Greek elections: The euro’s fate could be decided on Wednesday
Greek markets crashed again last week, in the light of a snap election which has been called for this Wednesday. Stocks crashed by 13% – the biggest one-day crash since the beginning of the eurozone crisis. Greek government bonds spiked by 300 basis points.
What’s spooked the markets? It’s called the Syriza party.
Syriza is a far-left outfit that wants to end austerity in Greece. But if it does, it’ll spend so much money that it’ll essentially make Greece’s position in the eurozone untenable.
And of course, the danger of one country leaving the eurozone is that it could start a chain reaction. Italy, Spain or Portugal might be next in line.
Scary stuff…
This election is a presidential election, but the worry is that it could provoke an early general election. And in a general election, Syriza could sneak into power.
Syriza party leader Alexis Tsipras was in the City of London just a few weeks ago. He was on a kind of City roadshow to trumpet his vision for Greece. Essentially, it’s two-fingers up at the EU, fresh demands from the EU, and, in fact everything for everyone in Greece.
Greece really is the problem that refuses to go away.
A bailout, but for whom?
This is what happens when you take serious matters and try to brush them under the carpet (and for that matter, wilfully mislead the public).
You see, what was termed a bailout for Greece wasn’t so much a bailout for the Greeks, as for all the eurozone banks Greece which owned Greek bonds (in other words, Greece owed them money). During the good times, they bought cheap bonds from Greece and sold expensive northern European bonds, pocketing the interest differential.
In 2008, when it all went wrong, the clumsy bankers left holding the bag were offered a way out. The eurozone gave Greece a ‘bailout’ so it could pay these banks off. And sure, the banks got a ‘haircut’, but the bailout still left Greek with fresh debts – this time to the EU.
Now, Greece’s national debt is up to 177% of GDP, one of the biggest debt burdens in the developed world.
Like I say, nobody in Greece feels like they’ve had a bailout. In seven years of depression, the economy is off by some 27% of GDP. Youth unemployment is some 50%, a figure which would be even worse, were it not for the fact that so many have fled the country in search of work.
This is the state of play in Greece, so it’s not really that surprising that a politician like Tsipras has risen to prominence. Like I say, he was recently in London, giving a select group of people a chance to see what he would like to do about the situation.
A leaked memo by an attendee from Capital Group, Joerg Sponer, suggests Tsipras’s plan would lead to chaos: “The programme is worse than communism!”
Tsipras wants to cull creditors down to size; to offer free electricity, food, shelter, and healthcare for the poor; tax cuts (except for the rich, of course); wage and pensions rises; more civil servants to boost employment; a moratorium on individuals’ need to pay back to banks. And as for the EU – he wants another €5bn in subsidies, thank you very much.
The obvious, terrible solution
I’ve been saying it for so long now that frankly I’m beginning to bore myself.
Countries like Greece need to leave the euro. It’ll be extremely painful, but they can then begin to set matters straight. There are all manner of potential solutions to the debt on the books. That would have to be a delicate negotiation between the Greeks and their creditors. How many drachmas should they get back on the euro? And over what term?
But rid of the currency shackles, at least the country would be free to start to rebuild. And, one would hope, the public would feel confident in electing in a sensible, pro-growth political regime.
While Greece labours under a regime that doesn’t work – and one in which its debt represses economic recovery, then of course the public will feel nothing but anger. What businesses, or individuals are prepared to invest in this environment?
Of course there’s bound to be a real danger that people vote for populist crazies that promise the earth on policies that yes, are frankly more ill-considered than communism.
Syriza could force Greece out of the EU. But boy – it would be a very, very messy way of going about the job.
The EU only has itself to blame. Had they been bold enough to agree to Greek exit and negotiate the associated debt write-down, then things would be wholly different today. Of course, they weren’t prepared to do this precisely because it would shine a burning light on the malfunctioning single currency regime. To see the EU banks lose money, while Greece walked its own path to prosperity would be too much to bear. Instead, they chose the ‘lose-lose’ strategy.
Greece is left with pain, anger and unemployment. The very real threat of a Greek parliament run by loonies. And the EU still won’t get its money.nytimes
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