THE BLOG From HuffPost Greece
07/30/2015 02:01 pm ET Updated Jul 30, 2016

Wars of Attrition

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The circumstances we have experienced in these past several years in Greece are not unprecedented. We can find such situations in many other countries as well. As examples I could quickly mention the former socialist countries, Europe's periphery countries, and countries in Latin America and Northeast Asia. However, we have also encountered these situations a number of times in Greece's past. For example, at the end of the 19th century, during the 1920s, as well as during the Reconstruction period.

But what do these cases have in common? It would be advisable not to refer to them as "crises," a term which in the current lexicon is extremely vague, but as "attempts at economic stabilization."

More specifically, it is very often the case that different countries, including Greece, pursue policies which are clearly and without a doubt not viable in the long-term. For example, policies based on the accumulation of large deficits, which result in an explosive increase in public debt, continue to be pursued despite the fact that there is no doubt that such deficits will have to be eliminated sooner or later. Let's take the Greek example: for Charilaos Trikoupis and Anargiros Simopoulos, former ministers of finance, Greece already found itself bankrupt as of 1882, but borrowings nonetheless continued up until 1893, whereupon the country went bankrupt.

The question that arises here is why these countries do not pursue stabilization immediately as soon as it becomes clear that it will not be possible to pursue the policies that are being implemented, and that a change in policy will in any case come about at some point. And indeed, the longer the delay in stabilizing the economy, the higher the cost to be paid. There are many explanations for such a stance, some more and some less persuasive. I will confine myself to citing the one that I consider to be the most persuasive. This explanation entails understanding the process leading to stabilization as a "struggle of attrition" among different socio-economic groups with opposing distributional goals. The term "struggle of attrition" comes from biology. Stabilization occurs when political consolidation leads to a resolution of the distributional conflict.

More specifically in cases such as those which I described and such as the one we are experiencing, there is political agreement on the need for fiscal change, but at the same time there is also a political impasse with regard to how the burden of higher taxes or expenditure cuts will be shared. And in the context of today's reality it is readily apparent that the political clash with respect to how stabilization is to be achieved has as its central variable the question of distribution.

When stabilization is achieved, it coincides with political stabilization. Often one of the constituent groups involved is in a politically dominant position. The burden of stabilization is often very unequal to those groups who are weaker politically and who thereby assume the greatest burden. Often this equates to the poorest groups as well. Viewed in the context of the terminology stated above, in order for stability to be achieved, there will have to be concessions on the part of one of the groups involved, and that will occur when pursuing a confrontational approach becomes costly. And at the same time the benefit to the other side will exceed this cost.

It is often the case that many failed attempts, and often one or more failed programs as well, precede a successful stabilization of the situation. And, indeed, it is often the case that a failed program appears to be the same as a successful one. In addition, we need to take into account the fact that a macroeconomic stabilization policy, which entails increased taxes and reduced expenditures, is different from a policy of structural changes with market liberalization. The second process is much harsher than the first with regard to what I referred to previously as a war of attrition. In the first case, the relative share of income of GDP decreases; in the second, the existence of entire social and economic groups is called into question.

Within this climate, the question that immediately arises is how what we term the foreign variable enters into the equation, and what consequences it has. It is clear that each crisis has its own particular features, which are attributable to both the domestic economic and political situation, as well as international circumstances. In all of these cases the intervention of the foreigner comes into play only to the extent that a securing of his own specific interests and priorities is being pursued. What is it that he achieves? In reality, he imposes a political stabilization policy, which in turn results in effective reform efforts. In other words, the cost is minimized for those political groups who will have to make decisions as these are shared, while their participation (4) in these decisions is a result of the demand of a third external player, which is quite expedient for the domestic players. Or to put it another way, foreign intervention, that is to say, the international element, strengthens one of the sides participating in the war of attrition, making it clear to the other sides that the cost of their pursuing a confrontational course will be high and that the long-term struggle will be futile.

The fact that the reality we are experiencing today can be placed within a more general context, which Greece, and other countries as well, have experienced before, cannot, I imagine, give us a great deal of comfort. However, it can help us demystify the political speech of "heroism" and "dignity" and put it into its true perspective.

This post originally appeared on HuffPost Greece and has been translated from Greek.