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What should new Greek finance minister do next?

Euclid TsakalotosThe Greek people have led, so that their leaders can now follow.  They have backed (with a landslide vote for “No!”) their brave and principled, if inexperienced and diplomatically inept, new government.

Now they need to turn their attention to rebuilding their economy. The first step must be to begin creating a new (and hopefully temporary) monetary system that can be used to get money circulating, economic activity jump-started and employment created. There are precedents for doing this. Where possible government should help by using government resources (which could take the form of IOUs) to invest in jobs for Greek people (especially young people) and for ensuring firms, especially small family firms are revitalized and profitable. While it will be important to stabilize the banking system, this will only happen when the economy is stabilized, and recovery begins. It will not take long then for the banking system to return to health.

So the priority must be: recovery. And given that Greece has just endured possibly the worst depression in recorded history, it will be the case that most private sector firms and banks will be in a very weak position. That is why the Greek government will have to intervene and spend money (in whatever form it takes) on investment.

Such fiscal activism is more important to recovery than debt relief.  That is why, as Andrea Terzi argues, it is important for Greece’s new finance minister to demand from Eurozone technocrats (EZ leaders are politically impotent) the fiscal space that is a priority for recovery, not just debt relief.  Relief from debt payments – if it is ever negotiated – is a long-term process of lightening the burden of future debt repayments. But Greece cannot wait for that future. It needs action to revive the economy now – today.

And the magic is this: if a new currency (say IOUs as used for example, by bankrupt California in 2009) were to circulate quickly; if jobs are created by this new ‘money’, then economic activity will take off, wages, income and profits will be generated. Some of that income can then be used to pay taxes (and the Greek government must up its tax collection game!) – because income finances spending, investment and taxes. (Its not rocket science.)

As a result, the government’s debt burden will automatically decline – without any help from creditors – as a share of the economic cake (GDP). That will happen because the economic cake and the income it generates will expand, and income from the expansion (bigger cake) can then be used to repay debts. Above all, that income can be used to save the livelihoods of millions of Greeks, to increase the profits of small firms and thus to breathe life into Greece’s comatose economy.

So the task of the Greek people now, is to ensure that the new Greek Finance Minister forcefully rejects the archaic, self-destructive and private bank-friendly monetarism of the Euro system – and creates fiscal space (government spending) that will restore jobs, income, profits and tax revenues to the people of Greece – in both the private and public sectors.

In the immortal words of John Maynard Keynes: if the Greek government “takes care of employment, the (Greek) budget will take care of itself.

This article first appeared at Debtonation


  1. David Ellis says:

    Pure fantasy. As if the globalised, stagnant, glutted and bankrupt world economy simply cannot wait to receive a revitalised Greek capitalist economy with zero chance of getting credit from anywhere.

    The new Greek finance minister’s first job should be to announce that the bankrupt Greek banks are going to be allowed to go bankrupt and that their estates, staff and deposits are to be bought into administration to form a new People’s Bank with a monopoly of credit that can lend at base rate to small business and fund social investment. They must demand that the billions of Euros that the ECB is pumping into the Greek banking system and from there into the French, German and British banking systema and from there into the pockets of the super rich creditors of these bankrupts be redirected to the new bank so that it can bail out the people with cheap loans in Euros. If the Greece is kicked out of the Euro for refusing to bail out its bankrupt banks then the new People’s Bank can organise a new Greek currency.

    1. David Ellis says:

      But it seems that Syriza have no intention of prosecuting the class struggle at home and seizing the banking system in the name of the Greek working class: the 60%. Every technical fix you can suggest will be nothing but fantasy without the coming to power of the working class.

  2. David Pavett says:

    The idea of a currency based on government IOUs is an interesting one and is being actively canvassed in Greece. Before his resignation Yanis Varoufakis said “If necessary, we will issue parallel liquidity and California-style IOU’s, in an electronic form. We should have done it a week ago”.

    This would be yet another sign of an active rejection of the debt bondage logic of Greece’s creditors.

    At the same time divisions are opening up in the EU. The Telegraph reported “the French economy minister, Emmanuel Macron, who said the EMU creditors are equally to blame for the crisis and must resist the temptation to ‘crush’ the Greek people. ‘It is our responsibility to avoid a Versailles Treaty within the eurozone'”.

  3. Sandra Crawford says:

    IOU”s are just a proxy for sovereign state issued currency. If this is done, then the Greeks might just as well go back to the drachma. In fact it would be a wise policy for the whole of the Eurozone, as giving up their sovereign currencies is the root of the problem. Borrowing currency from a foreign bank when it can be created domestically was never going to work, and was one of the reasons the UK kept out of the Euro.
    Look at the relevant issues of Ed Balls five tests. In particular number two and number five. We should thank him for keeping us out of this debacle.

    1)Are business cycles and economic structures compatible so that we and others could live comfortably with euro interest rates on a permanent basis?
    2)If problems emerge is there sufficient flexibility to deal with them?
    3)Would joining EMU create better conditions for firms making long-term decisions to invest in Britain?
    4)What impact would entry into EMU have on the competitive position of the UK’s financial services industry, particularly the City’s wholesale markets?
    5)In summary, will joining EMU promote higher growth, stability and a lasting increase in jobs?

  4. David Ellis says:

    The Greek banks were lumbered with the sub-prime loan backed bonds issued by French, German and British banks in the billions and they created billions of their own. This huge privatised money printing scheme drove the world economy into a frenzy of consumption based on credit over the last 30 years. Naturally when the whole Ponzi scam collapsed in 2008 the consumer boom went with it and the growth of the last three decades was revealed to be an unhealthy cancerous tumour whilst the bankers steroids induced in the decrepid old patient not a miraculous recover buty a massive and fatal heart attack. Capitalism is now stagnant, sclerotic, monopolised, as it was in the 70s, but on top of that irrevocably bankrupt. Capitalism is in effect dead. All that is left is a scramble for resources and the ruling elites are liquidating their assets as quickly as they can and destroying centuries of accumulated social wealth in the process. All this pissing around by Syriza is delusional. Either the usurious leaches of the capitalist class are overthrown or the working class and indeed humanity as a whole will disappear into the dustbin of history along with them.

    1. Mervyn Hyde says:

      I have to say I entirely agree, Syriza are obviously worried that the Greek people are frightened to leave the EU, but that it is the EU that is their problem, the Neo-Liberals are asset stripping Europe and the Greeks are in the forefront.

      The sooner they get out nationalise their banks and print their own Drachma the sooner they can restart their economy, the danger is that they comply with the EU’s demands and then take the blame for the bankers crash with the corrupt banks still in place.

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