Latest posts

The political rookies gambling with Greece’s future

Published in Business Spectator (Melbourne), 19 February 2015

Even if you have been closely following the euro crisis, you would still be astonished by recent developments. The dramatic stand-off between the Greek Government and the rest of Europe is something we have not seen before.

The past five years were not without drama, to be sure. We had an elected Italian government removed by EU diktat. We saw a Greek prime minister pushed aside after he threatened to call a referendum on austerity. We witnessed the rise of the European Central Bank to the most powerful institution of the continent. And on top of all of that, markets were on a rollercoaster ride.

What is happening today, however, is of an entirely different quality. Never before has a government so openly refused to play by the rules. Not just the rules of previously agreed treaties and contracts but also the unwritten rules of diplomatic protocol.

Prime Minister Alexis Tsipras and his Finance Minister Yanis Varoufakis are not afraid of snubbing their counterparts at press conferences. They are presenting half-baked proposals, or no proposals at all, at summits. To round it off, they are sending ever-changing mixed messages at home and abroad. And we have not even talked about their unusual dress code.

One cannot help but wonder whether their actions are part of an ingenious strategy in the game of chicken that Greece plays against the rest of Europe (The euro crisis has become a game of chicken, January 29). They might just aim to appear mad in order to make their opponents give in. But it could equally be that Tsipras and Varoufakis have just lost the plot.

Both Tsipras and Varoufakis are inexperienced office holders after all. Tsipras has only been an MP for less than six years, and Varoufakis a politician for a little over three weeks. After their emphatic election victory, which saw the once smallish Syriza movement rise to power, they probably have not quite made the transition to government yet.

Tsipras still sounds like a fiery opposition leader, and Varoufakis like a radical economics professor. Unfortunately for both, they now have to deal with other European heads of government and finance ministers, which requires different skills than those needed to win election campaigns or run academic seminars.

Perhaps the truth is that it is a bit of both: It is an aggressive style of politics coupled with the inexperience of political rookies. In other words, the Greek Government is led not so much by politicians versed in the art of the possible and the ability to compromise; it is run by revolutionaries who are getting drunk on their own ideological rhetoric and their favourable domestic opinion polls.

This changes not just the state of play between Athens and other European nations. It also means that some of the options for solving the Greek crisis no longer exist.

As readers of this column will know, for a long time I have been advocating a ‘default, exit and devalue’ strategy for Greece. Noting that Greece has no chance of recovery while part of the eurozone, I always thought it would be desirable for Greece to get a proper haircut on its debt, leave the euro behind and start again with a new and much devalued drachma.

Watching Tsipras and Varoufakis behave like bulls in a China shop, I must admit that I am starting to question my own recommendations. Not because I would believe that ‘default, exit and devalue’ does not work. Far from it — I still think this strategy could help Greece. But I have doubts that the Syriza government would be capable of implementing it.

Any paper currency ultimately depends on trust: trust in a country’s economy, its institutions such as its central banks and, not least, its political leadership. After over five years of Greek crisis, there is little trust left for anything Greek. Its economy is a shambles, its political institutions appear not much better, its financial system is on ECB life support.

The only thing that could still allow anyone to develop some sort of trust into a new drachma would be a government that has something resembling a plan to get Greece out of its troubles. It would need to be a government that got Greece onto a clear reform path, committed to balancing the budget and working closely with international institutions to keep Greece integrated into the European common market and the global economy.

With Tsipras and Varoufakis at the helm, Greece would have none of that. So the moment Europe cuts the lifelines for Greece, the country defaults and is forced out of the eurozone, there would not even be a hint of trust in the new drachma. This could make Greece’s return to a national currency traumatic and chaotic.

There is not much time left to avoid this scenario. Time is running out for Greece and Europe to reach a compromise. After the altercations of the last weeks, such a deal looks further than ever.

Tsipras and Varoufakis may not realise it but their gamble with Europe has the potential of backfiring on them and their country. Their actions could even make even the most plausible alternative scenarios to staying within the eurozone look unappealing.

The mess the two have created after only three weeks in office makes the Augean Stables look like a perfectly neat arrangement. To move on from where the Syriza-led government has led Europe will take more than Herculean effort.

%d bloggers like this: