at least one of the institutional creditors was doing more than simply pushing for tax increases and spending cuts. To be sure, Greece needed to attract business, but the state government was arguably most legitimately tasked with coming up with policies to that end. In other words, the demand may suggest that the creditors were going too far—overplaying, in effect, their hand.

If Tsipras’ government could have engineered a plan based on the distinction between austere and non-austere policies and that plan could work from the creditor standpoint, then the will of the people need not have been sacrificed even for their own best interest. In other words, that will and interest would have been in line. Of course, for such a plan to pass muster with the major creditor-states, the ECB, and internationally with the I.M.F., they would have had to respect rather than denigrate the popular sovereignty retained by Greece (i.e., the will of the people). As it happened, those creditors insisted on even harsher terms following the referendum, as payback, according to a senior E.U. official, for Tsipras having deferred, albeit briefly, to popular sovereignty—the Greek people. Furthermore, the creditors sought to punish that people for having said no through the referendum. Tsipras “was warned a yes vote would get better terms, that a no vote would be much harder,” said the official.[2] This aggressive response goes beyond garden-variety disrespect. It suggests that the creditors would have used the austere/non-austere distinction to insist on austere policies.

In conclusion, popular sovereignty came out the big loser after being accorded a rare opening. The cocktail of betrayal and aggression after being deferred to is nothing short of cruel. The lesson is perhaps how tenuous popular sovereignty is, given the power (and psychology) enjoyed by governmental officials.

1.Greek Crisis: Government Submits Reform Plan In Bid For New Aid Deal—As It Happened,” The Guardian, July 10, 2015. All quotes in the essay are from this source.
2. Ian Traynor, Jennifer Rankin, and Helena Smith, “Greek Crisis: Surrender Fiscal Sovereignty in Return for Bailout, Merkel Tells Tsipras,” The Guardian, July 12, 2015.