Monday, 26 January 2015

The lesser evil for Greece and Europe

By electing the Syriza party, the Greeks in despair have turned what was an untenable situation into a nightmare scenario, perhaps hoping to force some kind of way out from the present situation.

What are in fact the Greek options? Using my academic hat I will put them bluntly and leave to others the task of dressing them in politically correct language. The options are basically three.

The first is that once in power, Tsipras and other radical leaders in the coalition will become realists and will not rock the boat. The second is that he will try to implement his political and economic agenda and will end up in mayhem and forced out of the Euro, or, in a worst case scenario, exit the EU and fall back into dictatorship. The third option is that he will declare a moratorium or some other form of debt default and will end up being bailed out again by the Troika.

There are several international experiences we may use as an analogy for each scenario.

The “get real” hypothesis has two versions: a) the FT hope that Tsipras becomes a Lula da Silva rather than a Hugo Chaves; and, b) Krugman’s (socialist) wishful thinking that the sudden abandonment of austerity will revive the Greek economy and the political mess will disappear. Both are very unlikely. The first, because the ideological base of Tsipras is fundamentally different from that of the Lula’s party in Brazil and the financial situation is much worse in Greece. The second ignores that the moderate socialist left has been almost wiped out of the political map and replaced by radicals without previous government experience.

The “mayhem and Euro exit” scenario is the most dangerous for Greece and Europe, if one judges from historical precedents such as the Cuban revolution or the rise of Nazism in Germany. One should not forget that it was economic anarchy, national humiliation, anti-Semitism and the fear of communism that led the Germans to vote Hitler into power. The fact that Syriza has chosen as coalition partner a nationalistic anti-Semite party and left-wing leaders in Southern Europe are increasingly endorsing anti-Semitism under the guise of pro-Palestinian support, creates an environment favorable to the Greek Golden Dawn neo-Nazi party which came third in the election.

The “new debt restructuring and new bailout” is the lesser of the three evils. In practice it means that the Troika needs to develop a new financing mechanism to lend Greece the money they need to repay their debt. This way of preventing a formal write-off of loans from international financial institutions, which enjoy preferred creditor status, has been used by the World Bank through AID lending and by the IMF through the HIPC/MDRI and PRGT Initiatives. Two countries with recently overdue repayments to the IMF were Zimbabwe and Argentina. Both with left-leaning, populist leaders who decided to challenge the international lenders. The results have been years of economic decline and rampant corruption. So, Greece, a country already rigged by alarming levels of corruption, might follow their path. However, for the good of Greece, one should hope that Tsipras will be more like Cristina Kirchner than Robert Mugabe.

To close this rather bleak outlook, I must address the question on whether there are no solutions for the Greek problem. Yes, there are. And I have written about some of them in other posts (e.g. here and here) in 2011, at the start of the Southern European crisis.

However, I do not foresee a possibility that someone will endorse them before the Greek electorates gets disillusioned with the new utopia, votes for more reliable politicians and the EU leaders reconsider their austerity bias. I hope that time will prove me wrong.

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