The austerity extremists in Brussels, Frankfurt and Berlin have fatally wounded and buried three Greek governments since 2009, when Greece handed Europe the "debt crisis," as it was then known. Burying a fourth – the new government of Syriza party leader and Prime Minister Alexis Tsipras – will not be so easy.
Mr. Tsipras and his ragtag band of communists, socialists, visionaries, freedom fighters and outright wackos swept to power last weekend on an anti-austerity ticket in a country bled white by five years of economic depression. They formed a government and cabinet with lightning speed, grabbed their pitchforks and are about to storm the pro-austerity fortresses of northern Europe. "The memorandum [the Greek term for the bailout agreement] is over for us," Giannis Dragasakis, the deputy prime minister who will lead the debt and austerity negotiations, said on Thursday. "We will present our own program."
The new Finance Minister, Yanis Varoufakis, a Greek-Australian economist with a penchant for provocative language, has called the German-inspired austerity "fiscal waterboarding."
The three short-lived centre-right and centre-left governments that came before Syriza had one aspect in common. With varying degrees of enthusiasm and obedience, each respected the wishes of their paymasters – the European Union, the European Central Bank and the International Monetary Fund, known as the Troika – and implemented austerity in exchange for €240-billion ($344-billion) in bailout loans.
The loans kept Greece technically solvent and kept the little Balkan beggar inside the euro zone. But, piled on top of an uncompetitive economy, the tidal wave of tax hikes and spending cuts pushed Greece into an economic and social Hades. In a letter published Friday in the Financial Times, Philippe Legrain of the European Institute of the London School of Economics, noted that the total loss of Greek economic output between 2009 and 2014 was €191-billion, equivalent to more than 100 per cent of gross domestic product.
No wonder the pre-Syriza governments had the lifespans of fruit flies. Voters saw them as the Troika's lapdogs and took to the streets in mass, violent anti-austerity protests. A vote for the ruling party was a vote for unemployment, or worse.
A week after the elections, the betting game is on and the question is: Who will win, the Troika or Syriza?
The politicians, technocrats, economists and commentators who are betting on the Troika seem to have compelling arguments for keeping the austerity and debt package intact. Greece was the author of its own misfortunes, they say (many Greeks agree); it signed an international bailout agreement and is obliged to respect its terms; if Greece breaks its bailout pledges, so will every other bailed-out country; it already received debt relief in 2012, when the sovereign bonds held by private investors were given a "haircut" and the maturities of the EU portion of the bailout debt were extended; Greece's debt is not as big as officially stated, thanks to that relief; the austerity would have hurt less if Greece had fully lived up to its end of the bargain and reformed its economy. And so on.
The trouble for the Troika is the anti-austerity arguments are even more compelling and it comes down to this: Austerity was doomed to fail in Greece.
Austerity anywhere is typically an economic botch job. Probably the only time it worked in recent decades was in Canada in the 1990s, when the Jean Chrétien government put the country on a brutal regime of spending cuts and tax increases. But the Canadian economy did not go on a Titanic run because the U.S. economy was powering ahead and pulled Canada into its slipstream. The low Canadian dollar triggered an export surge.
In Greece, the Troika badly miscalculated the effects of piling harsh austerity onto the already wrecked Greek economy in a recession-hammered Europe. When the austerity plan was drawn up in 2010, the year of the first bailout, the Troika assumed a small GDP fall in 2011 and the start of a recovery a year later.
Instead, the Greek economy got carpet bombed; GDP fell by more than 25 per cent and is only now climbing out of the hole, slowly. Unemployment climbed to almost 28 per cent (it's now 26 per cent) and the youth jobless rate rose to more than 50 per cent, where it remains. Tax revenue shrank and the national debt rose – the opposite of what was supposed to happen. Almost every number except tourism receipts went in the wrong direction. Fiscal waterboarding indeed.
Syriza is right – Greece needs a break from austerity. But it may get nothing or nothing more than a few meaningless tweaks, in which case Greece will have to decide to suck it up or stick it to the Troika by defaulting, walking to the beach and waving goodbye to the euro zone. While the scenario is remote, it is not out of the question if Syriza's austerity overhaul efforts hit a brick wall. If Greece walks, and the southern flank of the euro zone shatters, the Troika will have to take a lot of the blame.