Greece, Euro and Reality II

But the bottom line was clear enough: global capitalism has made the depletion of resources so rapid, convenient and barrier-free that “earth-human systems” are becoming dangerously unstable in response. When pressed by a journalist for a clear answer on the “are we f**ked” question, Werner set the jargon aside and replied, “More or less.” [...snip...]

[Werner] is saying that his research shows that our entire economic paradigm is a threat to ecological stability. And indeed that challenging this economic paradigm – through mass-movement counter-pressure – is humanity’s best shot at avoiding catastrophe.

Source

I want to look at Grexit in a little more detail, as I may have given the impression in my previous post that the option of leaving the Eurozone was akin to the royal road to prosperity. I do not think that. I believe that the option can only work in particular conditions that all revolve around establishing a steady-state economics that can operate equally healthily with growth, zero and negative growth. This would mean leaving the prevailing paradigm behind, not an easy decision to make for a nation state. It is a path that would isolate Greece from international orthodoxy, an orthodoxy that has very powerful vested interests determined to perpetuate it ad infinitum. Alternatively, Grexit followed by Drachma then a return to normal growth might initially be less troubled (more below) but would run into the wall of peak growth at some point. Grexit followed by radical socioeconomic renewal is a beast of a very different stripe (more below).

I have to assume that Syriza has some sort of contingency plan for a Grexit, as it is a possible outcome. WWI started without anyone really wanting it to (apart perhaps from Germany, interestingly enough). To have no Plan B, to have all one’s eggs in one basket, is not wise in crises of this gravity. The unwanted position, however, is being the first fool to fully break with tradition. I was the first to do so in my own small circle of family and friends with three dependents and no debt, and it caused many a sleepless night. To do so as a heavily indebted nation of millions of people is another thing entirely. But, if perpetual growth is impossible, if it is pure fantasy to think this growth game can be extended forever, either nature corrects the situation whereupon the suffering will be far worse than a Great Depression, or we risk radical change. I think humanity, nations and individuals are confronted with that sort of choice today, though most do not want to face up to it.

At Naked Capitalism, Yves Smith is adamant Grexit makes no sense whatsoever, a view she says that Yanis Varoufakis shares, and certainly all his public statements confirm this. In a response to a commenter under a recent posting, she had this to say (my emphases):

I suggest you look in more detail at the case of Greece. There have been studies for years that show that Greece has an export mix that is will not benefit anywhere near as much as the textbook accounts depict from a currency devaluation. This has been confirmed empirically by Dani Rodrik, who is a highly-regarded development economist and no neoliberal, in a recent Project Syndicate column. In it, he describes how Greece has considerably lowered its wage rates, which has a similar impact to a currency depreciation, and has not gotten anywhere near the export benefit that you’d expect. And as we discussed, it’s not clear how much of a benefit it will get in the agriculture sector, since Greece will lose EU agriculture subsidies, while its competitors will continue to benefit from them.

This all feels to me like orthodox thinking that is predicated on the conviction that economic growth is always good, and can go on indefinitely. I checked the article she references and found it to be far more hedged that her characterisation of it (my emphases):

Currency depreciation works by lowering domestic costs in foreign-currency terms. One such cost has already come down significantly in Greece. Since the onset of the crisis, Greek wages have dropped by more than 15% – a process called, appropriately enough, internal devaluation. Yet the response in terms of exports has been disappointing. Though the country's whopping current-account deficit is gone, this reflects a collapse of imports – a result of austerity – rather than an export boom.

This fact on its own suggests that bringing back the drachma might not help Greece much. Greek exports appear to have been hampered by other factors. Higher energy costs (owing to increases in both excise taxes and electricity rates), credit bottlenecks, specialization in stagnant export markets, and generalized policy uncertainty all seem to have played a role. As a result, Greek export prices have not come down nearly as much as wages. Grexit might conceivably help with some of these costs, but it will aggravate others (such as policy uncertainty).

As ever in such analyses, there’s no doubt an enormous amount of data to interpret. We can never be sure of the correctness of our interpretation, far more so when the data is highly complex. Yves Smith appears to have a kind of background PR role to play in Greece’s immediate future, and is trying, forcefully, to steer opinion to Varoufakis’ side. Her output, I have to say, is astonishing, and the quality of her analyses breath-taking considering its quantity and the rapidity of changing circumstances she is keeping track of, but it is all couched within the growth paradigm. This is of course understandable, since Greece’s exit from the international community would be a huge and extremely unconventional risk, especially as it is easier to convince ourselves we can get off the growth bandwagon later on when conditions are more amenable to that course. However, at some point this nettle must be grasped, and it is, typically, only when the pain of not doing so exceeds doing so. The unpalatable truth is that the nettle’s barbs become more poisonous the longer we delay.

Can Greece go it alone? How would it pay for its imports? How quickly can it manufacture e.g. its own cars? These are the devilish questions. I think it can head in that direction with good long-term chances of success considering the nature of the challenge, but it would be a very bumpy journey indeed. I’ll now take a quick look at the basic essentials.

Food: It has good soil ferility, and a wonderful climate for food production. It currently imports a lot of food (including olives from Germany!), but need not in time. Were it to decide to go it alone, there is technology it can avail itself of (this for example) that would speed up its food production for the national transition to a more sustainable mix of e.g. permaculture and other more organic, petrochemical-free farming methods. It might also take a close look at what these guys are doing for replacement of tools and farming equipment.

Energy: it could produce its own energy using renewables (plenty of wind, sunlight, and tidal sources in Greece) and ween itself off fossil fuels as quickly as possible (more below). 

Transport: it could aggressively develop 3D printing solutions for cars, ditto biodegradble plastics, look at new mass transport systems and build them if required, set up car-sharing during the transition to other transport modes and models, set up co-ops for food distribution, etc. etc. 

There are no end of ideas out there that would slowly enable Greece to become self-sufficient, but it would have to abandon consumerism, set up a new money system, and draw support from communities that are passionate about these things, both locally and from around the world. Here I mean technical knowhow and inventive genius, not financial support. Given the right vision, I suspect there would be a huge desire to help Greece from around the world, not from the status quo, but from ordinary people.

On current energy requirements: in 2012, Greek industry, transport and domestic energy usage together accounted for around 75% of their oil consumption, agriculture for about 5% (transport is a little over 40%). I doubt things are significantly different today. A restructuring of transport and domestic usage would save plenty, i.e. far more home-office work, key workers could be relocated to live near offices where necessary, three-day week, car sharing where driving must be done, etc. In terms of imports, 33% of oil was imported from Russia and another 33% from non-Western sources, sources that would not want to punish Greece for going it alone. So fairly immediate reductions of around 33% might be needed to weather the transition to alternative energy sources. On a war-like footing (see below) this sort of cut is not unfeasible. Greece is more dependent on Russia for gas (60%), with the political loyalties to the west of other suppliers unpredictable, so a similar type of challenge here. Greek demand for imported oil was at 405,000 bbl/day in 2010 (can’t find newer data). This equates to a little over $21m a day at current prices, and demand could be considerably cut by measures I outline above, perhaps to around $15m. Annual gas imports were at over 4bn cubic metres for 2012, which means about 11m per day. Gazprom prices are at around $485 / 1,000 cubic metres, which equates to a touch over $5m/day.

Transitional funding: Tourism is about 18% of GDP and could be continued more or less as is. This would be an influx of money that could fund immediate energy requirements: GDP is a little over $240bn. 18% of that is around $43bn, which equates to about $114m per day, more than enough to cover immediate, emergency energy needs, even if income from tourism were to halve (and there would be other sources of income too). Greece also has untapped oil and gas reserves that could also help to ease the transition. Things like rare earths and other commodities not local to Greece could be also purchased from the remainder of those funds, while local inventive genius is directed, on crade-to-cradle principles, to synthesising their replacements and building products that last (no need for built-in or perceived obsolescence once consumerism has been abandoned). Recycling of these commodities would also help. A relatively rapid transition towards renewables (energy independence) and an electrification of the Greek economy is thus conceivable guided by the right vision and in appropriate sociopolitical/socioeconomic conditions.

In terms of wages and local economic activity both state and commercial, this could be effected with a new money system (e.g. Infomoney, which I will detail in later posts). Imports would be purchased using dollars, euros, etc. acquired from tourism and other sources. So a dual money system to smooth the transition.

Governance would steadily devolve to a more Athenian model, to regional or city-state levels and become increasingly democratic. Notions such as wealth and profit would have to be understood very differently at the cultural level, to be seen as necessarily rooted in ecosystem, community and personal health, and also in the freedom to pursue that which our hearts desire and thus contribute to society from that passionate space.

Of course I have not considered everything (impossible anyway and this is a quick blog post), and am suggesting a very radical change, one Greek oligarchs and army generals will not want. However, I don’t think a move of this kind is technically unfeasible. It is culturally and politically extremely unlikely. Again, it would be a bumpy ride to say the least, but once a people chooses to embark on a new direction, to really embrace a new vision of what is possible, miracles can be worked. This often happens when countries are at war. Greece would be on a similar psychological footing: self-preservation and survival as social fuels for deep change. It would be anything but easy, but as I say, the alternative (perpetual growth) is impossible. Within current orthodoxy, my reading is that on balance a return to the Drachma (via Russian and BRIC aid) is the better path: the Euro project is unsustainable anyway. However, who am I to cast judgment on such affairs!

Such change as I have sketched here must not be forced from above (as in the horrendous Great Leap Forward). It must be willingly adopted and understood by the people, and the Greeks appear to want to stay in the Euro. I do not believe Greece will follow the sort of path I prefer; it is simply too radical. Further, my sense is that the nation state is the wrong social structure for implementing radical change of this depth and breadth; if it happens, this sort of change will rise from below and slowly shuck off existing structures. I merely wanted to expand on my last post and put my radical cards on the table.