The Washington PostDemocracy Dies in Darkness

Why one American economist believes Greeks ‘deserve better’ in their crisis

Supporters of 'No' wave flags and react after the first results of the referendum at Syntagma Square, in Athens, Greece, 05 July 2015. Greek voters in the referendum were asked whether the country should accept reform proposals made by its creditors. EPA/YANNIS KOLESIDIS
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The American economist James Galbraith arrived in Athens last Friday and headed straight to the finance ministry. He found government officials bracing for defeat.

In just two days, Greeks would decide in a national vote whether to accept an offer of help making their latest round of debt payments in exchange for tax hikes and other fiscal austerity measures. The finance minister, Galbraith's friend Yanis Varoufakis, was disappointed by what he saw as a weak campaign for a "no" vote and the apparent success of what the government saw as a round-the-clock campaign by Greek media to intimidate Greeks into voting "yes."

Galbraith was skeptical. "It did not seem to me likely that Greeks would cave," he said in an e-mail interview on Thursday.

By Saturday night, when he and Varoufakis dined at an outdoor taverna, his friend was sharing Galbraith's optimism. Sunday night, they celebrated a resounding victory. "It was astonishing," Galbraith said. "As we left Yanis's apartment on Sunday night for the ministry, I had to turn him around to look at the TV screen, which showed a map of Greece in a single solid color. Not a single constituency in the country voted 'Yes'."

Galbraith is a professor at the University of Texas. He and Varoufakis, who resigned under pressure as finance minister the day after the referendum vote, have co-written several pieces on Greece and Europe, decrying forced fiscal austerity measures and urging creditors to forgive Greek debt.

Galbraith urged a "no" vote on the referendum in an op-ed earlier this month, in which he called the president of France, the chancellor of Germany and the head of the International Monetary Fund "shallow, cloistered people, preoccupied with their local politics and unequipped, morally or intellectually, to cope with a continental problem."

Back from his trip, Galbraith discussed his time in Greece and what comes next for its ongoing crisis.

Tankersley: What would be the best, politically feasible endgame for Greece and Europe right now?

Galbraith: The best economic outcome would be a combination of debt relief, an outside investment program from the EIB, and long-term reforms of public administration and tax systems, all conducted under a general framework of fiscal neutrality. That is, there should be a very low primary surplus matched to a very low debt-servicing profile, so that Greece can grow and increase public investment as the private economy recovers.  This is broadly what the new Greek government was seeking at the beginning.

Unfortunately this outcome is outside the "Overton window" because the Greek government yielded to their creditors' demands, back in early May, for very stringent (and unachievable) primary surplus targets.  That in turn both undermines future growth and weakens the case for debt relief.

Meanwhile the creditors are demanding a type of "reform" that makes things worse, including deep pension cuts and regressive tax increases that will hurt the competitiveness of the Greek economy.  Raising VAT rates on the islands and on hotels, for instance, merely drives tourists to Turkey. They are doing this in the very shallow belief that they can get more debt repayment from higher tax rates, a point on which -- in the Greek case -- I invite members of the Republican Party to correct them.

The political situation in Greece seems locked-in, as the referendum destroyed the position of the last remaining major opposition party, New Democracy.  Outside efforts to promote "regime change" -- an ugly phrase to apply to democratic NATO ally and member of the EU -- were decisively rejected.  However the final position of the Greek government in the negotiations remains uncertain.  If they feel obliged to capitulate fully, [the governing party] SYRIZA might split, in which case there would be new elections in which, I believe, the anti-euro Left (or perhaps an anti-euro Right) would be greatly strengthened as the voice of resistance.

Tankersley: How will the results of the referendum - and more importantly, the negotiations/events with European leaders that have followed it - shape politics and economics in Europe moving forward? 

The referendum clearly energized the popular movements elsewhere, notably in Spain and Ireland (where there are emerging anti-austerity parties with the potential to repeat SYRIZA's victory), and in Italy and possibly France.  It also delivered a well-deserved jolt to the leaders of Europe, who had hoped for proof-of-concept that they can get policy and regime change through shameless scare campaigns. The whole population of Europe can now see them as the stuffed shirts and empty suits that they are.

Do you see any connections between the surging populism of Europe and the rise of populists such as Bernie Sanders in the United States?

I have not thought that through.  Senator Sanders did issue a strong statement in support of the democratic decision of the Greeks, and that was greatly appreciated in Greece.

What are your overall impressions of your stint in Greece just now - politically, economically, socially?

The Greek people have faced this ordeal with calm and courage, and with a great feeling of solidarity. It was wonderful to watch the support they gave all the way through to Yanis.  It was wonderful to be able to stand with them, by the tens of thousands, in Syntagma [central square in Athens] on Friday night.  They deserve better than the treatment they are getting, especially from the European Central Bank.