Abstract
The U-turn of Syriza after the referendum in Greece in 2015 is among the biggest political flip-flops in history. On Sunday 5 July 2015, 61.3 per cent of Greek voters voted Oxi (no), rejecting the final version of the so-called Memorandum of Understanding (MoU) which the Troika, consisting of the ECB, the European Commission and the IMF, had presented to the Syriza government. Since Syriza had campaigned for Oxi in the referendum that it itself had called, the U-turn was more than remarkable. The volte face defied all belief: how could this have happened? When on Sunday 12 July it became apparent that the Troika was doubling down and Tsipras was going along with an even harsher MoU, the hashtag #ThisIsACoup trended on Twitter. It was at least a coup of sorts, or this is one reading of Roos’ book. Over the past decades a coup-like constellation has been institutionalised for debtor countries like Greece that ensures their repayment to private creditors. Roos conceptualises this institutionalised ‘coup’ as consisting of three interacting mechanisms.
The three mechanisms ensuring debtor compliance are ‘market’ discipline, conditionality of loans by quasi-public lenders of last resort (e.g. the IMF) and the bridging role of domestic elites. The countervailing mechanism is democracy, as most citizens prefer defaulting, if not doing so implies the gutting of wages, jobs, pensions, health care and education.
The book consists of three case studies: Mexico (1982–1989), Greece (2010–2015) and Argentina (1999–2005). The public finance of these countries was in dire straits. They could not roll over their debt, let alone pay it off. That begged the question the book title asks: Why not default? Why not indeed, as bank creditors do not vote and their legal means, in the absence of a world court, are limited. However, only Argentina defaulted.
The first mechanism, market discipline, is business as usual. Banks can limit credit to states, sending interest rates soaring. In order to restore ‘market confidence’, governments need to cut (social) spending and/or decrease worker protection. The alternative is not attractive: default leads to capital flight, a stock market crash and collapsing domestic banks. Roos points out that what is called ‘the market’ consists of a limited number of large banks. The concentration of bond markets enables creditor coordination. Creditors need that, as they face a balancing act of rationing credit without triggering outright default. In all three case studies, there came a breaking point. Liquidity problems became too large, the investment for private creditors too risky. Investors wanted out.
At this point the second mechanism kicks in. Quasi-public, transnational institutions like the IMF provide bridging loans to the debtor, who uses it to repay banks. The IMF then effectively acts as a debt collector on behalf of private creditors. In the Greek case, there was a large lender consortium, consisting of the IMF, EU countries, the European Commission and the ECB. Between 2010 and 2012 Greek debt in foreign private hands decreased from 80 per cent to 20 per cent.
The involvement of states and state-like institutions – the second mechanism – is crucial. These can pressure ‘debt-colonies’ in ways that banks cannot. The Greek MoU of 2015 prescribed for example that ‘no unilateral […] actions will be taken […] which would undermine the liquidity, solvency or future viability of the banks’ (p. 300). Sovereignty was subordinate to interests of banks. The Troika had already taken control over the Greek tax office. And the ECB kept the pressure on by excluding Greece from several monetary programmes (e.g. quantitative easing).
Roos argues that the Troika could not have strong-armed Greece without the aid of domestic elites, the third mechanism. Several Greek parliaments had to be swayed to accept the MoUs and the state apparatus had to internalise debtor discipline. Elites supported the Troika because a default jeopardised their own wealth, particularly Greek bonds and bank shares. The support was mutual: the bailouts earmarked money to recapitalise Greek banks. Debt repayment, according to Roos, is ‘the product of a complex tug-of-war within the debtor country’ (p. 42), with international financial institutions and domestic elites coming ‘together in an international coalition of sorts […] to discipline government and ensure full repayment’ (p. 43).
The only actor favouring default is the working class, that is, everybody dependent on wages, pensions and publicly provided health care and education. Roos notes that the poorest areas in Athens voted Oxi. Syriza pledged to be what social-democratic Pasok had turned out not to be: the political representation of labour. In July 2015 Tsipras, however, budged, stating that: ‘I had a choice between a deal I did not agree with or a disorderly default’ (p. 296). Democracy – understood as the 61.3 per cent voting Oxi – did not prevail. This outcome is not accidental as multilateral agencies try to ‘condition democracies to behave as nondemocracies’ (p. 37). The Greek Achilles heel was the dependence on the ECB for keeping domestic banks afloat. The ECB limited bank liquidity in the week before the referendum. This ‘liquidity asphyxiation’ led to the imposition of a maximum of €60 that Greeks could withdraw from their bank account.
Although the euro provides powerful leverage to the ECB, it is not necessary. Mexico did not default either. Only Argentina had a ‘democratic default’, resulting from popular pressures. The convincing result of this important book is then that private banks form a powerful ‘creditors’ cartel’ which, however, needs cooperating domestic elites and their public arm in the form of the IMF and the ECB. This might be called a permanent coup or coup-like business as usual. This does not mean that Tsipras had no agency. Roos narrates but does not discuss at length the conflicts within Syriza. Both Minister of Finance Varoufakis and The Left Platform kept rejecting the MoU, which was consistent with the historical Syriza position. Ultimately, the ‘powerful right-wing faction’ within Syriza prevailed. Whether this was unavoidable given the pressure or whether a fourth mechanism (e.g. unaccountability within the oppositional party) should be added, remains somewhat unclear. What is clear, is that this well-written book is relevant, informative and pertinent.