The Greek Tragedy, Version 2.1?
Over the weekend Greek voters elected the “radical leftist” party, Syriza, to try and lead Greece out of the austerity induced deep economic rut Greece has been stuck in. Alexis Tsipras, Syriza’s leader began immediately to form a government by agreeing to form a coalition with Anel, a populous right wing party. Hmmm.
Greece has been laboring under austerity economic measures which it was forced to accept as conditions for the EU to bail out. With 25% unemployment, austerity coupled with vanishing hope that the economy would suddenly get better, Greek voters decided they had waited long enough. It was time for a new approach.
The options open to Syriza are not many. Tsipras campaigned on the promise to “renegotiate” the terms of the EU bailout. Without more government spending on jobs, there is little hope on seeing the unemployment figure drop. And without the ability to borrow more or pay out less in repayments there is no money for Greece to spend.
The EU might now be more sympathetic to less austerity since it finds EU’s own economy stagnating and has found it necessary to pursue quantitative easing via new ECB policies. But these are the Greeks Germany is reminding the EU.
Greece got into this hole by years of wholesale tax dogging and wasteful government spending. These foolish policies seemed necessary at the time to placate the Greek society (we won’t complain about taxes if the government does not prosecute when we don’t pay them). Wasteful government spending was spread around (somewhat like the US defense budget) so why would anyone complain?
Pundits have predicted that Greece will exit the “Euro” and begin printing their own currency again. Simply printing money, however, will do nothing to solve Greece’s underlying economic realities long term. While there may be a return to the “drachma”, there must be increased tax revenue and wiser government expenditures.
EU officials will be viewing this abrupt change in Greece with a wider lenses. Spain also sports high unemployment and is bound to similar austerity EU conditions. And Italy can’t be far behind. Allowing Greece to withdraw from the Euro, without serious negotiations, would only encourage other countries to follow.
This new left-right government should offer a novel way to reform the underlying Greek tendencies to wait until tomorrow. We shall see.