Greeks Bearing Debt

The Independent carried an interesting article on Syriza the other day in which Sean O'Grady made a very sensible point - if Greek debts were to be written off, the whole sorry saga would be bound to start all over again. 

Syriza has come to power by promising to 'spend, spend, spend' other people's money and to squeeze the rich in Greece until the pips squeak.

Good luck to them, I say, but what's that got to do with the rest of us?

Far from raising taxes across the board to pay for essential public services, Syriza has promised to abolish a new property tax on second homes which was introduced for the first time in 2011.

So relatively well-off, middle-class Greeks will now get off Scot-free while Syriza goes cap in hand to the European Union asking for the country's debts to be written off.  

Which is as daft as it sounds.  


9 reasons Greece's experiment with the radical left is doomed to failure

Beware Greeks bearing debts

By SEAN O'GRADY - The Independent

Greece’s new cabinet faces the biggest task of any Greek government since democracy returned in 1974; how to save the nation. A frustrated, fatigued and angry electorate has put into power a new radical left party because all else seems to have failed. Indeed, in some ways the austerity programme had made things worse. So now prime minister Alexis Tsipras, and finance minister Yanis Varoufakis, a self-described libertarian Marxist, face Angela Merkel and the conservatively-inclined Germany taxpayer in a battle of wills. All the signs are that the Greeks will not win…

Popular mandates don’t mean a thing

Or at least not in the hard world of international finance. It really doesn’t matter that much, when push comes to shove, if your government won 35% of the vote or 65% per cent of the vote in a general election. You owe the money; you need to pay it back as agreed. Alexis Tsipras and his new cabinet will soon be told that.

Greek Prime Minister Alexis Tsipras (right) talks to Deputy Prime Minister Yannis Dragasakis during the first meeting of new cabinet post elections in the parliament building in AthensIf Greece has her debts written-off everyone will want the same treatment

So every other nation that has had to have a bailout will want the same treatment; and if they don’t get it then they just hold an election and put a leftists Syriza-style party into power that just says “can’t pay, won’t pay” into power. Soon all of Europe will be run by governments that don’t believe in honouring their obligations, and have a few more damaging policies besides. Not something to be encouraged.
Beware Greeks bearing debts

A few years ago, in the acute stage of the Eurozone’s unending crisis, the idea of a Greek exit from the Eurozone was enough to destabilise the whole world’s financial markets. Nowadays we’re much more used to the idea, and the financial markets are calmer. The shock factor has disappeared. The contagion of the Greek crisis spreading to Italy, Spain, and Portugal and so on is much less likely to transpire.

Pablo Iglesias, the leader of Spain’s anti-austerity party Podemos, appeared at a Syriza rally (Reuters)

The Greeks have no bargaining power

If they cannot scare the Germans into easing up because they can threaten the whole European project then they have nothing left to rely on for leverage. They have some sound arguments and seem more reasonable than was assumed by some, but in that is all they have to rely on.

Greece could exist outside the euro

Admittedly, it would mean yet more hardship and austerity, but maybe one day they would be able to use the freedom having their own currency would give them to rebuild a more competitive economy. It worked for Britain. That said, their euro currency debt would immediately rise in real-terms value against any New Drachma, and would make the debt burden even worse. Default would be inevitable; as it may be anyway.

Even if they got their debts entirely written off, it would all start over again before long

This is the fundamental point. Greece was living beyond her means after the euro was introduced; taking advantage of the cheap interest rates on the euro bestowed by its status as a strong currency backed by Germany. They had a great big party, buying all those nice German cars and the consumer digital wonders of the noughties; and now the hangover is still taking time to work through. There is no reason to believe that such reforms as there have been in Greece will be enough to enable Greeks to live comfortably within their means. The debts will pile up and the crisis will return. Syriza has no policies to make Greece competitive with say the Slovaks or Poles, let alone Korea and China.
The Germans are fed up

Semi-reluctant about the euro in any case, which meant giving up their cherished Mark, the German taxpayer is growing weary of bail-outs and rescues for what they often regard as lazy southern neighbours. They fear “printing” money to solve these problems will re-ignite inflation, a national folk fear after the hyperinflations of 1923 and at the end of the Second World War. Right wing protest parties such as Alternative For Germany are gaining support. Angela Merkel recently prevented the European Central Bank from making them liable for other governments’’ debts. The tide has turned.

Supporters of Germany's left-wing Die Linke party, hold placards as they show their support to Alexis Tsipras, leader of Syriza left-wing partyThe Germans can’t afford many more bail outs

A few years ago German was growing strongly; not so any longer. Lack of confidence at home is tipping the economy into deflation; slowing exports to the likes of China is also hurting the national finances. Even if they wanted to they cannot afford to prop everyone else up, with only the Finns and Dutch able to join them on the solvent side of the Eurozone divide. 

Fudge is a way of life in Brussels

Like Belgian chocolate and pralines, political fudge is a commonly found commodity in Brussels; the EU and Germany will do a deal with Greece, but only a face-saving, cosmetic affair. Greece is not going to get off the hook, but its new prime minister will be able to declare victory and move on.