Syriza is big news. Depending who writes your news of choice the Coalition of the Radical Left represents salvation or damnation. May I take this opportunity to suggest that, actually, neither is very likely. The resentment in Greece of austerity is perfectly understandable particularly since Greece’s total indebtedness has actually gone up under the austerity regime. On HardTalk with Stephen Sackur, economist Costas Lapavitsas of Syriza describes their economic policy proposals as “soft Keynesianism”. Let’s talk about what’s going on, and what Syriza’s membership want to do about it. Why did austerity previously become policy, was it appropriate, and is the shift away from it by Syriza wise?

syriza

The sovereign debt crisis really kicked off in 2010 as a result of governments bailing out illiquid private banks. The Portuguese, Icelandic, Irish, Greek and Spanish (PIIGS) governments did more of it compared to their total economies than most. Without outside funds – it’s difficult to borrow when you’re in financial disgrace with lenders – these governments had to do the one thing no government official ever wants his or her government to do, shrink. And shrink they have, in a sense. Iceland and Ireland are both pretty much out of the woods now, though they remain central-banked fiat economies on course to further crises in the future. This was achieved by actually decreasing government spending, and in Iceland’s case, leaving the banks to go out of business. This makes Iceland the only capitalist respondent to the financial crisis. Interestingly, it also has the healthiest post-crisis financial system* in Europe now.

In Greece, the sheer size of the banking system compared to the country caused a massive crisis almost entirely of the Greek government’s own making. The right-wing New Democracy party had presided over a crony-corporatism highly reminiscent of the economic models of German, Italian, and indeed Greek fascism. Favours were doled out, favoured friends got infrastructure projects – check out the Olympic Village from 2004 now, it somewhat resembles Chernobyl – and the who country’s population paid high taxes. Or did they? Those cheeky Greeks, used to untrsutworthy government, actually found all kinds of ways around paying taxes the extant laws said they owed, and often officials in New Democracy were instrumental in arranging these schemes or even making them official.

What a monster is hindsight. Looking back on all that it’s no wonder that, with massive debts piled up through unprofitable grands projets, the Greek government found itself skint in 2010. The news was replete with predictions for the breakup of the Eurozone and of Greek default any day now. It didn’t happen. In drips and drabs the European leaders, wise paragons of household management that they are, arranged relief packages for the Greek government, whose debt the rating agencies meanwhile downgraded to junk status. In all of this something very ugly took hold, as the Greek economy slid into almost constant recession from 2010 to now. Poverty is rampant, but the biggest spectre of all right now is unemployment. Quoth Reuters;

“Promising to reverse budget cuts and renegotiate Greece’s huge debts, Tsipras’s leftist Syriza party stormed to power in Sunday’s snap election on a wave of anger against the German-backed austerity policies that have driven up poverty and left one in four Greek workers out of a job.”

So, poor little Greece lies prostrate before the troika of the International Monetary Fund, the European Commission, and the European Central Bank. Two of these bodies sit atop the European Union and disgorge hope, freedom and justice like candies for Europeans to enjoy. I jest. The Commission is basically a cabinet of ministers by another name, and the ECB is the ultimate creator of Euros. The IMF is much more boring; it’s just a depository of funds from the governments of the world and offers loans – on varying terms – from the resulting super fund to those who ask. The UK needed such assistance in the 70’s, and was even referred to as the Sick Man of Europe at the time. Now it’s the PIIGSs’ turn, especially Greece.

Syriza head Alexis Tsipras has lots of radical notions, shared by most partners in the Coalition of the Radical Left. Indeed the name is a bit of clue. But, now that they are a party in government they will be tested as the Liberal Democrats were in the UK after 2010. Already Greek banks are running scared, Reuters reports, their stocks falling by more than 22% overall. Scary stuff if you’re an investor in or employee of such a bank. Admittedly there is much about the results of this election that can seem appealing from outside as well as in. Austerity has been frightfully harsh, with consequences like the unemployment enumerated already, so perhaps Syriza offers a better future for all Greeks after the nightmare so far. However…

There is an elephant in the room anyway, namely all that unpaid government debt. The government could default on the lot and cease repayments at once. They are a government after all; it’s not like anyone from the troika can threaten the actual officials in Athens themselves. That has been an option ever since the crisis became about sovereign, rather than private debt. Here we come to the point that makes Syriza’s position somewhat easier to stomach; they will most likely push for a big haircut on their country’s debt liabilities, writing much of what’s owed off and letting down many creditors. Naturally German government officials and many lay people are aghast at such a possible move, since a Lannister always pays his or her debts.

Another factor that muddies the waters before assessing the soundness of Syriza’s direction is Euro QE, which is now confirmed to be going ahead from March 2015 to September 2016. Loosely speaking, this is the ECB and its private proxies printing money. In this case, 1.2 trillion Euros. That’s quite a sum. So, while the ECB is embracing monetary Keynesianism, what of those fellow Keynesians in Syriza providing the economic plans for Greece? Well their impact is already being felt, as they have halted the privatisation of the Piraeus Port Authority. Nothing in neo- or New-Keynesianism suggests a state should own infrastructure, which contradicts Lapavistas’ remarks on HardTalk, though the overall direction being taken remains to be seen. This is just a continuation of the state dominance of the economy that was the norm until the 2009 bank crisis, bailouts and subsequent 2010 sovereign debt crisis.

So Tsipras is not, in fact, freeing Greeks from anything. Yet again it’s just rampant statism disguised in notions of some generic ‘change’ with little idea of what that change is going to usher in. If falling stocks, halted privatisations and government stimulus spending are now on the cards, then ordinary Greek people are not ultimately in for anything much better than the last five, miserable years. This increases the likelihood that, one or two years from now, the government will change tack and go from restructuring to outright default and leaving the Euro. After all, they can’t print money to spend their way out of a crisis, they have to actually get the money from outside the country.

So, salvation or damnation? As the events, trends and likely outcomes already illustrated clearly show, Greece’s path does not lie either way. Syriza will try to stay in the Euro, and is negotiating hard with representatives from the troika on how much of its debt to write off in a haircut. This will be good for Greeks in the short term because the government can engage in make-work schemes in the way of regimes before the crisis, at least for a while. The long term fallout from these policies will play out long after Tsipras is out of office so he doesn’t have to worry about the consequences. On the one hand, the government should default on all its debts and start again. The only short-term losers from such a move are investors who should have lost money on their bad bets by now anyway.

On the other hand, however, it will not be long before other European governments and peoples cry out for ECB and IMF lending to Greece to end, regardless of whether or not Greece defaults altogether. And that will of course leave the Greek government with only taxation as a means of raising revenue. Borrowing will be out, money printing will be a no go. This will place an inordinate pressure on the Syriza ministry to either keep up with austerity to a large degree or, alternatively and messily, scrap Eurozone membership and print and mint Drachmas again. As stated, Syriza are against the latter, so presumably to spend more and lighten austerity they will raise taxes dramatically and introduce ever more regulation and programs. All this will not ultimately help, but it is different from the current path and that seems to be good enough in many eyes.

By the shores of the Middle Sea, many people fin their lives changed for the worse, and I fear this impression will last a long time. I also fear that their hatred will turn on capitalism and free markets as the enemy that brought their lives low, left half of those under 30 unemployed, and robbed many of any hope of achieving affluence. Yet freedom and capitalism persist wherever human beings live and deal with each other from day to day. I have high hopes that the people of Greece will enjoy a better life in the near future than now, but little hope that Syriza have shown a comprehensive way to achieve that.

 

 

* – Switzerland’s only major financial crisis was one of people flocking to the Swiss Franc though 2009 and 2010, hence a peg to the Euro, which only this month [January 2015] came to an end.