By Stelios Papadopoulos
ANY observer of the Greek political scene is aware of the fact that the radical leftwing SYRIZA party is leading the polls by large margins raising the probability that the next Prime Minister will in fact be its leader Mr Alexis Tsipras.
Furthermore the scenario of a SYRIZA government may materialize sooner than we think given the current government’s marginal parliamentary majority.
SYRIZA has pledged to renegotiate the bailout terms and force the EU to rethink its current policy programme through the unilateral suspension of the Troika’s austerity policies, by threatening to use its veto power in the European Council.
In addition the party wants to combine this tough bargaining stance with a radical agenda for social change including the re-introduction of a minimum wage and more funding for social security and public health.
However it is hard to understand the effectiveness of a veto as a bargaining chip when effective control over financing rests with the European Central Bank, and when the Greek state lacks a central bank that could allow it to create credit.
Cash could be found via taxation, but as pointed out in a Boston Review article by Greek economist and advisor to Tsipras, Dr Yanis Varoufakis , ‘’the rich have taken their euros to Switzerland, Frankfurt, London and New York.’’
Yet suppose SYRIZA decides to use the veto anyway. Research by political scientist Jonas Tallberg of Stockholm University shows that even if a veto puts an end to a political process conflicts are eventually resolved and proposals adopted. In essence a veto simply buys time and in the case of SYRIZA it will only buy time until they eventually compromise on their social democratic agenda.
Is there another way for Greece? According to Mr Varoufakis there is. He has paradoxically been supportive of SYRIZA’s decision to use the veto, despite the fact that he proposes a far more effective proposal for giving the Greek state some leeway in its negotiations with the EU.
According to this proposal the Greek ministry of finance would create a payment system backed by future taxes and denominated in euros. Specifically, citizens could buy electronically euro-denominated coins from the website of the Ministry of Finance, which could be redeemed anytime and sold back to the ministry two years after they were issued at a multiple of the original price.
In addition every year the Ministry would issue a new batch of such digital coins to replace the ones that were extinguished (as taxpayers use them, two years after its inauguration, to pay taxes) on the understanding that the nominal value of the total number of these coins does not exceed a certain percentage of GDP. Otherwise there is the risk that if all these coins are redeemed simultaneously the government will end up with no taxes.
Therefore according to the proposal, the Greek ministry of finance would create digital euros out of thin air bypassing both the ECB and the domestic private banks. Science fiction you may say? Not really given that a system of non-bank electronic payments already exists in Kenya where 60% of transactions are carried out via mobile, and the proposal is not that radical given that 90% of American dollars are digital and created out of nothing by private banks.
Additional examples of digital currencies include Amazon points and airline flyer points. However there is one issue with the proposal which Mr Varoufakis does not address. If the Greek state can create its own digital euros then why can it not create its own digital drachmas?
The biggest fear of the Greeks from an exit is a massive devaluation of the drachma which would drastically reduce the value of their savings. But if the state is in a position to create its own digital currency then surely it is in a position to fix an exchange rate and maintain it by controlling its own digital money supply. The proposal after all allows for that given the limits over the circulation of its digital Euros. So it is not clear why this electronic, non-banking payment system cannot allow for a return to the drachma.
I am not saying that Greece should return to the drachma but I do think that Varoufakis’s proposal offers Greece the bargaining leverage it currently lacks and the option of getting out of the euro. The question is whether Greece should stay in the euro which is both an economic and a political question.
It is a difficult question that requires a knowledgeable, democratic and extensive debate and it is one that is necessary for the sake of both Greece and Europe.
Stelios Papadopoulos MSc Political Economy, is a Political Risk Analyst
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