In retrospect, letting Greece crash the euro zone party was a grave mistake, a milestone in the annals of geo-economic stupidity. Eleven years ago, when it adopted the euro, the country was uncompetitive, had turned tax evasion into a national sport and had recruited Goldman Sachs’s currency-swap buccaneers to disguise the true extent of its debt.
Greece has been bailed out twice since 2009, at a cost of close to €300-billion ($387-billion). It went through a debt-crunching exercise that tore a €100-billion strip off the value of privately held Greek bonds. In spite of the bailouts and significantly lower debt, the Greek economy remains in freefall, “reminiscent of war damage,” Greek economist Costas Lapavitsas wrote in the Guardian earlier this week.
Five years of brutal recession have shrunk gross domestic product by almost 20 per cent and propelled youth unemployment to 50 per cent. The country is barely-living proof that piling austerity upon austerity in an ailing economy is the equivalent of half the crew manning the pumps of a holed ship while the other half opens the sea cocks.
Greece’s hemorrhaging hasn’t stopped at its borders. Since 2009, Greece, representing a mere 3 per cent of the EU’s economic output, has inflicted enormous financial, economic and psychological damage to both the EU and the euro zone as well. The contagion effect helped to send bond yields soaring in Italy, Portugal and Spain, whose debt, after Thursday’s double downgrade, traded at 7 per cent yields. That level is considered fatal. Greece, Ireland and Portugal all sued for EU and International Monetary Fund bailouts not long after their bond yields crashed through 7 per cent.
Popular discontent in Greece with government policy and economic rot has found an outlet in Frau Merkel, who had become the pan-European poster child for austerity gone wrong. During the frequent Greek protests and riots, she was depicted in posters as a modern-day Nazi. German flags were burned. At a rally in Athens on Thursday night, Mr. Tsipras, the Syriza leader and possible next prime minister, criticized his New Democracy opponents, saying: “You pulled down the Greek flag and handed it to Angela Merkel as a trophy.”
New Democracy, the main centre-right party, endorsed the Greek bailout programs, which were offered by the EU and the International Monetary Fund in exchange for (German-inspired) austerity – spending cuts and tax increases.
Syriza, the Coalition for the Radical Left, led by the charismatic young Mr. Tsipras, came out of nowhere in the May election to capture 17 per cent of the vote, putting it a close second behind New Democracy. Syriza wants to shred or greatly dilute the austerity programs, yet, incredibly, hopes to keep Greece in the euro. The EU and the IMF have already had something to say about that and it was pretty blunt: No austerity, no bailout loans, boil in the dark.
If there is one thing the two main parties, and the cacophony of smaller ones, ranging from the communists to the liberals, have in common, it is acknowledgment that deep, hard, long austerity is now a suicide pact. “All Greek parties will ask for similar things,” predicts Greek communications strategist Stratos Safioleas. “They want some sort of renegotiation with the European Union. Even Syriza is starting to moderate its rhetoric. I think they won’t do anything reckless.”
The election remains too close to call. Greek electoral law prevents polls in an election’s final two weeks, and in unofficial polls Friday, New Democracy and Syriza were running neck and neck.
The austerity disease
From France’s Hollande to Paul Krugman, the economist and New York Times columnist, austerity is earning a growing chorus of detractors.
Endless austerity, they believe, is the medicine that is killing the patient. As the dark effects of austerity eat away at Greece’s economic soul, other European leaders have taken note. They fear that the same crisis-fighting treatment will have a similar effect in their own countries. The first to break ranks with the pro-austerity movement was France’s Mr. Hollande, who wants an equal focus on growth and more time to balance France’s budget deficit.