Cogito Ergo Non Serviam

Anti-Austerity Syriza Party Wins Greek Election

After years of European-enforced austerity and depression, the Greek electorate finally had enough. Sunday's voting put the anti-austerity Syriza Party within a seat or two of an absolute majority. Thanks to the 50 bonus seats the largest party receives and the support of the right-wing Independent Greeks, Alexander Tsirpas is the new boss in Greece. This means a paradigm shift in dealing with Greece within the EU. One hopes Dr. Merkel, et.al., are ready to be told off.

To see why the Greeks opted for an end to austerity, one only has to look at the figures from 2009, when the Greek financial crisis really started to bite, through the present. In absolute terms, the public sector debt was 265 billion euros in 2009, rising to 330 billion in 2010 and falling to 310 billion this year. Meanwhile, GDP per head has fallen 22% since 2008 (by way of comparison, the US economy shrank about 20% between 1929 and 1933).

But the measure of a nation's ability to service its debt is the public-sector-debt-to-GDP ratio. Debt as a share of GDP in 2009 was 127% and rose to 146% in 2010. By the end of September 2014, it had soared to 176% -- because the decline in GDP more than wiped out the improvement in absolute debt. In other words, after all of the suffering that a 22% decline in per capita GDP has meant, Greece is actually less able to service its debt than before Europe insisted on austerity measures as the price of the bail out money given to Greece to pay off its debts (largely held by banks in France and Germany). With a current 1.6% growth rate, which may not be sustainable, it will take about a generation to cut the debt-GDP ratio to a manageable level. This whole mess upset Greek voters and rightly so.

Mr. Tsirpas' government has set out four pillars on which it wants to build the Greek future: dealing with the humanitarian crisis that the collapse of the economy has caused; restarting the economy and promoting tax justice; boosting employment; and transforming the political system to a deeper democracy.

To achieve this, he needs a different deal from Europe than the one Greece currently has. He has a mandate to negotiate one that includes a write-off of billions of euros. Meanwhile, Dr. Merkel's Germany leads those saying that the deal in place is the deal Greece must live with. In this, the Greeks have the upper hand because there is absolutely no way Greece can operate with a 176% debt-to-GDP ratio.

The Greeks received their bail-outs over the last few years not because the Germans and others loved them. They received that money because it was owed to French and German banks. Those institutions have had a few years to build up a cushion against a write-off, and so, such a write-off won't cripple the banking systems as it would have in 2010 or 2011. Brussels now has to admit reality, or Greece can simply say, "You get nothing." The fall out from that can't be any worse than the decline the Greeks have already suffered.

The posturing from Brussels has begun, and it smells of bluff. Jeroen Dijsselbloem, president of the Eurogroup, said on Monday ."There is very little support for a write-off in Europe." After a meeting of eurozone finance ministers in Brussels, he said members should "abide by the rules and commitments." Germany's government spokesman Steffan Seibert said governments should work to ensure that economic growth continues and accelerates. "A part of that is Greece holding to its prior commitments and that the new government be tied in to the reform's achievements."

The trouble is that austerity has only made the servicing of the debt harder. The Eurocrats can argue about international agreements, European interests as a whole and the rights and wrongs of a write-off. They can't argue against the basic arithmetic that dooms their whole approach. It may get ugly in the next year or so, but Syriza can win this. It's time that lazy lenders realize that it takes two to make a bad loan, and that carries consequences for them as well as for the borrower.

© Copyright 2015 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.



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