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Greece: The View from the Bog

By Yiannis G. Mostrous, on Jul. 28, 2015

Greece’s economic and political travails have garnered an outsized amount of media coverage for a country whose gross domestic product (GDP) accounts for about 1.4 percent of the US$18 trillion EU economy.

We’re in a bull market for armchair analysis of Greece’s fiscal and economic woes and the government’s efforts to negotiate with its fellow EU members. Here is the situation on the ground.

Greece’s economy has wandered into a bog that threatens to suck the whole structure into the muck. Meanwhile, much of the population prefers to contemplate its navel instead of examining exactly what it is they’re stepping in and seeking stable ground.

On the streets, in the cafes and on television and radio talk shows, you can hear pseudo-philosophical discussions that occupy the time but won’t have any bearing whatsoever on the country’s future or its economy. You can build castles in the clouds all day long, but eventually you have to acknowledge the bog.

In Greece’s most recent national election, the leftist Syriza party won the majority and formed a governing coalition with the marginal, right-wing Independent Greeks party on their shared opposition to austerity measures required by the EU and International Monetary Fund.

Charismatic Prime Minister Alexis Tsipras won over the electorate by promising that they could have their pie and eat it, too.

Tsipras pledged that Greece would remain in the eurozone and continue to reap all the advantages of its membership while refusing to recognize the previous government’s agreements with its creditors and seeking a more forgiving bailout plan.

Incredibly, Tsipras aimed to achieve these objectives without making any long-term structural changes to the economy and social system. His plan also involved reversing the previous government’s efforts toward that end.

In short, the old policies that landed Greece in a bog would continue, with the EU financing the whole doomed experiment.

Nevertheless, the electorate bought into these empty promises, and Tsipras sent then finance minister Yanis Varoufakis to negotiate this impossibility with the EU.

After five months of aimless negotiations, Varoufakis managed to destroy any shred of credibility that Greece had with the EU, paralyze the Greek economy and humiliate Tspiras by putting the prime minister into such an untenable position with the EU that the country now finds itself saddled with an even more draconian austerity plan.

Most estimates peg the cost of these disastrous “negotiations” to the Greek economy at EUR60 billion (US$66.5 billion), or 2 percent of GDP. But Syriza has paid a heavy political price for failing to deliver on its promises, with several prominent members of parliament who had been in the prime minister’s corner voting against the bailout plan.

The government must push even stricter austerity measures—structural changes antithetical to Syriza’s pre-election campaign—through parliament with the help of its main opposition, the New Democracy party.

The inflated sense of self-importance that carried Syriza to victory in the election and informed Varoufakis’ negotiation efforts with its creditors has prompted discussions of a reinstitution of the drachma.

But Greece is a small, closed economy. Exports account for one-third of the nation’s GDP, and tourism contributes about 15 percent to 16 percent. In other words, a move to an independent currency wouldn’t improve the country’s fortunes to the same extent as other open economies.

Far too many assume that if Greece defaults or exits the eurozone, the European and global economies would suffer grave consequences.

Although the Greek contagion could cause problems for some peripheral EU countries, economic conditions in Spain, Ireland and Italy have shown signs of improvement. (See European Opportunities.) And at this stage, financial markets and foreign companies have much less direct exposure to Greece than when the sovereign-debt crisis first flared up several summers ago.

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We’ve long argued that Greece must address its structural problems to put the country on sounder fiscal and economic footing. Despite the progress made under the previous government, the Greek electorate opted for convenient fantasies over hard realities, choosing a party populated by panderers who don’t believe in the free movement of goods, services, capital and people.

Tspiras and his political partners may claim that they believe in the EU and Greece’s role in the union; however, Syriza’s actions and rhetoric run counter to market liberalization and deregulation, focusing instead on maintaining a bloated and largely unproductive public sector.

Many people in Greece believe that the situation can’t get any worse. But conditions will worsen the longer the government delays the necessary structural changes.

Unfortunately, the current leadership has demonstrated a reluctance or incapability to do the hard work and implement the reforms that the country so desperately needs.

At a critical juncture for Greece, the electorate opted to be governed by an aimless and incompetent bunch with the political acumen of a group of high schoolers. These leaders are concerned primarily with their own popularity and their party’s domestic rivalries, as opposed to solutions that would keep the country and its people together.

In the meantime, Greeks line up in front of the bank ATMs to withdraw their ration of EUR50 per day while contemplating if this was the “restoration of national pride” that Tsipras and his comrades promised before the January national election and the comical bailout referendum.

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