A New Deal for Greece?

Franklin Delano Roosevelt radio broadcastFranklin Delano Roosevelt radio broadcast. (Photo: Library of Congress)

This week, as Greece hurtles toward a likely exit from Europe’s common currency area, the Eurozone, Americans will be surprised to learn that Greece’s ruling Syriza party has turned to American liberalism for inspiration. Speaking on television Sunday, Greek Prime Minister Alexis Tsipras told his people that there was “nothing to fear except fear itself,” quoting Franklin’s Roosevelt’s memorable 1933 inaugural address.

Tsipras invoked F.D.R. to calm the nerves of Greeks who had rushed to their banks en masse to withdraw their savings, marking the beginning of what has become a full-scale banking panic. The European Central Bank (ECB) has now imposed capital controls that limit withdrawals to 60 Euro per person. Once the ECB permanently cuts short its emergency cash flow for Greece, a program inelegantly called Emergency Liquidity Assistance, which has propped up Greek banks during the country’s negotiations with creditors, Greece will likely be forced to remint its previous national currency, the Drachma. This new national money will almost certainly devalue substantially against the Euro, hence the lines at the ATM.

During this historic moment of economic crisis, Mr. Tsipras is not the first Greek politician to draw inspiration from Franklin Roosevelt’s “New Deal for America,” implemented during the Great Depression. Earlier this month, Yanis Varoufakis, Tsipras’s unorthodox finance minister, resurrected Roosevelt’s memory during negotiations with Eurozone finance ministers over the terms of yet another Greek bailout agreement. When ministers ostracized Varoufakis, turning to the press to voice their dissatisfaction with his negotiating style, he tweeted a quotation from F.D.R. “They are unanimous in their hatred of me,” wrote Varoufakis “and I welcome their hatred,” recalling Roosevelt’ 1936 speech excoriating America’s business elite and its opposition to his sweeping economic reforms.

But Syriza’s appeal to the New Deal runs deeper than rhetoric. Like Roosevelt’s 1932 Democratic coalition, elected three years into a global depression, Syriza was elected with a mandate to reverse the direction of their nation’s economic policy from strict debt service and balanced budgets (in Greece’s case, budget surpluses) toward government-led efforts to stimulate economic growth.

For the Roosevelt administration of the 1930s, this took myriad forms: from minimum wage laws to price manipulation; from programs for unemployed workers to state-led infrastructure projects like the Tennessee Valley Authority. In a similar spirit, Syriza came to power in January after five years of economic depression in Greece, promising to reverse austerity policies enforced by Greece’s creditors: a combination of tax increases and budget cuts. These policies were enforced and monitored as conditions for loans to Greece that went largely to reimburse previous private creditors, primarily northern European banks. Embattled Syriza has spent the last six months trying to convince its more politically powerful European partners, especially Germany, to abandon austerity and instead use European institutions to encourage investment and employment growth in the Eurozone.

Varoufakis has been vocal on this point since the beginning of the global recession, calling publicly for what he calls a New Deal for Europe. Working with the American liberal economist James K. Galbraith, son of the liberal economist John Kenneth Galbraith, Varoufakis put forth his Modest Proposal for fixing the Euro crisis in 2010.

The Modest Proposal blames the crisis not simply on Greece’s economic performance and corruption, as many do, but on the structure of the Eurozone itself, inflexible as it was at responding to the global financial crisis that began in 2007. The solution to the crisis, according to Varoufakis, lies not in more austerity but in a program of New Deal-style reforms aimed at using existing European institutions to kick-start economic growth and deploy Europe’s idle savings toward job-creating investments.

Syriza’s economic thought and that of the American New Deal Democrats of the 1930s converge over both national budgets and public investment.

Like the Roosevelt administration of the 1930s, Syriza and its coalition partners want to break Greece out of a straightjacket of budgetary constraints. In 1933, F.D.R. took the United States off the global gold standard, a monetary arrangement that functioned as a semi-automatic mechanism forcing countries not to run long-term deficits. Freed from these “golden fetters,” the Roosevelt administration, with the help of a Democratic Congress, ran successive years of deficits in the mid-1930s, using funds to invest in programs like the Works Progress Administration, Civilian Conservation Corps, and other efforts to reboot the American economy and address the social crises of the Depression.

Likewise, Syriza has urged its partners to lower Greece’s targets for “primary surpluses” (budget surpluses before interest payments to creditors) of up to 4.5% per year, an abnormally high rate for a country in depression. These surpluses have been conditions of bailout arrangements negotiated by previous Greek governments with creditors, currently the ECB, Eurogroup, and International Monetary Fund (IMF).

Surpluses designed to appease creditors have exacerbated the depression, in Syriza’s view. The Greek government has been forced to slash pension payments, unemployment insurance, and state subsidies for medical care, creating what Syriza calls a humanitarian crisis. Economic output in Greece has fallen by 25% since the first austerity measures took hold in 2010. Austerity also makes it difficult for Greece to repay creditors in the long run, since the government’s tax base has shrunk by nearly a quarter.

A second continuity between the New Dealers and Syriza is a belief that private investment is insufficient to end deflationary spirals like the current Greek crisis. Budget orthodoxy and attempts simply to create a more conducive business climate fell short under President Herbert Hoover between the onset of Great Depression in 1929 and Roosevelt’s election in 1932. Roosevelt campaigned successfully on a promise to engage the federal government in “bold, persistent experimentation” – a promise on which he carried through. Historians, of course, debate the effectiveness of his various policies at ending the Depression. Most agree, however, that the New Deal at least stabilized the American economy during the mid-1930s and that New Deal institutions, notably the FDIC, Social Security Administration, and Federal Housing Authority, undergirded historic economic stability and growth in the post-WWII years.

The thrust of Varoufakis’ Modest Proposal focuses on state-sponsored investment schemes of a New Deal caste. The hypothetical program is an attempt to end austerity measures and use European institutions like the ECB and European Investment bank to spearhead what Varoufakis calls an “investment-led recovery.” “We propose a European New Deal,” writes Varoufakis, “which, like its American forebear would lead to progress within months, yet through measures that fall entirely within the constitutional framework to which European governments have already agreed.” This would be a New Deal without the need to create the alphabet soup of government agencies so characteristic of Roosevelt’s time in office.

Were they alive today, F.D.R.’s advisors would surely nod their heads in agreement with Varoufakis. But, as of July 1, it appears Greece’s creditors would rather let Greece leave the Euro and risk a Eurozone breakup than recant on austerity. Tsipras and Varoufakis had little success convincing Greece’s lenders of the logic of a European New Deal. All that can be done now is to await the results of the Greek Referendum of July 5. Greek voters will have the opportunity either to accept the latest round of bailout funds and more austerity or return to the Drachma. Either choice will be painful.

And either will leave historians looking back on a European New Deal that wasn’t.

About the Author

Bill Kelson

Bill Kelson is a Ph.D. candidate and research assistant in the history department at the University of Georgia. He studies arcane topics like banking systems, political economy, and the history of world trade. Over drinks, though, you might be able to get him to open up about his love of folk music and good food.

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