Greeks Say No to More EU Austerity, Yes to Dignity

Posted July 8, 2015

MP3 Interview with James S. Henry, senior fellow at Columbia University's Center for Sustainable International Investment, conducted by Scott Harris


In the face of imminent default on its $320 billion debt and enormous pressure to reach an agreement with its European Union creditors, the Greek people overwhelmingly rejected the imposition of new austerity measures in a historic July 5 referendum. The 61.3 percent of Greeks who cast ballots for a 'No' vote confirmed majority national support for the governing Syriza party's pledge to challenge harsh Eurozone austerity measures when it won power in last January.

Eurozone leaders warned that the results of the referendum had not changed the EU's insistence that Greece adopt tough structural economic reforms in exchange for a third bailout package. But Syriza party leader and Greek Prime Minister Alexis Tsipras believes the referendum victory, along with support from most opposition parties, strengthens his negotiating position in a new round of talks.

There's much at stake in upcoming negotiations as Greek banks teeter on the brink of insolvency and unknown consequences for the European Union if Greece is forced to leave the Euro and return to its old currency, the Drachma. While there's disagreement on what the outcome may be, there's no doubt there's more pain ahead for the Greek people who have already suffered through five years of a severe depression that has brought 25 percent unemployment and a 23 percent reduction in the national budget. Between The Lines' Scott Harris spoke with James S. Henry, an economist, lawyer and investigative journalist. Henry, former chief economist at the international consultancy firm McKinsey & Co., who is now a senior fellow at Columbia University's Center for Sustainable International Investment, discusses the significance of the outcome of the Greek referendum and the major issues in the difficult negotiations ahead.

JAMES S. HENRY: Well I think Greece's people have had six years of austerity through the EU, the ECB – European Central Bank – the IMF, the debt ratio has actually increased to more than 180 percent of GDP and they've seen dramatic reductions in income per capita. Twenty-five percent unemployment. Pensions down 44 percent and 20 percent of the population requiring food aid. They've said "Enough is enough! We tried the bloodletting approach to cutting spending and raising sales taxes, VAT taxes, under the latest proposal from the EU, the Eurogroup, would go to 23 percent. And they resoundingly said, 61.3 percent said "No!" to the latest term sheet from the Eurogroup – saying no more austerity.

So this is on top of a new IMF (International Monetary Fund) report, about 10 days ago, which basically threw in the towel and said, "Yeah, austerity has not worked. Maybe it's your fault, maybe it's ours. But basically what the Greek people is much more substantial debt relief. Better terms and some new concessions."

So, in fact, most of the major economists around the planet are agreeing that the EU – Germany, in particular which is kind of behind this whole scene – is acting in a kind of stubborn and intransigent way that the European Central Bank does not behave like a central bank. They haven't stood behind the banks here. They've basically put a cap on how much lending they would do for the banking system there. So there's a short-term currency crisis in the country I think independent of objective observers who say, "You know, look, Greece is effectively bankrupt. And if you were a private company, like General Motors in 2010, we basically allowed them to go Chapter 11, and shared the burden of restructuring their debt, creditors had to take a substantial debt reduction. Unfortunately, we don't have any international bankruptcy courts for governments. And that's been a major problem for the international system for the last 30 years. Greece is just the latest example of that. If you compare the United States which has an unemployment rate now of below 5.5 percent, with the EU, which is still above 10 and the southern European countries' unemployment north of 20 to 25 percent rate in Italy and Greece and Spain, it's clear that the hyper-austerity program pushed basically by the German's finance minister has been a failure.

BETWEEN THE LINES: James, here's a question. By withdrawing support for Greek banks in advance of the referendum vote, were the leaders of the European Commission – the European Central Bank and the IMF – attempting to intimidate Greek voters into casting ballots undermining Alexis Tsipras of the Syriza party and thereby aiding in the removal of his party from power in Greece?

JAMES S. HENRY: I think this was simply about politics. It's not about economics. Essentially, they were hoping that the Greek population would vote "Yes" in favor of retaining the euro. Most Greeks want to retain the euro. They've had terrible experiences with hyper-inflation when the Germans occupied the country in the forties. And they don't want to go back to the drachma. But what they do want is debt relief. So yes, it was a blatant attempt to unseat the left-wing government that came in in January because the Eurogroup has its eyes not on Greece, they have their eyes on Spain, which has a 1.1 trillion euro debt; on Italy, which has a 2.1 trillion euro debt and on Portugal and in all of these governments, all these situations, the left is on the rise simply because Europe lied. Even countries like have suffered from this hyper-austerity program that the EU has been pushing.

BETWEEN THE LINES: James Henry, what do you believe the effect of this "no vote" in Greece will have across Europe? Especially for supporters of left anti-austerity parties like Podemos in Spain, which has been garnering a lot of support these days and in other countries such as Italy, Portugal and Ireland. What's the message that comes out of Greece for these folks?

JAMES S. HENRY: Well, that's part of the issue here. We're really waiting to see what impact this "no" vote has on the European system. The statistics today were interesting. If you look at middle- and lower-income voters in Greece, the statistics are that 70 percent of lower-income Greeks voted against austerity. So this is becoming a bit of a class war. And I think each one of these economies is in a slightly different position. We've seen some return to economic growth in Spain this year, as well as in Italy. So it's not quite as dire a situation in those cases. But there's no question that Podemos and the left in Italy are taking a sort of, seeing this as a positive sign for their anti-austerity programs. And so I think if the EU wants to be short-sighted about this, they'll reject any compromises. But what's really needed to depolarize the situation is to have some debt relief for the Greeks.

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