Welcome to HARDtalk, I'm Stephen Sackur. Greek voters may be about to
plunge the European Union into a full-fledged economic and political
crisis. Opinion polls suggest the leftist anti-austerity party Syriza
is likely to emerge as the biggest party in Greece's late January
election. If so, the next Athens government may reject the terms of
the bailout which is keeping the country afloat. Then what? My guest
today is Costas Lapavitsas, a London based Greek economist who has been
advising Syriza's leaders. Could Greece be on its way out of the
Euro? Costas Lapavitsas, welcome to hard
-- HARDtalk. Now Greece faces an election. What is at stake in this
election, do you believe? I think this is the most important election
since 1974. It will set the terms of the country's growth and the
performance of its society and economy for a very long time. Much
is at stake and much is at stake for Europe as well. You, it seems, wants
Greece to tear up the deals it has done in the recent past. You want it
to abandon the corset has adopted, and in a very real sense, go it
alone, expose itself in a new way. Is that sensible? I think Syriza was
a very sensible organisation right now. I think the programme it has
put forth is much more sensible than the troika and posed on Greece. --
imposed on Greece. What Syriza wants to do makes much more economic sense
than what the troika wants to do. Greece knows the conditions under
which it operates. They may not be pleasant and we will talk about
that, but Greece knows the reality of what it is to be involved in a
bailout deal with the so-called troika. What you and Syriza, the
party, are suggesting to Greeks is it is better to gamble, to go into
the unknown, to abandon the course that has been followed so far and do
something radical and different. I would put it to you that the worst
time to gamble is when you are in a very weak and vulnerable position,
as Greece is today will stop I do not think Reese is gambling at the
moment. Greece cannot take it any longer. -- Greece is not gambling at
the moment. The population has swung behind it because the existing
programme has failed. People know it has failed. Nothing basically works.
Greece has been destroyed economically. Any society has been
dismantled. The Greeks are putting their hopes in Syriza. Let's get
down to the detail of what Syriza is. You have been advising Syriza's
leadership on economic matters. You are not the only adviser, they have
a whole range of them, and that is part of the problem. Apart from
Alexis Tsipras who sits at the top of the party, it is difficult to see
if there is any coherent ideology. Is it a coherent organisation? It
has a coherent economic committee and there is a clear programme.
Committees are not always the best way to establish the best direction.
But you need the committee to work out the programme. He has a bunch of
economists who often discuss things. Who often disagree. You have made it
plain that you believe one of the most fundamental mistakes Greece has
made is staying in the euro zone. You want out. There are other key
advisers who say absolutely not. What is the policy? I have
personally argued this but this is not the line of Syriza. Syriza has
two links to its strategy. The first is Greece needs debt relief. It
needs a debt write-off. Syriza argues this very powerfully. It
needs a substantial reduction in its debt. Secondly, Greece needs a
different fiscal policy. The policy of austerity makes absolutely no
sense at all. Syriza wants to stop going for primary budget surpluses
which are killing the economy and go for a primary budget expansion. Both
of these things are sensible. They are mild Keynesianism. The most
obvious point to make about a debt write-off is it takes two to tango
for a debt write-off. You seem to be assuming, you and others, that the
European Central Bank, the IMF, the European Union member states are all
going to be happy to engage in a new debt write-off with a post election
Greek government. What makes no -- what on earth makes you think that?
I do not think the partners will be happy. However, the IMF itself has
clearly argued that Greece needs a write-off and the IMF is part of the
troika. So Syriza basically is stating the obvious in this regard.
You may quote to me the IMF, I can quote the German Finance Minister
his is quite clearly, Greece must stick by all the promises and
commitments it has made. So my own view and the expectation of Syriza
believes pretty much, there will be conflict. There will be serious
negotiation and there will be negotiation which is quite tense. No
one likes to lose money. Much of the Greek debt is held by official
lenders and it will be difficult to accept losses. What kind of
write-off are you talking about? One of your colleagues says Greece must
insist on a 50% write-off of debt. Is that what you are seriously
suggesting is going to happen? Is Greece is to reach Maastricht levels
of debt, it needs two thirds of its debt right enough. Two thirds, you
would go further? This is fantasy, this will not be agreed. I believe
this is very difficult to go to. But Greece definitely needs a very
substantial write-off. My own calculations show that we are
talking tens of billions, even hundreds of billions. How do you
think the Irish or the Portuguese or other Europeans who have stuck by
their debt commitments, the promises they have made, and had to live with
that posterity, how would they feel if they suddenly got a two thirds
write-off? They would think they would like part of that themselves,
which is why Syriza officially calls for a debt conference in Europe, but
conference of all borrowers and lenders to sort all the problems
out. If you give debt write-off for one person, you create a knock-on
effect for the others and an example for the others. The current Prime
Minister, Antonis Samaras, he says Greece is facing bankruptcy. Are you
prepared to take this all the way to Greece is facing bankruptcy. Are you
default? If you cannot get an agreement on write-down of debt, are
you send to the ECB, the IMF, you know what, we will just walk away
from this debt, we will default? The official
from this debt, we will default? The Syriza will take no unilateral
action. Default is unilateral action, you are refusing to pay.
Sorry to interrupt, but this is so interesting, I cannot help it. What
you're saying this Syriza has given away its key card. It is saying this
is a game of bluff because when push comes to shove, Syriza will not walk
away. All of the cards are in the hands of the Germans, the ECB. They
know that Syriza in the end will blink. Now we are coming to the
really difficult issues here and I can only give you my own personal
view, not Syriza on this one. Syriza declares openly that there will be
no unilateral action. In my view, much of this will depend on what the
Greek people are prepared to take and what the opposition by the
lenders is going to be like. If the lenders are hard and they are likely
to be hard and they refuse a write-off, then there will be
confrontation and we will see what the Greeks want to do on this issue.
We will come back to Greece's relationship with the eurozone
We will come back to Greece's moment, but let's go to
We will come back to Greece's strand of what you were talking
We will come back to Greece's about. You said partly this is
We will come back to Greece's debt relief and partly a different
approach to fiscal policies and debt relief and partly a different
budgets. Syriza's policies are extraordinary. They talk about
restoring the minimum wage, billions on anti-poverty measures,
more billions on a stimulus package,
more billions on a stimulus are not aware that the national debt
is 175%. Even if you get some sort are not aware that the national debt
of a write-down, the sort of spending measures and indeed tax
cuts that Syriza is talking about, seem completely absurd in the
current Greek context. I beg to differ, they are very sensible. What
current Greek context. I beg to is absurd as the policy the troika
is imposing on Greece at is absurd as the policy the troika
Greece has had a 25% contraction of GDP.
Greece has had a 25% contraction of permafrost, it is not going
anywhere. With respect, it is growing 0.8%. Investment is coming
into Greece now and there are some ways in which one can be optimistic
about growth in Greece moving forward. The credibility of these
assessments is very low, to put it politely. I have read in full detail
what the IMF expects and it does not persuade anyone seriously that
Greece will chalk up growth over the next five years. What can happen
under the current circumstances is that Greece will chug along. Why?
Because we have an economy in permafrost and the troika is
demanding huge surpluses, primary surpluses. This is absurd. A second
year undergraduate student in economics would tell you you do not
do that. Why is it being done? The surpluses will be used to pay off
the debt but the debt is unpayable, everyone knows that. It is nonsense,
it does not add up. But even you with your faith in Syriza's tax and
spend policies, Greece cannot get growth going without outside foreign
investment and that ain't going to happen if Syriza wins. We have seen
it has become a real prospect that Syriza might win, we have seen all
sorts of leaked memos and leaked communication is saying that they
are deeply worried about Syriza. To quote one investor at a London
meeting, where Syriza representatives were present, the
conclusion was that Alexis Tsipras's programme was worse than
communism and promised total chaos. Again, we move into uncharted waters
in some ways. Syriza proposes a mild Keynesianism. This is not radical,
it is not out of the world. This is balanced budget expenditure. One of
the key advisers is a Marxist, you are a leftist. You're not a mild
Keynesian. This is a mild Keynesian policy of abandoning austerities.
Now, you ask me, is this feasible, within the confines of the monetary
union. Address the point that it does not attract any confidence of
the sorts of outside investors, like a hedge fund manager who says he
would like to invest in Greece but he is not going to do it until there
is a sense of stability and certainty in Greek politics. You can
be done sure he does not mean a thumping Syriza victory. I can tell
you about Greece and its development. Greece has never
developed on the basis of foreign investment. There is no history no
tradition of large substantial foreign investment coming in
developing the country. Moreover, generally speaking, there is no
country which has developed through foreign investment alone. Foreign
investment is always come to mentoring. Greece needs to start its
own domestic engines of growth. If that happens, we can discuss what
will happen with foreign investments. I understand that point
but it is not just about investments, it is about lending and
Greece needing to servitude debts because you know tens of billions of
euros of debt will come up for renewal. The money markets are
astonishingly bad for Greece right now. I think 10% yields demanded at
the moment that will go higher probably if the polls suggest will
win the election. How would you explain how Greece borrows money in
the future, if you write off the ECB and the IMF and the money markets
across the world just don't like what you are saying?
This is going to be a difficult problem. I am not sure what
decisions have been taken by Syriza on this. About 80% of Greek debt is
in official hands. The part of Greek debt which is in private hands is
very small. Greece borrows fundamentally to keep its debt
going. It does not borrow to add -- to put money in investment projects
etc. If it gets a debt write-off, then its relationship to the
international markets will be put on a different footing. It is usually
very bad economics to manage your own domestic affairs. International
markets matter. But that must not be the principle on which you organise
your economy. That is a disaster. Let's get back to European politics.
This is another element in the extraordinarily complicated
situation Greece finds itself in. In 2010 and 2011 when the discussion
was taking place about the bailouts, it seemed clear that the key
eurozone states were desperate to keep grease inside the euro if
possible. Now it looks very different. We have seen comments in
Der Spiegel magazine were German officials have been quoted as saying
that a Greek exit from the eurozone would be manageable and almost
unavoidable if Syria wins this election. You personally may not
mind that. But Syriza is committed to staying inside the eurozone. How
can you square that? The time for Greece to get out was in 2010 and
2011. That was an historic opportunity which was missed. We are
where we are at the moment. Europe has become stronger in some ways. It
has erected basically firewalls. As a leading economist you would accept
that frankly the eurozone could now survive a Greek exit? I would not be
as insouciant about this as a lot of people appear to be. The bond
markets and the money markets are always prone to worry and concern.
Second, if there is a Greek default, if indeed the worst emerges, then
the European Central Bank would find itself in a peculiar position. The
European Central Bank has lent a lot of money to Greece. If Greece
defaults on that money, the balance of the ECB would not look very
healthy. You are saying that Greece still has some leveraged? Yes, some
leveraged. Not as big as in 2010 or 2011. In the end of the Greek
people, having looked at the possibility of an exit have decided
they do not like the idea. Whether they vote for Syriza or not, opinion
polls seem clear that 75% of Greeks believe that Greece should stay in
the eurozone pretty much at all costs. I know that very one myself.
I have argued for exits for a long time. I have had some flack come my
way. I know what you are saying is true. Syriza does not want to take
the country out of the European Union. If Syriza does not wanted and
the public mood is against it, you have less room for a manoeuvre then
you would personally like to believe? That is true. I think this
is one of the biggest problems that Syriza is likely to face. But that
is my own view. I do not make policy. Greeks seem to think that
they have had enough of what there is. Syria's will not take them out
of the European monetary union and they will try something else. --
Syriza. Despite your friendship and your advice to the Syria's leaders,
you believe they will cave in after winning an election, if they win it,
and they will ultimately bow to the demands, continued demands, coming
from the ECB? I do not know if they will do that. They will face
enormous pressures. It is not going to be 80 party. People talk to you
very nicely when you meet them. They talk too differently when you are in
government. They will face enormous pressure. I do not know if they will
cave in. It is possible other options will prevail. It is very
fluid at the moment. Nobody knows what is likely to happen. Here is an
important thought for you and our viewers around the world. Your
consistent message has been that posterity kills any chance of these
struggling European economies finding a path back to growth. --
posterity. Surely recent history suggests you are plain wrong. Take
one example, Ireland. It has fulfilled all of the conditions. It
has been through deeply difficult times and it has taken on board
posterity and structural reform. It is now the fastest-growing economy
in Europe. It has got surpluses it never imagined. According to the
finance minister, the turnaround is a direct consequence of the
sacrifices made by the Irish people. It can work. No. Ireland has a ratio
of exports to GDP which is quite unique. It is over 100%. Because it
is very competitive. No it followed the policy of low tax. It has
attracted a lot of US and other multi-nationals who use our island
as a staging post. multi-nationals who use our island
is very unique in Europe. Good luck to the Irish. I am not complaining.
Why cant the Greeks become more Irish? By stick to tax and spend
when there is a model in Europe called Island which suggest you can
take on board the message coming called Island which suggest you can
from the troika, you can restrict your economy and you could be a
success? No. The troika policy was, we will apply posterity, exports
will grow, and as those exports grow you will go back to growth. It
worked after a fashion in Ireland. The reason why it worked is because
the proportion of exports to GDP in Ireland is like no other country in
Europe. The second reason why it worked to a certain extent in our
lives is because a lot of the Irish young left the country. -- in
Ireland. Its success has to be taken with a pinch of salt. You cannot
apply that elsewhere. Greek exports have been declining this year. What
Greece needs is a dose of aggregate demand. It needs to boost its
domestic demand. It needs to get the economy moving. Greece has got 1.3
million unemployed. A final thought, it goes back to what he said at the
beginning, this is a crucial election, may be the most important
since the dictatorship, you said. Isn't the danger that after this
election Greece will be more polarised than ever, there will be
no certainty about its future political direction and the forces
of extremism in Greece may well be on the rise? That will depend on
what Syriza does. It is, in a sense, the last hope for Greece. It is a
serious hope for Europe. Europe does not work. The monetary union in
Europe has failed. Growth is very weak. Syriza is a serious hope for
Greece. If it reneges on its programme or if it collapses, if
that happens, then yes, the future does not look too good in Greece.
But I am hopeful. I think that at least a good start can be made to
fixing the disaster that is the Greek economy at the moment.
We will know what the Greek people decide on January 25. Thank you for
being on HARDtalk.