Greek Elections

Many eurocrats drew a sigh of relief at the outcome of the Greek election, which saw more moderate “pro-bailout” parties from both sides of the political divide elected to power by a wafer thin majority. Indeed, its worth remembering that the government forming up in Athens right now amounts to the UK equivalent of the Labour Party and the Tory’s going into power together (or Democrats and Republicans for Americans).

But as always in the ongoing EU crisis the real truth behind this was missed. The Greek election amounted to an attempt to bully and scare the Greeks into voting a certain way to placate the Germans, even though the election was never about Greece leaving the euro or the EU (as the mainstream parties tried to portray it). This mirrors the situation in Ireland as regards our bailout referendum. I opposed this measure, not because I’m anti-EU or I want us to leave the euro, but largely because it does nothing to solve the current crisis, will need to re-drafted soon (as the incoming French government aren’t keen on it) and was little more than a dangerous distraction. As I mentioned before, the Germans are playing a dangerous game here, sooner or later a government or electorate will call their bluff, and that might happen sooner than anyone thinks!

If there’s one thing everybody will agree upon as regards Greece, its that the status quo is out of the question. The economy has collapsed, with a 16.7% drop in GDP recorded since 2007. And that figure does not factor in this summer and the large drop in tourist numbers (officially numbers are down about 15%, but some say its more like 50%).

While Greek government revenue has increased slightly (again see stats here) by about 2.5% since 2007, unfortunately that drop in GDP (-16.7%) means that in real terms the flow of money into Greek government coffers is down about 15% AND expenditure has risen due to so many people out of work and claiming benefits. Those with money aren’t spending it, they are hoarding it, usually abroad. An entire generation of young people and entrepreneur’s has left the country to seek their fortunes elsewhere.

Of course the eurocrats and challenged on the above will always say, oh! But the Greek economy will turn a corner in a few months time (hint, they’ve been saying that for the last 3 years!) and start growing again….where have I heard that before…oh ya! from Nick Leeson and Kenneth Lay of ENRON! Why is it that economists always seem convinced that any downward trend will magically change into an upward trend?

The bottom line is, the austerity measures have crippled Greece. Indeed I feel the term “austerity” is no longer really applicable “national asset stripping” seems more appropriate!

And the problem here is that we are only about halfway through the package of cuts that the Greek government is supposedly committed too. In the next month they need to find another 10 billion euros worth of cuts to remain on course. Now I don’t think you need to be an economist to work out that that is utterly impossible. Any government, especially a coalition one with a thin majority and a strong opposition (who could easily tempt wavering MP’s into crossing the floor), and an angry populace out on the street will find it impossible to implement such cuts without risking revolution.

So I suspect sometime in the next few weeks, we’ll see some subtle (or maybe not so subtle) feelers put out to the Germans and the IMF (Lagarde being caught out recently, she said Greeks needed to learn how to pay more tax…it was then pointed out to her that she pays no tax herself!) about changing the terms of the bailout…..hang on! Wasn’t that Syriza’s plan?

Granted, there will probably be less insults and swearing from the mainstream parties, but ultimately the message is the same – the current “solution” isn’t working and the terms of the bailout need to be changed. Currently, an orderly default of Greek debt or more radical changes to the EU seems like the only solutions that are workable.

And the bad news for the IMF/Germans is that the new Greek government (who given a few weeks post honeymoon period will be at each others throats) will have have both the example set by Spain (which did not have any harsh austerity measures imposed on it) to call on, plus the nuclear option to blackmail (or Drac-mail to quote the tabloids) the Germans and IMF with. That of simply resigning, letting Syriza take over, and they will begin a not-so-ordely default of Greece’s debts, and let Merkel and Largarde explain to their now angry tax payers that all there savings have just vanished.

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