The debate over whether Greece should exit from the euro, the common European currency, appears to be coming to a head. Next week, the country faces a deadline to repay the International Monetary Fund. If Greece can't reach a deal with European institutions to restructure or extend a portion of its massive debt, the country could be forced to default, which in turn could prompt Greeks to abandon the euro.
Greece's radical-left Syriza government says it wants to stick with the currency. But an element within the party is open to, and in some cases even pressing for, a departure. That wing's leader is Costas Lapavitsas, a longtime academic who argues that the euro has had a dismal effect on both the Greek economy and psyche, and is even bad for other European Union nations.
Though many economists warn of chaos for both Greece and global markets, Lapavitsas believes his country would be better off reverting to its national currency, the drachma. It would, he says, free Greece from international pressure and strengthen its economy via exports.
They are not the proposals of a fringe intellectual. In January, Lapavitsas successfully ran for Parliament in part on these ideas, bringing to the government — and the political mainstream — beliefs that many in Europe consider heresy. Though he formally adheres to Syriza's goal of a deal with the institutions under which it can both reverse austerity measures and stay in the euro, he believes the odds of securing those terms are extremely low.
The Times spoke to him in his offices in Parliament.
When some people in the U.S. hear that Greece is considering a return to the drachma it can seem retrograde, a throwback to a pre-globalized, even Cold War period. Why do you believe it would be a step in the right direction?
The most difficult thing about the monetary union is that it's managed to monopolize the narrative of progress. There's this idea that if you transcend the boundaries of the nation-state, then that's moving forward. And of course you look across the world and it doesn't look like that at all. The nation-state is alive and well. Only Europe suffers from this malady of the mind.
In what ways do you believe it has failed? Despite recent drops, the euro does remain a strong and popular currency, and is by many measures a success.
The euro was created in a peculiar way. It's an international currency but also the currency of a number of countries in Europe. And that mix of roles has never worked well, because it's never served the interest of smaller countries. It has created historic divergence in competitiveness, benefiting the core countries at the expense of the peripheral ones. This is a dysfunctional union that doesn't serve the interests of most of its members. To me it's only a matter of time before it's recognized. That's why for me this isn't just a Greek argument; it's an internationalist argument.
In a world where the debt crisis hadn't happened, then, would you still say an exit would be good?
Money is never just economics. It's a variety of noneconomic relations, key among which is identity. For some Greeks, the euro has become associated with progress. And it is [a form of] money that transcends national borders, and this affects how a lot of people — not just Greeks — think of the euro.
Stepping out of the monetary union will be a shock. But a new narrative must be reached, with a national currency that gives us our own dimension. Because what have we gotten through the euro in terms of national identity? The prime minister of Greece is visiting Berlin more than any other capital in the world. That is not Europe. That is a very narrow understanding of what Europe is. The Europe that Greeks understand is not the Europe the English understand or even the Czechs or even the Poles. Who wants this Europe?
Comments of this sort make some people believe that a euro exit would be prelude to a larger departure from European and Western alliances, and possibly even a drift toward Russia. Is that part of the equation for you?
Greece belongs to Europe politically, historically and culturally. It's the center of gravity toward which Greece will tend. But for once it's acting like an independent country, and Greece has every right to expand its range of alliances and geopolitical interests.
What does all this mean for these debt talks? Does it mean that no matter what offer is on the table, an exit is still the wisest course, in your view?
I'm not part of the negotiating team. But I believe that if the country was offered the option of a front-loaded investment program that would revamp the infrastructure and would allow several key industries to benefit, and if this came with a relaxation of fiscal policy, then clearly that would be a path we would want.
That's not on offer. What is on offer is basically a continuation of the policies we've been through in the last five years, with some tweaks. This is what the lenders want; this is the attitude of the EU. It's the same policy, but tweaked. And that's a death sentence for Greece.
And that's what you believe makes this such a clear decision.
It makes the exit a no-brainer. If Greece continues along the path it's been on for five years, Greece is finished, basically. There will never be a serious recovery, there will never be sustained growth, there will never be a reduction of unemployment. This will become an insignificant, stagnant, aging, irrelevant country on the fringes of Europe.
The argument is that those on the other side of the table will eventually come around because the Germans and other European powers have too much to lose from a Greek exit. Does that make you more optimistic for a deal favorable to Greece?
But what exactly does Germany have to lose? I've never been able to see the danger and risks to Germany. I can see the damage that would have been caused when the banks were overextended and the Greek banks were interconnected with the European banks. Now what is it? There is the moral damage, the precedent of the exit, the political unrest. Obviously if Germany and other powers in the EU could avoid that, they would. But they're not going to pay a big price to avoid it.
How then do you assess the damage, both to Greece and the global economy, if the exit came off?
An exit, particularly if it's not agreed to [by the European institutions] would undoubtedly cause friction and turbulence in the global market and ultimately be a blow to the European monetary union. These are costs, but none of these costs are dramatic enough to prevent them [from seeking high levels of repayment].
And to Greece?
Devaluation I think is a serious issue. My judgment is that [in the longer term] it would be not so bad, 15%, maybe 20%. The initial period is more difficult, because speculators would be selling the currency. How deep that would be and how long that would last I don't know. I doubt it will be more than a few weeks, and doubt it would be that severe of a collapse.
So you believe that those who say the drachma would plummet are essentially using scare tactics to enhance their bargaining position?
There would be devaluation. What you'd need to do is take a deep breath and wait for the worst to go away, wait for the exchange rate to begin to rise. That might need a few months. It will need political preparation, it will need a thick skin and it will need popular support. And if Europe had any sense left, any notion of solidarity and shame regarding the damage wrought to this country, the least it could do is support Greece in this effort, which means defending the exchange rate. It wouldn't cost much.
Do you think it would do that, after all this ill will?
I doubt it. But I cannot state enough that they have a moral obligation to do it. It's the least they could do.
Syriza came to power with a sweeping mandate of change: reviving the economy and taking harder lines at the European negotiating table that leave no room for austerity. Would you say the party has lived up to its promises so far?
We brought legislation and took action that's a qualitative shift from what came before [with other ruling parties]. Syriza is different; it's not like the others, and it has shown it. But I think we've been put in an incredibly difficult position by lenders. We're being squeezed and stopped from implementing our programs.
So where do you see this playing out, given how strongly Syriza feels about not giving in on austerity and how much the European institutions seem to be sticking to their guns?