This is Horrible, but it’s No Coup: Why the Greek Deal is Democratic
by Benjamin Studebaker
Greek Prime Minister Alexis Tsipras has betrayed the people of Greece by agreeing to the troika’s austerity demands. The deal is terrible and will unnecessarily inflict additional mass suffering on Greece’s unemployed (25%), youth unemployed (50%), and children living in poverty (40%). Many well-intentioned people have participated in the hashtag #ThisisaCoup, accusing the EU of overriding democracy. While I share the frustration and anger, it’s very important that we understand that this is precisely the way European voters insisted that policymakers design the European Union to work. It is the voters of Europe who have inflicted this travesty of justice upon the continent.
I would like to start by pointing out that no one coerced Tsipras–he agreed to the austerity package freely. Many people advised Tsipras to reject the demands, dump the euro, and reintroduce the drachma. Others advised the troika to forgive the debt. I said so. Krugman said so. Stiglitz said so. Piketty said so. The people who wanted Greece to stay in were primarily concerned with keeping Spain, Italy, and Portugal in. Those who supported austerity did not even attempt to argue that austerity was in Greece’s interests–they instead claimed that Greece was morally unworthy of help or that it would set a bad precedent for other European countries. It is not Tsipras’ job to worry about those things. Tsipras is the prime minister of Greece. It is his job to do what is in the long-term interest of the Greek people. He should have demanded debt forgiveness, and when the troika failed to give him that and closed down the banks, he should have left the euro.
Instead, we learned that Tsipras never believed in his own party’s platform. He appears to think that even a bad deal is better than a euro exit. As I and others have argued, there is no basis for his view. It’s a dogma. Tspiras has never studied social science in college–by training, he’s an engineer. He clearly lacked economic competency and this made him vulnerable to bad arguments and outside pressure. It’s for this reason that Yanis Varoufakis, the finance minister who was genuinely willing to stand up to the troika, was pushed out. Unless it comes out that Germany threatened Greece with military action, there is no excusing Tsipras’ cowardice and incompetence. In short:
But if Tsipras’ terrible, horrible, no good, very bad deal is to take effect, the Greek parliament has to approve the austerity Tsipras agreed to. Parliament could say no, and it should. If parliament agrees and the deal goes through, the plan will have been approved by legislators directly elected by the Greek people. Those legislators are informed by the public referendum, but they are not constitutionally bound by it. This is not a coup, this is representative democracy. Incompetent leaders agree to bad plans, and incompetent parliaments approve them. Sometimes they approve them even when they’re both terrible and unpopular. This doesn’t make the approval process undemocratic. Democratic procedures can and do regularly produce bad outcomes that harm millions of people. When a policy is freely agreed to by an elected prime minister and freely enacted by an elected parliament, democracy is to blame. Nothing stops Tsipras or parliament from saying “no” and dumping the euro aside from their cowardice and incompetence.
But this goes deeper than Greece. This situation only became possible in the first place because of the decisions of European voters. If the EU had a federal government like the United States, there would be no negotiation between Germany and Greece. The federal government would make monetary and fiscal government for the good of Europe as a whole, not for any individual part of it. In the US, when one state runs into economic trouble, there are an array of federal programs that automatically transfer money to that region without controversy. During the savings and loans crisis in 1986-1987, Texas got around $75 billion from the federal government (around $160 billion in today’s money). This was around 25% of Texas’ GDP. This was a straight transfer–Texas was not required to repay this money. Texas didn’t have to negotiate with New York or California. It did not even need to negotiate with the feds. No one argued that Texas did not deserve help or that helping Texas would set a bad precedent. The federal government recognized the savings and loans crisis as a national issue, even though it disproportionately affected Texas. The feds understood that federal economic numbers would be stronger with the transfer than without it. They don’t care which states prosper and which flounder, they do what is in the best interest of the country as a whole. They recognized that the way to prevent future states getting into the kind of trouble Texas found itself in was not to punish Texas or make an example of it, but to regulate and legislate at the federal level to make the economic system more stable. If the feds had abandoned Texas to punish it, Texas would have had a fiscal crisis and its economy would have collapsed, spreading like a contagion throughout the union. Sound familiar? It should.
Europe has no such federal system. Why? Because European voters oppose it. European voters want to preserve their national sovereignty. They are unwilling to sign up to a true federal union that will show equal concern for the interests of European citizens regardless of whether they live in Germany or Greece. Affluent Europeans living in the wealthier countries don’t want to subsidize poorer Europeans living in the poorer countries. They are uncomfortable with the reality that a true European Union requires a federal government that can transfer money throughout the union at will. Even in ordinary circumstances, some US states get far more federal money than others to ensure that the US economy functions well as a whole:
At the same time, many European voters have recognized that in the long-term a union is necessary for an array of reasons:
- Peace–to ensure that European states don’t go to war again, it is necessary to make them part of a political union.
- Economics–to maximize the economic output of Europe, it is necessary for Europeans to move through Europe freely and trade with each other.
- Security–in a world dominated by large states like the US, China, Russia, and India, European states need to band together if they want to maintain any level of global influence and avoid relying on one of these larger states for security.
So they created the EU. The EU is not a federal state, it’s a bastard state. Because it has no federal government, the most powerful European states dictate policy, which means that the weaker and poorer states always get a raw deal. Since the introduction of the euro, the benefits of European growth have gone disproportionately to the wealthiest European states. Look at per capita GDP:
Germany’s per capita GDP was 16% higher in 2013 than it was in 2000. Italy, Spain, Greece, and Portugal have seen their figures stagnate or shrink. This is not an accident, this is what happens when you have no federal government to redistribute money from rich states to poor states. Germans complain that they shouldn’t have to fund welfare programs in Greece. What do they think American federal tax dollars do? They don’t just buy tanks and missiles, you know:
European voters are wishy washy. They want the benefits of political union without the costs. If you live in a rich European country like Germany, you must understand that you cannot have political union for free. If you want free access to the markets of Greece, Portugal, Italy, and Spain with no tariffs or trade restrictions, you have to pay for welfare spending in those countries when the people who live there can’t find jobs because your country has taken all of them. You have to have a common monetary policy that promotes the good of Europe as a whole, and you have to give up the right to veto European economic policies when they don’t suit you. You have to see jobless Greeks the same way you would see jobless Germans. It’s the European unemployment rate, the European inflation rate, the European growth rates that matter, not the German rates.
If you don’t do this, you get horrific crises that inevitably damage all of Europe, not just the poor states. No one talks about this, but even the rich countries grew faster before the euro:
Sooner or later, the level of suffering imposed will be too high and people living in the poor European states will wake up to the reality that as constructed, the European Union is economic colonialism and they’re the subject countries. Maybe it won’t happen today, maybe not tomorrow, maybe not for another 10 years or 200. But eventually, the European project will fail if sovereignty is not surrendered and a federal state is not imposed. Fearful of their own voters, European leaders continue to offer Europeans false hope that they can retain national sovereignty and have a successful union. It has always been nonsense. Europeans must choose. It is the European voters themselves who are the principal obstacle to union–it is democracy that holds Europe’s poor and working people hostage. The ordinary people of Europe have the most to gain from federalism and they are the ones least likely to support it. If they are not going to back federalism, the European project is living on borrowed time.
If you’re an EU voter and you think this is any way undemocratic, look in the mirror. Because to put it very simply:
You and your fellow voters could support federalism or you could support abandoning the European project altogether. Instead, you have supported an inconsistent, unstable bastard government. This is what happens when you do that. You get economic crisis and you get a political system that is completely inscrutable and accountable to no one. Learn from this and vote differently. Stop perpetuating the austerity, stop perpetuating the broken system, stop listening to the people who tell you there’s no other choice. There are two other choices. Federalism or exit. Pick one.
“There are two other choices. Federalism or exit. Pick one.”
I am a truly european federalist, but I need to face the truth. A federal state like USA is probably never gonna become real in UE, at least in medium term (let’s say 25 years).
28 different countries with 24 different languages. The most used common one, english, comes from a country which is gonna vote for the Brexit in 2 years. Only 18 of those 28 have a common currency. Despite ~20 years of harmonisation trades, most of social system like school, social security etc. are still different. In my personal experience, the only system which worked fine in last 30 years is Schengen area agreement. Not much more than that.
So, facing the truth that federalism is a unlikely prospect in the next generation, should we just give up in staying togherer? It will just be a long way.
At this point, a federal system would have to be implemented non-democratically. Voter opposition is too strong. Even though the arguments clearly favor federalism, most voters fail to recognize these arguments.
Assuming non-democratic solutions are off the table, I think it might be possible to keep together a rump EU of countries at similar levels of development, where exploitation is less pervasive and there are still significant benefits (e.g. Germany, France, UK, Netherlands, Belgium, Luxembourg, Austria, Denmark, Sweden). But the countries on the periphery that have experienced stagnant or shrinking per capita GDP growth need to get out.
In the short term, Greece definitely needs to get off the euro, and it would be good if Portugal, Spain, and maybe Italy followed. There are a lot of other European countries that are not good fits long-term, but given that there is no immediate crisis in these countries they may hang around until something horrible happens to them.
You could make the argument that a euro exit might be sufficient and that some of these countries could stay in the EU in some lesser capacity as non-euro states. If you do that, you retain the possibility of more easily integrating them into a federation in the long term. But this would only make sense if the terms of continued membership are favorable, and I doubt that the affluent countries would offer favorable terms.
Yes, it is obvious now that such an economic union is unsustainable without the unified economic thinking of a federal government. But does that extend to a political union on other matters without the economic union? (if such a thing makes sense) Is the EU sustainable in a form that doesn’t seek to meddle directly in currency or economics? If such a form exists, could it even involve something as basic free movement of people/trade?
Essentially: Is this truly a fundamental problem with the EU? Or is it a more specific problem of the Euro? Either way, it is certainly true that the single currency exacerbates the situation. I have said this so often it is starting to bore even me, but thank god for Gordon Brown and his five economic tests.
This is a fundamental problem with the EU, though it would be easier to manage in a weaker union. Without federalism, any time a situation arises in which there is a clash of interests between the powerful EU states and the weaker or poorer ones, the powerful states are going to prevail. A weaker union could address this if it only covered policy areas where all the EU member states have the same interests or where the differences in interests are not due to differences in wealth or power. The problem is that the most important policy areas (economics, security) do involve these conflicts.
More specifically, the euro creates a mechanism by which the affluent states can impose their will on the weaker states. If you get rid of it the exploitative mechanisms are weaker, but they’re still there. Take free trade for instance–if you have free trade between Germany (which has a policy of suppressing its wages) and Spain, that free trade forces Spain to devalue its currency or mimic German wage policy. The euro eliminates devaluation and forces mimicry, but devaluation has costs too. In this scenario Spain is still being exploited and coerced by Germany, just less severely. Spain might find that it would be better off limiting trade with Germany.
I could imagine a very loose union with free movement and free trade limited to cases in which it’s mutually beneficial. But do I think the affluent states would agree to that kind of union? No. The affluent states want markets for their goods and they don’t want those markets to be able to compete back. Germany’s growth depends on weak competitiveness in the periphery.
Brilliant piece, Benjamin. Convincing on every level except the headline.
I’m not quite persuaded the unelected troika dominated by modern-day German wolves in bankers’ clothing can be blamed on European voters. After all, they were not given much choice other than a “yes’ or “no” vote on the EU. Herr Schäuble is every bit as intolerant of dissent as you-know-who. Angela Merkel is merely his Paul von Hindenburg. No majority of European voters has elected him to his office.
European voters could have gotten behind federalism–if they had done so, parties and politicians would have emerged to advocate for that position. The proposals put before the population reflect what the politicians have reasons to believe the population is willing to potentially accept.
Europe is not the states and federalism is not going to happen. Simplistically, Europeans and others moved to the US for a new life and to build a new country. The European project was about bringing states together to create a stable Europe and promote the free movement of capital and labour. The Eurozone was always a flawed project and for the 19 Euro states there has been a lack of consistent fiscal rigour. Greece should not have joined but leaving is a complex, difficult and lengthy process. The Greeks want to stay in the Eurozone, even at extraordinary cost. That is democracy.
The argument for transfers is very valid but the public mood in the stronger economies is very much against this. There is a failure to understand the Euro exchange rate with other countries is advantageous to Germany and other Euro exporting countries. Just as inequality has grown in developed countries with wealth transfers from the poor to the already wealthy this is also a feature of the Eurozone. The stronger economies benefit from an advantageous exchange rate because the Euro area contains weaker economies. A corrective mechanism needs to be found to provide a balance.
These positive transfers to richer members need to balanced by social transfers to poorer countries. Norway, Switzerland and Denmark already struggle to keep their currencies competitive with Euro markets, but at least they have tools to deal with that having retained their own currencies. I am not optimistic that balancing transfers to poorer states are likely to be acknowledged any time soon. Wolfgang Schäuble is determined to oust Greece – pour encouragé les autres. I have written about this on my own blog and at
normally really like your work but i think this is far too simplistic i’m afraid. For me there are two major flaws in your argument. Obviously returning to the Drachma seems like the best solution in greeces current predicament, but the transition is likely to cause all sorts of problems and leave greece in an awful situation. Yanis talks about this in this article, and it is the complete uncertainty of someone who I would argue knows more than you about the situation which has ultimately led to Tsipras taking the deal.
However there were clearly other options, and it is very disappointing that Tsipras didn’t place more faith in Yanis and his ideas to force a better deal (briefly outlined here if people are interested)
The other big problem with this article in my opinion is the idea that voters have some control over whether we have a federal europe or not. Now I’m slightly speculating here because I haven’t researched this properly, but I’m pretty sure it has never been an option, even if the majority of the public wanted it to be. For example in the UK we had no realistic choice of joining the euro as both major political parties were against it. Similarly I can’t see any political party in most european countries giving this option and I don’t think it is necessarily to do with appeasing voters. You seem to forget how corrupt and self serving most politicians are! The eurozone has massively helped some countries and some businesses and these businesses will no doubt be colluding with certain governments to dictate the terms. Lies will then be spread through the media to delude the masses and the idea of a federal union which actually helps the people will never even be discussed. As far as i know, no european political party has ever put it forward as an option people could vote for.
There’s no doubt that a move to the drachma would be destabilizing and that Greece would need to bring in outside experts to help manage it. If possible, it would have been better to get the debt relieved through negotiation, but once that proved impossible Greece needed to be prepared to follow through on Grexit–at minimum, the initial stages. Yanis agreed with me that when the Eurogroup shut the banks down, Greece should have begun taking steps to transition out of the euro. He wanted to do it slowly to give the Eurogroup time to potentially rescind its demands. Said Yanis:
“YV: My view was, we should be very careful not to activate it. I didn’t want this to become a self-fulfilling prophecy. I didn’t want this to be like Nietzsche’s famous dictum that if you stare into the abyss long enough, the abyss will stare back at you. But I also believed that at the moment the Eurogroup shut our banks down, we should energise this process.
HL: Right. So there were two options as far as I can see – an immediate Grexit, or printing IOUs and taking bank control of the Bank of Greece [potentially but not necessarily precipitating a Grexit]?
YV: Sure, sure. I never believed we should go straight to a new currency. My view was – and I put this to the government – that if they dared shut our banks down, which I considered to be an aggressive move of incredible potency, we should respond aggressively but without crossing the point of no return.
We should issue our own IOUs, or even at least announce that we’re going to issue our own euro-denominated liquidity; we should haircut the Greek 2012 bonds that the ECB held, or announce we were going to do it; and we should take control of the Bank of Greece. This was the triptych, the three things, which I thought we should respond with if the ECB shut down our banks.
…I was warning the Cabinet this was going to happen [the ECB shut our banks] for a month, in order to drag us into a humiliating agreement. When it happened – and many of my colleagues couldn’t believe it happened – my recommendation for responding “energetically”, let’s say, was voted down.”
Do you believe that there has ever been a majority in Europe that would support federalism? There never has been. Why would parties advocate for policies that are immensely unpopular, much less propose them to voters? It’s political suicide. Parties want popular support–if parties had any reason to believe they could succeed politically by backing federalism, they would have jumped all over it. There are many Euroskeptic parties because there are many Euroskeptic voters. There are no credible federalist parties because there are very few federalist voters.
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