All results are not yet in but it’s pretty clear that the Greek people have thrown a wobbly after five years of austerity and voted en masse for Συριζα and its leader Tsipras who said:
“Today the Greek people has written history, Hope has written history … Greece is turning a page. Greece is leaving the austerity of catastrophe and fear … there are no losers and winners. Those who have been defeated are the elite and oligarchs … we are regaining our dignity, our sovereignty again.”
That the Greek people have chosen an alternative to austerity is hardly surprising. The economy has slumped by 25%. Rising unemployment (in a country where health insurance is linked to work status) has led to an estimated 800,000 people lacking either state welfare or access to health services. Nobody doubts that the Greeks are suffering. But is ever-tighter austerity the road to recovery and prosperity?
Greece was forced to make massive cutbacks to meet the terms of twin bailout packages, totaling €240 billion, largely from the EU. Unemployment is rife and youth unemployment may have improved in the last year—but only from 58% to 51%. You may think Osborne’s austerity has been tough in Scotland but it is nothing compared to what the Greeks have suffered.
On January 20th 35 economists and professors wrote a joint letter to the Guardian arguing for “cancellation of a large part of the debt and new terms of payment which support the rebuilding of a sustainable economy.” Their argument is that a more expansive fiscal policy setting, targeting immediate relief from poverty, would stimulate further domestic demand and lead to economic recovery.
Reports from across Greek society—including middle-class but especially the poor—are full of hardship and declining standards so humanity argues for another solution. Yet, the Greeks largely brought this upon themselves. Their relative profligacy earlier on was made possible by their joining the Euro for its launch in 2002.
Prior to that, the Greek drachma had been a minor and relatively volatile currency. Greek governments wishing to fund ambitious programmes were rather limited in the amount of debt that they could accrue without the drachma sliding on world markets and repayments becoming onerous. Although as wedded to popular (if expensive) policies as any other government, this kept their ambitions in check.
But 13 years ago, that changed. Being part of the bigger currency meant that Greek borrowing had little impact on interest rates for the Euro and, rates being low, it was a serious temptation for governments to borrow at low rates and settle above-inflation wage demands. Once parties get elected on such economic drugs, it was hard to wean themselves off it again.
So, ten years of such policies and Greek National Debt stood at a whopping 175% of GDP. For comparison, deep-in-debt Britain stands at 90% and prudent Germany at 78%. What is not coming out in this whole discussion—and certainly was not being admitted by any of the parties engaged in the Greek election—is that, for years, Greece has been living well beyond its means.
And—lest any of us get smug about it—so has the UK. From the Thatcher buyout of mines and steel mills to the present day, Britain has avoided paying the cost of many programmes through taxation by squandering the income from North Sea oil. Now that some £8bn has disappeared from that honey pot through oil dropping to $50, Osborne has yet to explain how he will compensate for such a glaring shortfall in straitened times.
But we digress.
The point is that the Greeks are putting Συριζα in charge because they’ve had a bellyful—their fault or not. And the first act of whatever administration Tsipras cobbles together will be to go to Brussels and tell those malakas where to get off. It will amost certainly result in a restructuring of Greek debt and (if they get lucky) forgiveness of some of it. Which is good news if you happen to be Greek and even better if you happen to be Greek and unemployed. If the professors are right, the Greek economy will recover.
Had Greece been the only profligate country who surfed the stability gift that was the Euro, all might be well. But now you’ve just handed the European Central Bank a ticking time bomb. Italy, Spain and Portugal were also not slow off the mark milking this nation-sized credit card and will soon be at their door demanding similar leniency.
Which leaves the EU with a pretty stark choice: throw Greece out of the Euro, making their repayments all the harder; or abandon the entire Euro project altogether. While there are more than a few stolid German businessmen who would resurrect the Deutschmark in the time it takes to say “Wirtschaftswunder”, that letter will not seem a plausible option.
So spend all your Euros while you’re on holiday on Mykonos this summer because, by 2016, they’ll be back to drachmas—and probably at a more favourable exchange rate.