After a five-year crisis where the nation of Greece has lost a fifth of its GDP, a little bit over a third of the voters made Syriza, a left-wing party, the winner of last Sunday’s election. It was the sorry conclusion of a process better called the European style of austerity.
At the beginning the goal of the Greek bailout, financed by the so-called troika (European Commission, European Central Bank and IMF), was to provide funds to the bankrupt Greek state in order to facilitate the difficult process of structural reform. The reforms were aimed at changing an economic system that was simply a debt generator into one that was creating wealth.
On the fifth year of this bailout nothing has markedly changed in the right direction. In a shrinking economy, billions of taxes have been imposed in a quickly declining private sector. The budget cuts in the public sector were based on the proximity of interest groups to the political class. The powerful public sector unions continued to enjoy their privileged status in society, and even with the supposedly stern supervision of troika, some still get to retire in their early to mid fifties – even though the Greek retirement system is essentially bankrupt.
The achievement of the bailout so far has been to make the debt generation machine that is the Greek economy merely cheaper, but also to significantly shrink its productive sector through punitive taxation. Now with unemployment over 25 percent, Greece has gotten shock therapy, without the therapy part. It was in this background that a party of the radical left, Syriza, won the elections this past Sunday.
Syriza is an amalgam of the most radical elements of public sector unions and fringe groups of the radical left, including Maoists, Trotskyites and extremist environmentalists. Its selling point to the public is that it will be able to make the rest of Europe pay for Greece’s debt dependent social arrangements in perpetuity. A bit of an overreach you might say, but that is exactly what has been going on the last five years.
The coalition of the nominally conservative party and the socialists that was running government up to now, pretended that it was implementing structural reforms, the troika pretended to review the process, and then every quarter the troika handed over the bailout money despite miserable and failing efforts at reform.
Syriza claims to do exactly that, only to be more bold by not pretending to do reforms, reverse the few that were implemented, ask for more debt forgiveness and demand a lot more funds from the other European countries. Its program includes nationalizations, high taxes on companies and wealthy individuals, the creation of new public corporations, a big expansion of the welfare state and open borders to all immigrants that want to move to Greece and the rest of Europe.
To say that the European establishment has its hands full with Syriza is a bit of an understatement. It faces the following dilemma: It may not give in partially or totally to Syriza’s demands, and face a Greek exit from the euro. On the other hand, it could give in, but it would have to face the very serious possibility of the great boost that such a retreat would provide to similar leftist political movements in the rest of southern Europe.
Already there is Podemos in Spain, posing a very serious threat to the establishment parties and having an agenda fairly similar to Syriza. Bending to Syriza’s demands it would automatically signal to every voter in southern Europe that the regressive agenda of the Europe’s hard left is not far-fetched at all but quite possible. Victories of those parties would readily transform the euro area into a mechanism for transferring vast amounts of wealth every year from the frugal north to the extravagant south. The political viability of such a system is highly questionable.
This is the dilemma that the European establishment now faces, to let Greece go or to give in one more time with all the consequences. It is the price one has to pay for a five-year-old cover-up.