When cynicism achieves power: A warning from Greece

When cynicism achieves power: A warning from Greece

A couple of weeks have passed since Syriza’s triumph in the Greek general election. Prime Minister Alexis Tsipras has formed a government, creating an odd majority with AnEl, the party of Independent Greeks. This is a bizarre beginning, because possible left-wing allies such as Pasok or To Potami were present. It is also definitely not a very promising start in terms of political stability. The chief problem is the fact that the government now has a program, partly already started, in which economic reforms do not have any place.
Two factors form the base of the Greek crisis. One is the relative inefficiency of the economy. The production of goods and services and their sale in the domestic market (especially tourism) - both in the single European market and in the global economy - represent the most important element for job creation. Greece’s shortcomings in this respect are enormous. What’s more, this situation has produced the second cause of the crisis: The abnormal growth of the state, the unproductive, parasitic generator of corruption. The inefficiencies of the productive sector and excess government spending have therefore entered into a vicious cycle, feeding on each other.

Unfortunately, Tsipras’s economic program, (but given its ideological extraction it could not be otherwise), may only aggravate these inefficiencies: Penalizing the productive sector and increasing the weight of the wasteful state. Tsipras wants to attack unemployment by raising the minimum wage, which he has already done. Additionally, he is planning to introduce further restrictions on the freedom to dismiss workers, while also reemploying public servants. Similar measures, under the current conditions, are intended to protect (badly) those who already have employment, not creating new productive jobs but just virtual ones. Indeed, these measures discourage investors, especially foreign ones.

Concepts like competitiveness and productivity are not part of the lexicon of the coalition. But in the global competition - because that is the reality - their enhancement would allow Greece to solve its fundamental economic problem: The inadequacy of an exportable supply of goods. Despite the fall in wages, salaries and other costs of about 20 percent, exports have failed to grow. Indeed, in the first 10 months of 2014, the fall in Greek exports was 3 percent, while Spain, Portugal and Ireland scored a 2 percent increase. We’ll see if the devaluation of the euro will have any effect. 

The first steps of the new government head in a direction opposite to the commitment agreed with the EU. We have already mentioned the minimum wage and the re-employment of public employees, but Tsipras has also blocked the privatization of ports, electricity and gas, and barred a project for the exploitation of a gold mine that involved foreign capital. Such pure populism will turn into new burdens for the state, but will not improve Greece’s productive efficiency. Blocking is not the way to reactivate an economy. 

Reactions from the markets and the EU have come rapidly. Greece’s risk premiums soared to 950 points, from a pre-election level of 830. EU institutions, like the European Commission, the European Parliament, the Council of Europe, and the European Central Bank have all denied any possibility of cutting Greek debt. The ECB will no more accept Greek bonds as collateral for funding. At best, Tsipras will obtain some delay in payments. 

A slam for Tsipras came from the president of the European Parliament. Martin Schultz is an orthodox socialist and shares the same ideological home, although probably not the same room, as Tsipras. After visiting Athens, his comment was lapidary: “Tsipras puts Greece in danger.” Earlier this week, Tsipras and his Finance Minister Varoufakis made visits to European governments and EU institutions. Only a sense of ambiguity emerges out of these colloquia. In Europe, they ask for time to submit a plan, while at home they shout that the time of the Troika has come to an end. A second slam came from the German Finance Minister Wolfgang Schaeuble: “We agree to disagree.”

Tsipras and his party have cynically manipulated the desperation of a people to win elections. They excited and confused the electorate with impossible promises. Now they will have to face their responsibilities. Pacts must be respected. Exit from the euro is impossible and undesired: The queues of savers in front of banks withdrawing their euros are the best referendum in favor of Greece’s membership of the monetary union.
Efficiency, competitiveness, sound public finances, the euro. Tsipras does not like any of these things. But if he does not feed himself in huge dose with such food, he will end up starving his own country. All this while Golden Dawn is the third most popular party in the country.