Published in Business Spectator (Melbourne), 19 June 2012
For a committed market liberal it was a strange experience. There I was hoping for an election victory of the radical Syriza party in Greece’s general election. Yes, the very party that rejects austerity and claims that unreformed socialism provides the answer to the country’s problems.
In case you are worried about my sanity, I haven’t turned into a crypto-communist overnight. All I really want is this euro crisis to finally come to a head.
The election result, though greeted by markets with relief, is the worst of all possible outcomes. It guarantees that what we have seen in Greece in the past will continue for the foreseeable future. As a small consolation, in Greece’s case that might be less than a month.
Had Syriza won the election it certainly would not have been able to deliver on its promise to reject the EU’s austerity diktat while simultaneously keeping Greece in the eurozone. Greece would have been kicked out of monetary union, markets would have been shaken, and investments would have been written off. It would have been a chaotic transition to the new drachma, and no doubt billions of euros would have been lost in the process.
But is the supposedly superior alternative of a Nea Dimokratia-led government really any better?
For a start, the Greek conservatives are hardly a principled bunch. They are the ones who share responsibility for Greece’s bloated government apparatus. It was them who fiddled with Greece’s statistics to qualify for euro membership. When in opposition to the previous Papandreou government, it was Nea Dimokratia who blocked almost every single attempt at economic reform. And it is them who have now given a commitment to austerity that is as rock-solid as a cheesy Moussaka. If you really believe that this party can credibly offer Greece a fresh start then think again.
But apart from the fact that the election-winning party cannot claim any political credibility, the problem with the election result is that it continues Europe’s economic daydreaming.
Everybody knows that Greece is bankrupt. That its economy has no chance of recovery if it remains part of the eurozone. That Greece will never be able to compete with its richer North European neighbours while trading in the same currency. That it needs to cut its costs by almost half. That it needs to drastically slash its imports to start living within its means.
Though these facts should be well established, Europe’s political elites, and their Greek menials, keep pretending that a few reforms here, a pinch of austerity there and a bit of time will do the trick to turn Greece around. Such daydreaming has received another boost by the election of Nea Dimokratia.
The election winners, and whatever coalition government they might succeed in cobbling together will be given more borrowed time, and even more borrowed money, to tackle the Greek crisis. But you do not need to be a psychic to foretell that this won’t work. It didn’t for the first Greek bailout; it flopped in the second; and it will fail again now.
So all that this new government will do is to keep the illusion of Greek reformability within the eurozone alive. But it will not actually turn Greece around, let alone save it. All it will burn another few hundred billion euros in the process.
And so in a few years’ time, or perhaps even earlier, Europe will face the same problems once again: to cut Greece out of the eurozone – or to prop it up once again with another few hundred billions. The only problem: each time this question is asked the answer becomes more expensive.
This is why a Syriza victory would have been so much better. It would have accelerated the inevitable. Greece would have departed from the eurozone. It would have finally defaulted on all of its debt. And it would have had a chance to start again with a new currency – and by that time probably also with a new political leadership as none of the old, corrupt and hopeless Greek political parties would have survived the transformation.
Perhaps this process would have been more painful for Europe than Greece in the short term. But with emergency plans already drawn up and with all sorts of rescue mechanisms in place, Europe could have averted financial meltdown in such a scenario. Some European leaders may have even secretly hoped for this outcome. Instead of drawing out Greece’s agony for much longer, they would have preferred to make the painful but necessary break now.
What we are getting instead is, in essence, more of the same. More agonising negotiations between Brussels and Athens. More acrimony between Greeks and Germans. More empty reform promises from Greek politicians in return for more European taxpayers’ money.
None of this will heal the Greek patient, cure its economy or get its unemployed youth back into work. It will just create the fertile soil for a further Greek descent into political and economic chaos.
With only one glimmer of light: at the next election, those crazy Syriza cranks might just win.