A very predictable curveball


It is perfectly safe to say that the virus has afflicted an already suffering economy. The potentials of today’s economy are largely defined by its earlier state, not just the pandemic. In the last couple of years, there has been a constant debate about the outbreak of a new crisis, following the one started in 2008. The triggering factor could not be defined, though.

Vintage 1960s potter piggy bank from South America with scattered American coins on a brown background.

Pandemic and economic crisis

The current health crisis, that has afflicted almost the entire planet, was initially perceived by many as an imponderable fact; an “incident” that occurred unexpectedly, very much like a volcano eruption or a major earthquake. Besides, the characterisation “black swan” has been extensively used in many reviews.

To my understanding, such an approach is most probably erroneous. To begin with, health hazards are globally closely related to large scale agro-industrial developments, especially as to the livestock production, the unprecedented hunting of wild animals for culinary purposes and the massive destruction of old-growth forests. The natural habitat of many animals is thus destroyed. Most such animals are hosts of many pathogens, that are consequently forced to migrate in human communities that had never before been exposed to them. 

There have been many warnings about the hazards described above, as well as many alarm bells during the last three decades; the “mad cow” disease, the avian influenza, SARS, MERS and Ebola often disrupted humanity’s relative complacency, even temporarily. Viruses and pandemic breakouts were not at all unexpected. 

Furthermore, the role of neoliberalism that sadly prevailed during this period has been decisive, with its unexampled dogmatism, power assertive nature and colossal resources. Having a strong contempt for public institutions and glorifying the “self-regulating market” as the ultimate solution, neoliberalism has weakened the public healthcare system to such an extent that managing a threat has become extremely difficult. Should the readiness of the public healthcare system had been secured, the health crisis aftermath would have been much different.  Social distancing became the only option due to the foreseeable collapse of the hospital network, even in some of the wealthiest countries in the world. Such a choice, however, brings along a series of adverse effects, including economic ones.  

As these lines are being written, the economic impact forecasts are dreadful. For many, the current depression is expected to be harsher than the historical Great Depression of 1929. The simultaneous collapse of both offer and demand is causing an economic downtrend of indefinite duration, that is highly dependent on the course of the pandemic in the following months.   

For many, this could be “the perfect storm”. In my opinion, though, there are no safe prognoses yet. 

However, it is perfectly safe to say that the virus has afflicted an already suffering economy. The potentials of today’s economy are largely defined by its earlier state, not just the pandemic. In the last couple of years, there has been a constant debate about the outbreak of a new crisis, following the one started in 2008. The triggering factor could not be defined, though.

The big picture of national and international economy

The majority of analysts had predicted a new bad turn in the economy. Applying weights to different data, they’ve made a series of observations:

  • Donald Trump’s trade wars and the rising protectionism also justified an increased alarm. At the same time, there is an ongoing battle for technological dominance; the conflict between the American government and Huawei, a Chinese company, is quite indicative of the situation, especially when taking into consideration that FAANGs (Facebook, Apple, Amazon, Netflix, Google) play a huge role in shaping the economic future of the USA.

At the same time, the Greek economy seemed quite vulnerable following 10 years of extreme austerity, despite the efforts of the ruling political system to make the situation seem less alarming. [1]

  • 25% decline in DNP;
  • aprox. 35% decrease in employees’ available income;
  • government debt equal to 180% of GNP, for which only payment arrangements have been secured; 
  • private debt of a similar amount; private loans have risen to 100 million from 13 million in 2009; 
  • constant tax avoidance and tax evasion by the wealthiest section of society, leading to further tax burdening of the lower class;
  • decline in investments; from 60 million in 2008 to 20 million in 2019;
  • a production structure based on tourism, and thus extremely vulnerable, as unfortunately confirmed during the pandemic; and 
  • a state that only by chance has not yet turned into a failed one, given the weakening of social services.

The situation today

The pandemic hit an already weak international economy, that had not yet recovered from the latest crisis.  Although not mentioned in official statements, this factor has been decisive for the forecasts of a great economic recession - the OECD talks about 20% (the forecast for Greece exceeds 30%).

So, the measures that are now being taken suggest that the state is reaching again a juncture, while the market is proved unable to act or even react to some extent.  In some countries, the state aid for loans, guarantees and direct funding exceeds 20% of the GNP (with Germany and the USA coming first). At the same time, the Federal Reserve Bank and the European Central Bank (alarmed by the wide exposure of Deutsche Bank and PNB Paribas to dangerous derivatives) announced new quantitative easiness programmes with practically negative interest rates.  

Still, the developments at a European level are very conservative; the neoliberal monetarist doctrine seems rather solid. The initial 540 billion package, providing only 125 billion for direct funding, was undoubtedly insufficient, while the “recovery fund” does not seem to change the perception of ruling politics since 2009.   

It is now growingly acknowledged that the situation shall remain unsafe unless large-scale net transfers are made or the ECB resumes money-printing, thus providing credit to governments without any repayment obligation. However, the eurobond issue is not encouraged; neither was Spain’s suggestion for perpetual bonds amounting to 1.5 trillion, that would have strengthened the economies most affected by the pandemic without further burdening government debts.

Unfortunately, the current approach does not respond to the urgent needs of the European countries. On the contrary, it is driving the worst affected countries to further future burden.

In the best-case scenario, this means that even if the current recession follows a U-shaped recovery soon (as the institutional actors hope), it shall re-emerge as an L-shaped one in the medium term. This is inevitable until the pending winding-up of capital is carried out. Such capital is of a considerable magnitude and, under normal circumstances, it should have been destroyed in order for the accumulation to restart. European politics keep doing business as usual, although we have been experiencing unusual circumstances for quite some time; Covid-19 has made this point perfectly clear. 

As compared to other European countries, the Greek government has applied a policy of minimum contribution that amounts to 3.6% of the GNP, compared to 51% in Germany, 21% in Italy and 12% in Spain.  As a result of the above and the general approach on the matter, Greece ranks second-lowest among the European countries with regard to the extra expenditure on the National Healthcare System. As to the coronavirus effects on the local labour market, the initiatives taken mainly focus on employers’ interests, whose expectations about salaries and labour relations are no secret. The Hellenic Federation of Enterprises has already suggested a model of employee borrowing and lending - so that in the “new outsourcing generation” the enterprises shall be able to exchange employees in addition to goods and services!

The current policy is very much likely to raise the government debt over 200% of the GNP. Furthermore, the foreseeable drop in income renders unrealistic the overtly optimistic EU forecast for a Greek recession ratio of -9.7%. 

Greek politics follow a well-beaten path. Besides, the current government is very keen on attracting investments; therefore, its policy focuses on “growth” and favours capital at all costs. 

Could things be any different?

Is there any chance for the European course of action to change under the pressure of the current conditions, and thus favour Greece? Could a new social Keynesianism appear, or could the post-war social-democratic consensus return?     

The post-war systemic regulation emerged from a devastated economic sector following the World War II. After the carnage in World War II, the prospects of capitalism were quite uncertain, at least in Europe. As a result, capital was rather careful and the political systems were open to suggestions for a stronger welfare state and wide redistribution through progressive taxation.

Today it’s the opposite; capital over-accumulation and a financial system that never gives ground on anything that conflicts with its interests.  The only constant here is the fact that the burden of the repeating crises keeps being transferred to the working class.

Therefore, turning to traditional social-democratic politics would be a real revolution. In order for such a change to have sustainable results, the European budget should be several times higher than the current one in terms of European Union’s GNP. At the same time, it would be necessary to increase the public investments on basic infrastructures and projects for environmental and social empowerment; to democratically plan the production and weaken the profit motive; and to socialize the financial system so as to perceive money as a public good.

I believe it comes without saying that such radical changes are far from being voluntarily adopted by the European leadership. Besides, although supposedly agreed on, the New Green Deal is already being questioned.

The crisis has been present for over a decade; inequalities grow rapidly, risks -health, ecological, alimentary- are escalating and the market economy is proved unable to handle them, since it actually generates most of them.

The European response to the current situation is expressed through strengthening the Public Healthcare Systems and the establishment of primary healthcare institutions taking preventive action. It is obvious that the economic cost would have been significantly lower if the proper amounts had been invested earlier. Such a response also favours the socialization of the pharmaceutical industry; given that the private sector is unable to act under critical conditions, the profit motive proves no longer advantageous. It further endorses the use of all patents in the health sector as commons. Given that all prominent research receives public funding, one might argue this is a rather reasonable approach.

In addition, it comes without saying that the disconnection from international value chains and national self-sufficiency in basic goods and services is a prerequisite for the safety of any population.

Public funding, public goods and services are now the most urgent demands.

Large public investments are indispensable, especially if combined with a radical redistribution of wealth, tax control and fiscal pressure on the upper class in order to secure necessary funding. 

Especially for the economic reset of Greece, it is inevitable to proceed with the planned erasure of a significant part of the national debt. Such an arrangement is totally feasible; it has happened before -following the World War II when Germany profited the most- and can happen again. All that is needed for the national debt is a mutual debt erasure mechanism and a certain euthanasia of the rentier, to quote Keynes. 

The most important measure, however, is to support labour, that is our most valuable resource. Let’s not forget what this pandemic has brought to light: the existence of a working class, largely consisting of women, that is responsible for the vital signs of society. It represents, undoubtedly, the social conscience of the pandemic. The nursing staff, the retail salespersons and the cleaning services, although often neglected, underpaid and vulnerable, proved to be much more helpful than the system’s plutocrats. Therefore, in terms of crisis management, any income policy applied should definitely radically improve their position.

To implement such a programme, confronting with the ruling powers would be inevitable. A rupture might be necessary and worth pursuing, though, if the situation is as critical as it seems. 


[1] For a concise description of the situation of the Greek economy, see: Argitis G., Koratzanis, Ch., Paitaridis D., Pierros Ch., The (self-)deception of fiscal adaptation programs in Greece, Papazisi, Athens, 2018 (available only in Greek).