Louis Proyect: The Unrepentant Marxist

March 2, 2015

Why Greeks might fear a return to a devalued drachma

Filed under: Greece — louisproyect @ 11:34 am

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The most radical option, but the economically most sustainable one of all, would be for Greece to exit the Eurozone on her own, return to her old, devalued currency, the Drachma, and begin renegotiating her debt with her creditors, the ‘troika’ – akin to what Argentina did in 2001, when they abandoned the US dollar-peso parity and renegotiated their foreign debt with a heftily devalued peso (never mind the recent vulture funds’ pressure on Argentina; it will not succeed).

–Peter Koenig, “The Eurozone in Crisis: The Greek Elections, An Opportunity of the Century, A Gateway for Europe”, Global Research

* * * *

The New York Times
October 13, 1985, Sunday, Late City Final Edition

Prime Minister Andreas Papandreou today canceled a visit to the United States to supervise tough new economic measures that include a 15 percent devaluation of the Greek currency, the drachma, against the dollar. The devaluation, which went into effect Friday night, means that a dollar now will now buy 155.9 drachmas, instead of 132.5.

* * * *

The Toronto Star
October 20, 1985, Sunday
Workers balk at government’s economic battle plan
By Robert McDonald Special to The Star

ATHENS – The taxi driver’s wife waved the chocolate bar wrapper and shouted: “This costs 60 drachmas (68 cents). The minimum cab fare is 80 drachmas (91 cents).

“The price of bread has gone up. The price of gasoline has gone up. I can’t afford to buy milk for the kids.”

Hundreds of taxi drivers sitting or lying on the pavement in Constitution Square, the heart of the capital, egged her on as she vented her frustration.

The cabbies, who have been looking for a 25 per cent basic fare increase for months, had brought the centre of this city of 3.5 million people to a grinding halt with a sitdown protest in support of their demands.

Riot police

Two of the more vociferous drivers rejected the suggestion that demands like theirs would only fuel inflation.

“Our wives say the money we give them is not enough because everything is going up,” one said. “It should stop from somewhere but not from the taxis.”

More than 12 hours later, the government sent in riot police to break up the protest.

The demonstration was typical of the problems the ruling Socialists face in their second term of office as they try to grapple with the most serious economic crisis the country has faced in more than two decades.

Inflation which was projected to come down to 16 per cent this year is likely to stay at 20 per cent or more. Unemployment is averaging 8 per cent overall and almost 12 per cent in the cities.

But Greece’s biggest problem is a foreign debt crisis. Depending on whose figures you believe the cumulative national debt stands at somewhere between $13 and $18 billion.

The interest payments based on the lower figure rose from $327 million in 1979 to $1.1 billion last year. The grace period on a number of loans contracted in the early 1980s will end in the next couple of years.

And the problem is mounting. The Socialists have actually managed to decrease the deficit on the balance of trade by more than 20 per cent but it still stood at $5.3 billion last year.

In the past that amount was offset by remittances from Greeks living and working abroad, from earnings from the huge Greek merchant fleet and by receipts from tourism. But with the worldwide recession, more and more Greeks overseas have nothing left over to send home and many are returning to swell the ranks of the unemployed.

The world shipping slump means Greek owners have shed 40 per cent of their capacity since the Socialists came to power. Shipping receipts for the first six months of this year were down by 19 per cent over the same period last year. Tourist traffic is up by l7 per cent but revenues increased by only 8 per cent.

The government had projected a current account deficit of $2 billion for the year. It had already hit $2.1 billion by July and was heading for almost $3 billion by the end of the year.

Prime Minister Dr. Andreas Papandreou and his National Economy Minister Kostas Simitis decided to stop the rot before the country was forced to go cap in hand to the International Monetary Fund to seek debt rescheduling with all the attendant economic rigors that would entail.

Instead they have turned to the European Economic Community for help – one community official says a loan worth between $1.14 billion and $2.8 billion is being considered. He said the Greeks may try to negotiate a credit for the higher amount with an indication that they would hope to draw down only the lesser sum.

Aprroval of the loan would mean the introduction of some tough tough austerity measures in Athens – perhaps as tough as any the IMF might lay down.

The centrepiece of a program the Socialists are still preparing was the 15 per cent devaluation of the drachma on Oct. 11. Coupled with this are wage and price controls.

One of the Socialists’ main planks had been an incomes redistribution scheme that index-linked the salaries of lowest paid workers to inflation. Now that is to be curtailed so that workers are paid only a government designated sum that has “removed imported inflation.”

A scheme to salvage bankrupt companies and thus save jobs is being watered down and a number of firms will be allowed to go to the wall.

Prices paid to farmers will be brought down through adjustments in the rates at which payments are made through the European Community’s common agricultural policy.

In exchange the government will continue price controls on a wide range of manufactured goods though not on such things as state-owned utilities, which will be allowed to raise prices in search of profitability.

Public sector spending is to be reduced by 4 per cent next year through cutting down on recruitment of staff and strict control of operating costs.

The government has also promised tax reform and a crackdown on business and professional people for whom evasion is something of a national sport.

A special onetime tax on 1984 business profits will be imposed starting at 3 per cent on net earnings as low as $4,500 and climbing to 10 per cent on profits over $18,000. Many farmers are to be brought into the tax net for the first time.

Worker protests

The government is asking the European Community to be allowed to postpone the application of a Community-wide tax on all goods and services for at least a year but to continue certain export aids.

The measures have already brought a heated reaction from the trade unions – both those led by the Communists and those sympathetic to the government.

Workers at rallies in Athens, Piraeus, Patras and Salonika last Tuesday shouted slogans and called on the government to reverse what they said amounted to a wage freeze.

About 20,000 attended the main rally in Athens and the others attracted a total of at least 6,000, police sources told Reuter news agency .

Kostas Kappos, the Communist party spokesman in parliament, said the measures “merely shift the crisis onto the back of the people.”

New Democracy, the conservative opposition, finds it difficult to complain about the sort of measures that it likely would have imposed had it won last June’s election. The party is also wracked by internal battles.

The one source of political opposition facing Papandreou is his own party. Many leading members were not consulted about the austerity package and believed that they would be given a chance to debate the matter at a special central committee meeting next month.

The so-called watermelons of the party – the left-wing who are said to be green (the party color) on the outside and red in the centre – feel the measures betray the party’s socialist principles.

Only two weeks before the measures were announced, Papandreou revamped the party executive bureau, dumping eight top ministers from the 11-man council and replacing them with insignificant party figures.

The idea he said was to separate the party from government. But many feel it was to give him a freer hand in creating and applying policy and to confine criticism within the party without such criticism spilling over into cabinet proceedings.

* Robert McDonald is a Star correspondent based in London. He is currently on assignment in Greece.

* * * *

The Guardian (London)
April 2, 1986
Pasok struggles to bare its socialist soul / The transformation of Greece’s PanHellenic Socialist Movement


Nearly a year after its triumphant re-election, Mr Andreas Papandreou’s PanHellenic Socialist Movement (Pasok) is suffering an identity crisis. Economic realities have forced the Government to shed much of the virulent socialist rhetoric of the past and opt for increasing conservative policies on domestic and foreign issues. These shifts suggest that Pasok has matured into a social democratic party of the West European type. Yet neither Pasok, nor its leader, seem reconciled to this transformation.

The turning point was the introduction of a programme of austerity measures in October, 1985. These measures which included a 15 per cent devaluation of the drachma, an increase in import duties, and a two-year wage freeze, were aimed at halting the precipitous slide of the Greek economy and at reactivating private investment and boosting foreign aid.

With a foreign debt of over dollars 16 billion and an estimated balance of payments deficit this year of dollars 1.7 billion, the Government realised that it badly needed the financial support of the West. Relations with the EEC, which recently extended a dollars 1.5 billion loan to Greece, have improved in the past year. While the future of US bases remains uncertain, the visit last week of Mr George Shultz, the US Secretary of State, was a clear sign that relations with the US are also improving.

But at home, changes in domestic and foreign policy have damaged relations with the left. The KKE, the pro-Moscow Communist party, which controls about 10 per cent of the vote, has dissociated itself from the Government’s economic policy. Together with the Eurocommunists, it has condemned what it sees as a shift to the right and a betrayal of the socialist vision promulgated by Pasok.

The austerity measures have also caused deep rifts within Pasok ranks. At least 300 trade unionists and regional party officials have been expelled for opposing them. And earlier this month, the former economics Minister and party stalwart, Mr Gerasimos Arsenis, was also expelled on charges of conspiring with other dissaffected leftwingers.

The cost of confrontation with the left has been high. Strikes, which were rare during the first four years of Pasok rule, have become widespread. Teachers, taxi and public transport drivers, state and private employees, pharmacists, and hospital doctors have all taken strike action. A strike by 40,000 truck owners which ended last month paralysed the market for three weeks.

Divided against itself and at war with the Communist parties, Pasok’s leftist credibility was sinking fast. To stem the tide. Mr Papandreou has reacted with his customary political guile. On the first day of Pasok’s central committee conference last month, he called on the KKE and the Eurocommunist party to join his Government in ‘an open dialogue’ about the policies to be followed for the socialist transformation of Greek society.

Phrased in characteristically vague terms, this ‘opening’ to the left is unlikely to produce results. Both Communist parties have dismissed it as a tactical ploy designed to divert attention from the country’s economic troubles. They have made it plain they will only co-operate on terms the Government has already indicated are unacceptable. But it is doubtful anyway whether the Prime Minister was genuinely interested in co-operation.

By making these overtures, Mr Papandreou has sought to cut the ground from under the feet of his leftist critics.

Few would question the Prime Minister’s ability to maintain his popularity with timely displays of demagogic fireworks. Yet while recourse to rhetoric may serve the party’s political interests, it also undermines the Government’s economic recovery programme. For as long as Mr Papandreou tries to have it both ways, it is unlikely that he will be able to generate sufficient business confidence to bring about the investment necessary for the rejuvenation of the Greek economy.

* * * *

The Guardian (London)
July 28, 1987
Greeks have a word for austerity


Faced with the apparent failure of its 20-month-old austerity programme to produce the desired results, Andreas Papandreou’s Socialist government finds itself in a tight corner.

With its popularity ebbing and its ideology compromised, PASOK now confronts an unpleasant dilemma; either to opt for further restrictive economic policies or allow the Greek economy to sink further into the mire.

Recent studies carried out by the European Community, the IMF and the OECD, as well as the figures published by the economy ministry all point to the same dispiriting fact: that while the stabilisation programme introduced in October 1985 has been carefully applied,it can neither cure the macro-economic imbalances of the Greek economy nor achieve any of the targets set for 1987.

Inflation, projected at 10 per cent for the whole year, rose by 9.9 per cent in the first six months, and is now running at 17.7 per cent on a yearly basis, giving Greece a rate of inflation more than five times that of the EEC’s average.

The current account deficit, which the government had hoped would be reduced to dollars 1.25 billion by the end of 1987, has climbed over dollars 1.35 billion. The hope to reduce the public-sector borrowing requirement (PSBR) by 4 per cent of the gross national product was shattered with the realisation that public-sector debt is swelling rather than retracting.

These disclosures seem to have come as a shock to the government, which had been encouraged by last year’s successes into believing that by the end of 1987 it could start easing its unpopular austerity programme.

Last week, the economics minister, brought down to earth, was forced to concede that austerity is here to stay until 1990. Introduced in October 1985 the austerity programme had aimed at reducing the large macro-economic imbalances that had built up over the previous decade, manifested in a high rate of inflation, large current account deficits. and huge public-sector borrowing requirement.

Its chief features were a tight incomes policy, 15 per cent devaluation of the drachma, and measures to control imports.

Reduced oil prices, an increase in the EEC’s subsidies and favourable dollar exchange rates made possible the attainment of the 1986 targets. Inflation, which stood at 24 per cent in 1985, was brought down to 16.9 per cent, the current account deficit was slashed by half to dollars 1.7 billion and the PSBR, which represented 18 per cent of the GNP in 1985, was reduced by 4.5 per cent.

This year’s first results indicate how precarious 1986’s achievements were. Without support of external factors, the stabilisation programme has fallen flat on its face.

The minister of national economy, Costas Simitis, blamed some of the deviation on the effect of added-value tax, which was introduced on January 1, and the unusually bad spring weather.

Increasingly, however, the government is coming to recognise the strength of two formidable obstacles to its stabilisation attempts: a rampant and inefficient public sector and a thriving black economy.

The major enemy of stabilisation, as the latest EEC report says, is an overblown and insatiable public sector, which has mushroomed since the early’70s and now employs 27 per cent of the total labour force at the cost of dizzying deficits.

For all its recent pronouncements, PASOK has not yet been able to control the spread and wastefulness of state enterprises and organisations, whose debt will equal 59 per cent of the GNP in 1987 and will climb to 65 per cent in 1988. Any serious attempt to rectify these imbalances would provoke widespread reactions as it would mean, among other things, curbing employment and social benefits that were generously increased when PASOK was first elected.

Understandably, the government has shied away from the task and announced recently that decisions about the insurance funds would be postponed for another six months.

PASOK will have to come to grips with its problems. For while it can ill afford to compound popular dissatisfaction, it cannot afford to see its much-resented austerity fail either.

* * * *

The Financial Post (Toronto, Canada)
April 24, 1989, Monday, WEEKLY EDITION
Greece’s socialist dream dying from neglect and abuse
by Andriana Ierodiaconou (Financial Times of London)

DATELINE: Athens, Greece

The political crisis in which Greece has been embroiled since last summer has a much grimmer content than the passing scandals occupying the headlines.

These scandals – dealings between the government and former banker and press baron George Koskotas, Greece’s sale of arms to Iran, Iraq or South Africa, and Prime Minister Andreas Papandreou’s widely publicized extra-marital affair with a much younger woman – are serious enough.

But the Greeks have been experiencing a crisis more serious still – the death of a dream.

In 1981, 48% of Greeks rallied around the Panhellenic Socialist Movement’s slogan allaghi – change. They voted for what they took to be a commitment on the Socialists’ part to manage Greece’s successful economic, social and political entry into the developed European mainstream.

Long before the scandals started, however, it began to appear that something was going badly wrong. Nepotism, Orwellian control over the state radio and television monopoly, and a lack of planning continued to permeate Greek life.

Administration and public services, including health and education, remained substandard or deteriorated.

Even more ominously, it soon became apparent that the Socialists operated under the absolute rule of one man – Papandreou – who expelled dissenting colleagues from both party and cabinet.

Far from putting Greece’s economic house in order, by the end of their first term in office the government had so depleted all coffers that the country was threatened with a foreign lending freeze.

With disaster looming, the Socialists devalued the drachma, imposed a two-year wage freeze, and turned to the EC for a balance of payments support loan – not before, however, having won, with 46% of the vote, a second election in June, 1985.


During the campaign not a word was spoken about Greece’s economic problems, much less about the imminent austerity program. (That program was eased, prematurely, in 1987, resulting in a public-sector deficit growing at emergency rates and rising inflation.)

In March, 1985, the Socialists withdrew their support for President Constantine Karamanlis’s candidacy at the last minute, electing a Socialist as head of state in a parliamentary vote that unashamedly bent procedural rules.

In the June national elections, the Socialists were rewarded with Communist Party votes for overthrowing the personification of the old Right.

These votes secured the party’s victory. The Communists then backed a Socialist-proposed reform of the 1975 constitution that rendered the role of the president cosmetic.

The exact details of George Koskotas’s rise to fortune during that period are still being painstakingly unraveled by a judicial investigation launched last October when the government finally allowed charges of embezzlement and illegal foreign currency transactions to be filed against him. Koskotas, in custody in the U.S. where he escaped with his family in November, has been broadcasting his own version of the story. He claims he supplied the Socialists with press backing plus millions of dollars for personal and party use in exchange for a free hand in his business dealings.

Koskotas’s allegations are backed by a substantial body of circumstantial evidence, but direct proof is mostly still lacking. Papandreou has denounced these allegations as ”miserable lies,” and brought a libel suit against Time magazine, in which the allegations were first published.

He has offered his own, no less extraordinary, scenario: that the Koskotas scandal is a plot to bring the Socialists down fomented by the U.S. Central Intelligence Agency in collusion with the Greek Right.


Papandreou’s conspiracy theory has been rejected by opposition parties on both the left and the right.

The opposition argues that even the small part of the Koskotas story that has been established beyond all denial should have long since prompted the government’s resignation.

When a publishers’ lobby in the summer of 1988 stepped up pressure for an investigation into Koskotas’s affairs, the government introduced a special law on banking confidentiality that purported to help, but in reality hampered, Bank of Greece auditors.

In the two months before charges were filed against Koskotas, a range of public-sector enterprises hastened to prop up the Bank of Crete with some 20 billion drachmas in deposits.

Koskotas, while supposedly under the strictest surveillance, got away.

At least six ministers have been sacked or have resigned in protest over the affair and nine Socialist officials, including the directors of three state corporations, have been jailed.

The director of Olympic Airways has avoided custody but has been barred from leaving the country.

Those held also include three former managers of the state-run Hellenic Arms Industry. Bank of Greece investigators have reportedly established a link between the Bank of Crete and illegal arms exports.

The key figure among the deposed ministers is Agamemnon Koutsogiorgas. As Justice minister, Koutsogiorgas masterminded the controversial 1988 banking confidentiality law. Koskotas has alleged that Koutsogiorgas received US$2 million paid into a Swiss bank for his trouble.

These allegations have been corroborated by Yianis Mantzouranis, a former secretary to the Socialist cabinet who is among those in custody. Papandreou says an investigation is in progress.

The biggest casualty by far, however, has been the historic opportunity to reorganize and modernize Greece. Instead of a restructuring effort, the past eight years look more like a vast exercise in mismanagement and corruption.

And the electoral system recently approved by parliament leaves some doubt as to whether the Conservatives, who lead the polls, will secure an absolute majority of seats in next June’s general elections. Alternatively, as some fear and others hope, the result may introduce an era of coalitions as in Italy.



1 Comment »

  1. We are afraid of the capitalist crisis, with euro or drachma either.
    The era, that the articles above describe, was an era of “ambudance”, compared to the recent situation, in Greece.

    Comment by Ger-asimos — March 3, 2015 @ 5:01 pm

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