This mornings news is full of how the Greeks lost in the talks with the EU creditors. According to some this will put an end to populist movements in Europe and show that the EU’s Tough Love program really works. The meme is that Syzira has been consigned to an also ran political party and will no longer to a threat to Germany’s collection of government bond debt. But I would not run out and start buying discounted Greek government bonds just yet. What all these finance ministers, economists, and writer/pundits have missed is how Syzira got to power in the first place. Let’s back up a couple of weeks and recall what the Greek citizens have been saying.
First, the austerity programs are taking a terrible toll on the average Greek citizen. Large numbers of government workers were laid off or fired at the insistence of the IMF, the ECB, and the EU commission. Second, welfare, pensions, and other economic contributions to Greek income was greatly reduced. Third, any programs that had been aimed toward fostering increasing business activity were cancelled. All of this was done not at the request of the Greek government leadership but by fiat order of outsiders who are seen as protecting the big banks and grinding down the little citizen. Germany’s insistence on playing extreme hardball and giving no quarter only re enforces that image in the minds of the Greek people. This means that Syzira can go back to the people, who voted for change in their own country, and claim they dealt with Germany in the most honest manner, even bend over backwards to accommodate the rest of Europe, but all they got was the iron heel of the German boot. Very few observers think this an important result. Why not?
The election rested on bringing reforms and an end of austerity. The people were voting for relief. They are fools who see sheep who are really wolves waiting to pounce on them. It they really wanted an extreme answer they would have voted for Golden Dawn. But these people aren’t ready for another NAZI regime and there is no eloquent Hitler waiting in the wings. Yes, they may feel betrayed but that betrayal will turn to hatred of all things German. The other part of the deal was that the Greek people wanted to remain in the Euro, or European Monetary Union. Without the threat of being to leave immediately, Syzira could not extract the conditions they wanted. Remember, the Syzira team constantly said that they wanted to remain in the Euro and pay the debts in full. What they asked for was a change in conditions that would permit Greece’s economy to grow and make the repayment easier in the economy. What Greece constantly received ere slaps in the face. Tough love works only when the alternative to acceptable behavior is worse that the current situation. The other factor that works against tough love therapy is time.
Time is what Syzira won and it is the most valuable of commodities. It is not enough when good is repaid with evil, the hero must have time to put his plans into place. This was the other idea that so many missed. The fact that the elections were held only a couple of weeks before the deadline on the repayment plans was seen as a handicap. Team Syzira was seen as a bunch of incompetent amateurs who didn’t even know what they were doing. Yet one commentator noted that Syzira gained the time needed to start getting the people and the government ready for an exit from the Euro. I doubt that the leadership of Syzira was so stupid as to believe that Germany would make nice just because they won the elections. What was needed was the ECB money to support the banking system. Even a month makes a difference, four months makes it easy. Time was something Germany couldn’t give if it wanted to crush a populist movement. No doubt Podemos and Five Star will take note and craft their plans accordingly.
So what does time buy? First, it shows that the troika is not amenable to change in conditions of welfare for Greeks. What did Varoufakis say? If the commission, nee troika, kills the reforms it kills the deal dead. Germany was not paying much attention while they were gloating over their win. If the Greek people can’t get reforms passed in their own country because outsiders reject their sovereignty then the lesson is, Greece must leave the Euro. Every pundit and economist was harping that leaving he Euro and going back the the Drachma would be a fate worse than death. Europe seems to forget that Iceland made that transition without a great deal of hardship and that it is now going to remove itself from the EU as the cost of remaining out weights leaving. All Iceland ever got was easy money and a wrecked economy with the promise of tax payers bailing out stupid bankes. In four months the Greek population will figure out that same lesson. Besides, Obama is just dumb enough to throw enough money Greece’s way and let American tax payers bail Greece out.
The other outcome that I would not be surprised to see is that if the troika resists reforms and causes the Greek exit by popular demand they will reap default as their payment. When a few countries to whom you owe debt fight tooth and nail to keep you a debt slave are you really obligated to Do The Right Thing and repay them? Assuming that the Greeks leave the Euro, regardless of any former agreements, they will either pay the bonds back in discounted Drachma currency or not at all. Let ISDA take the hindmost. But you say, all that will wind up in court. Not really, for when Greece leaves the Euro will fall apart. The pressure on those countries who have acted as surety for the ESFA agreements will not have the funds they are committed to give to the ESFA. It can’t be done. Italy, Spain, Ireland, Portugal, these countries don’t have an additional 80 billion Euros in their budgets. No, Spain will be the next out the door because they are beginning to see no great advantage of being a member of the EMU. Italy should go now but they are too tied to the German economy. If Italy was smart, it would leave the EMU and then the northern part of Italy should divorce itself from the south. Neither group likes each other and those in the south have almost no economy. And Sicily should become its own kingdom once again. The fact is, there is little but agriculture in southern Italy for the moment. The south has always been the bastard step child. If it were on its own it would have a much better chance of attracting some industry and other economic benefits. So by June we will see if Greece leads the way out of the morass of a monetary union that never should have been made.