Skip to main content

Lapavitsas on Greexit

Costas Lapavitsas, who is now a member of parliament for Syriza, on Greexit, which he sees as the best option.
"There are three stages. First, as I said, is the negotiated, consensual, orderly exit. 
Second stage is recovery and that would depend very much on recovery of domestic demand which is very heavily repressed in this country. There are vast resources lying unused. Small and medium enterprises would be reactivated, that’s what would really restart the Greek economy. Not exports - this worship of exports is nonsense. 
But obviously that is not really a path for sustainable growth. What Greece would need after that would be an industrial policy to restructure its productive base, to integrate itself in the world economy on a different basis. That would take a few years. 
But Greece would be still part of a common market, as a member of the EU. So it is not so easy to go back to domestic demand and to the SMEs, because it would have to kick out the big companies that could still sell cheaper.

I believe that Greece could out-compete imports very easily. Unfortunately, wages have been destroyed during the last 5 years due to bailout policies. A devaluation of 15-20% (but no more since as I said the ECB would defend the exchange rate) would give a tremendous competitive advantage. Wages would then gradually rise again."
Read the whole interview here. My guess is he is assuming that it would give competitive advantage to domestic production, and allow for growth without increasing imports too much. Costas seems to be less hopeful about the effects on exports, which would seem reasonable. I would suggest that relying on the exchange rate would not be sufficient, and that some sort of import substitution would be necessary too.


  1. “I would suggest that relying on the exchange rate would not be sufficient, and that some sort of import substitution would be necessary too.” I think that sentence needs clarifying because devaluation automatically does bring about a fair amount of import substitution.

    1. Nope. Devaluation changes relative prices and making foreign goods more expensive reduces imports. Note that if the whole point is to get out of the euro to be able to increase fiscal spending (domestic demand), then this leads to an increase in imports. First is a relative price effect (substitution), and second an income one. Income effects tend to be larger. So you need an ISI policy, that is, an explicit government policy of reducing imports, tariffs, quotas, import licensing, etc. That's ISI, which is different than devaluation. Historically, ISI policies were actually pursued in Latin America with relatively overvalued (even if multiple exchange rates were used) exchange rates.

  2. If C Lapavitsas is arguing that the Greece economy can do well with the level of GDP, exports and imports it had in 2000-2001 and again in 2013-2014, and also needs structural reforms, then that's the programme agreed with the other 18 EU governments and that SYRIZA let expire on June 30th.

    Sure, Greece has much higher unemployment in 2013-2014 then in 2000-2001, even if levels of GDP, imports, exports are similar, but that's a distributional choice that Greece has made.

    1. No, I think he believes that Greece can grow after exit. I posted a more recent video in which he seems to suggest just that. I'm more skeptical as a result of the current account effects of higher growth. Costas uses Argentina as an example, but I have argued elsewhere that Greece is not Argentina


Post a Comment

Popular posts from this blog

What is the 'Classical Dichotomy'?

A few brief comments on Brexit and the postmortem of the European Union

Another end of the world is possible
There will be a lot of postmortems for the European Union (EU) after Brexit. Many will suggest that this was a victory against the neoliberal policies of the European Union. See, for example, the first three paragraphs of Paul Mason's column here. And it is true, large contingents of working class people, that have suffered with 'free-market' economics, voted for leaving the union. The union, rightly or wrongly, has been seen as undemocratic and responsible for the economics woes of Europe.

The problem is that while it is true that the EU leaders have been part of the problem and have pursued the neoliberal policies within the framework of the union, sometimes with treaties like the Fiscal Compact, it is far from clear that Brexit and the possible demise of the union, if the fever spreads to France, Germany and other countries with their populations demanding their own referenda, will lead to the abandonment of neoliberal policies. Aust…

A brief note on Venezuela and the turn to the right in Latin America

So besides the coup in Brazil (which was all but confirmed by the last revelations, if you had any doubts), and the electoral victory of Macri in Argentina, the crisis in Venezuela is reaching a critical level, and it would not be surprising if the Maduro administration is recalled, even though right now the referendum is not scheduled yet.

The economy in Venezuela has collapsed (GDP has fallen by about 14% or so in the last two years), inflation has accelerated (to three digit levels; 450% or so according to the IMF), there are shortages of essential goods, recurrent energy blackouts, and all of these aggravated by persistent violence. Contrary to what the press suggests, these events are not new or specific to left of center governments. Similar events occurred in the late 1980s, in the infamous Caracazo, when the fall in oil prices caused an external crisis, inflation, and food shortages, which eventually, after the announcement of a neoliberal economic package that included the i…