Interview with Costas Lapavitsas: Strategies for the renaissance of the left in Europe

Note from LeftEast Editors: The following interview with Costas Lapavitsas, conducted by Darko Vujica was originally published by on June 10th 2017. 

D.V: The standard neo-liberal narrative describes the Greek crisis as a repercussion of the overspending of the indolent Greeks, and this served as an excuse for imposing austerity measures. Could you explain in more detail what actually happened?

C.L: There is no content to the view that the crisis was because of the indolence or the spendthrift nature of the Greeks. The crisis was generally in the Eurozone and Greece was the worst case. This crisis has emerged in my view because Greece has been unable successfully to operate in the Eurozone and has been unable to do that because of fundamentally German domestic policies. The real problem of the Eurozone is not Greece, Spain and Portugal, but Germany and its domestic policies. Of course Greece had many economic problems, as well as many social problems, but the reason for the crisis was not fiscal management and it was not laziness. It was actually German policies of keeping German wages down and consequently causing Greece to lose competitiveness – therefore causing Greece to have a huge balance of payments deficit and thus creating a gigantic crisis in 2010. The problem is fundamentally a Eurozone problem – German domestic policies problem – with Greece being the worst case that we have seen in the Eurozone as a result. The solution that was applied to Greece, the bail-outs and austerity, and the neoliberal restructuring has made things worse and has firmly put Greece in the periphery without any significant growth prospects.

D.V: You claim that the problems of Europe are not countries like Greece, Portugal, Spain, and so on, but Germany. Why?

C.L: In a monetary union there must be some rules and practices followed by every state in order to allow the monetary union to survive. Germany has systematically broken the rules, particularly the rules that have to do with inflation which is connected to wage remuneration. Germany has kept its inflation very low, it has paid its workers very little, and it has systematically been below the ECB target for inflation. A rule is a rule. It cannot be a bad thing when you are above target but a good thing when you are below target. Being below target is also breaking the rules and Germany has been breaking the rules systematically. The result has been a huge trade surplus for Germany which gained competitiveness this way. The current account surplus for Germany today is 8% of GDP. Again, this is breaking the rules but again there is no penalty. So the systematic problem in the Eurozone has been Germany and its domestic policies. The German industrial sector has gained competitiveness and it is exporting across the world and now dominates Europe. The Eurozone has become a domestic economy for Germany, which now controls essentially political and other developments in Europe. That’s where the problem comes from and that’s the reality of Europe at the moment.

D.V: According to you, the EU is a community aimed at defending the interests of larger countries at the expense of the smaller ones, and that the return to the sovereignty of the small and peripheral countries is a key part of the strategy for the European left. Could you expatiate on that argument?

C.L: I think it is very important to understand what has emerged in Europe and through the EU in reality, rather than in ideological terms about the marvelous solidarity and partnership of European nations and so on. All these ideas about convergence, common prosperity, and democratic decision making are clearly at odds with the reality. What has emerged in the EU is a structure of core and periphery; not convergence, not homogeneity, not unity, but core and periphery. Capitalism in Europe has once again created a core and periphery. And in fact there is more than one periphery. There is the periphery of the Mediterranean countries (Spain, Greece, Portugal), then there is the periphery of countries that are very closely related to Germany and are basically offshoots of the German productive machine (Czech Republic, Slovenia, Slovakia, etc.), and then there are other countries which are a kind of a far periphery; not in the Eurozone, not directly connected to Germany; the leftovers of the EU (Bulgaria, Romania, Croatia, etc). This situation has emerged in the EU, which is now dominated by Germany. And Germany, not as a nation, as one totality, but as a capitalist industrial complex that exports massively and therefore creates conditions for the country to be the biggest lender. This has happened on the back of wage restraint, wage suppression, that is, on the back of German workers and German working people generally. In this situation, the left of Europe must break with all the old myths about community of purpose, Europe as one thing and so on, appreciate the reality and make clear proposals of what needs to be done. These proposals in my judgment involve recapturing sovereignty – popular sovereignty in the first instance, and also national sovereignty, but not in the way, of course, of the extreme right. We need to recapture sovereignty and use it as the foundation for internationalism in Europe, but proper worker’s internationalism, not the internationalism of big business and big capital.

D.V: Many people are comparing the situation in Greece over the last couple of years to the situation in Argentina between 1998 and 2002. Some of them argue that Greece should have declared bankruptcy like Argentina did then. What do you think of this argument?

C.L: There are similarities and differences. The similarities have to do with the balance of payments problem, the inability to compete and the austerity program applied to the country. The difference is that Argentina had a monetary regime that basically allowed it to have its own money, peso, but it fixed the conversion rate with the dollar at an obligatory rate; Greece belonged to a rigid monetary union. Now when it became difficult for Argentina to maintain this fixed rate, because it was developing deficits, and an austerity programme was applied, the difference with Greece became important. As the pressures of austerity became greater and greater, the Argentine people began to withdraw their money from banks, and that forced a financial crisis because, obviously, the Central Bank of Argentina could not keep providing the Argentine banks with liquidity. At some point the banks closed the doors and then the crisis broke out. Argentina was obliged to stop paying its debts and eventually it broke the fixed exchange rate with the dollar.

Greece was not in this position because, as the situation worsened, the European Central bank kept providing liquidity to Greek banks and the banks never had to shut down; they kept going despite the economy becoming worse and worse. People were withdrawing money from the banks, but the banks were getting funding from the European Central Bank so they could keep going. This mechanism allowed the Greek economy to keep going and therefore we didn’t have a break like in Argentina. But, at the same time, by preventing a break similar to Argentina, the mechanism protracted the crisis. It was like giving Greece a medicine that didn’t cure the problem but it allowed it to survive and made the problem last longer and longer.

Participation in the Eurozone made the big difference, and relying on the ECB. But you can also see the outcomes. Argentina had the break, went through the crisis and then recovered very strongly. What followed were 10 years of the fastest growth in the history of Argentina. It recouped all the loses and the economy grew. Argentina didn’t become paradise, of course, it’s a very unequal society – it is a ruthless capitalism – but it recovered. Greece didn’t, it never had the break, it never set its record straight, it never went down a different path – it just continued to go down and down. Is the Argentinean situation never to be repeated in Greece? I don’t know. It might happen in the future, as Greece stagnates. We shall see.

D.V: What about the strategies of international cooperation? How to organize the resistance in the periphery?

C.L: We need more than just resistance. Resistance is just the talk that we’ve had in the ‘90s and ‘00s – against neo-liberalism, international capitalism, and so on. Resistance is not enough. It makes the Left appear as a force that defends things, and is inward looking.

We need positive proposals. We need to be active, we need to be imaginative, and we need to give the people fresh hope for the future. As the Left in Europe we need to find common strategies, but also strategies that are applied differently in the periphery and the core.

The periphery needs strategies for development, growth, employment and rising incomes. Take a place like Croatia which has been in stagnation for a long time and the youth emigrates. Take a place like Serbia which is also in an even worse stagnation for a long time, and again youth emigrates when they can. We need policies for job creation, economic growth and rising incomes. This means public investment, restructuring the economy in favour of productive activities. It means rethinking education and its connection to the economy, a profound programme of rebalancing the economy with greater equality, greater productivity, in which the public sector must play the leading role and the private sector must find a new balance with the public sector. That’s what we need to propose and none of this is possible without conflict with the EU; certainly, none of this is possible within the EMU.

What this approach means for international transactions in Europe is that, at the very least, we need to control banking, the international flows of capital, and foreign exchange flows. In short, we need to arrange economic relations between the periphery and the core in ways that go against the market. We don’t want to recapture economic sovereignty in order to have free foreign exchange determination, free flows of capital, and untrammeled trade among nations. This is not workers’ internationalism. We want workers’ internationalism that would control these relations in the interest of the working people.

D.V: You didn’t agree with Yanis Varoufakis and his idea of reforming and democratizing European Union?

C.L: I think this is a very bad idea and it is doing a lot of damage to the cause of the Left in Europe. This is exactly that SYRIZA tried in 2015: “We take electoral power in Greece and we intervene politically in Europe to create a movement for change; we can transform Europe because we’ve got the democratic mandate of the Greek people.” It was proven without question that this is an impossible path. The powers of the Eurozone and the EU are entrenched, materially established, and integrated with big business. They will not tolerate an attempt to reform and will destroy those who think they can intervene and reform the EU from within. It is a strategy that has been tried and failed. This is a lesson that the Left must learn. We need is a strategy that confronts these established powers by coming into direct conflict with the EU and proposing a different economic policy.

D.V: In the period of 2012-2015, SYRIZA was the role model for the strategy of the Left across Europe. Which elements from that strategy could be retained and applied to today’s political reality? Which elements must be altered and can anything new be introduced?

C.L: No elements must be retained. SYRIZA is a totally negative experience. The only thing that should be retained by the Left from SYRIZA is what not to do. Above all, the Left must not believe again that it can reform Europe from within, because it cannot. It is nonsense to believe that you can find clever arguments and persuade the powerful forces of Europe to back down. That is not how European capitalism works. SYRIZA shows that, if you truly want to change things,it is necessary to take command of domestic policy making, recapture popular and national sovereignty, and then use the levers of power to make changes in your own country and globally. Of course, Greece, Croatia and Serbia are small countries that would remain constrained by the international environment. There are limits to what you can be done by taking over the instruments of sovereignty. Still, you can do much more this way than by talking in vague terms about European solidarity and expecting to have a transnational movement that will somehow persuade the forces of the EU to agree to reform. That is not possible, it has been tried, it has failed and that is the lesson of SYRIZA.