A Long Way From Athens, Part II

Look, I love modern Greece.  Since my wife and I met, what, 28 years ago now, we’ve usually spent a month every year in Greece.  And I love Ancient Greece.  As a teenage boy I was enraptured by Plato’s dialogues of Socrates.  (Although, in hindsight, I’m not altogether sure why I wasn’t finding better things to do with my time).Anaxos sunset

So I’m a Grecophile.  Scout’s honour.

A couple of year’s ago, I took an affectionate look at the plight of the Greeks, set against some of its macro-environmental challenges and from the perspective of my bucolic bolt-hole on Lesvos.  Looking back on it, that article holds up pretty well.

But things are getting really serious now.  And at the risk of disappointing some of my Hellenic friends, I probably ought to clarify my views without trying to be too entertaining about it.

At the time of the original bailout, I had very mixed feelings.  On the one hand, it was very clear that some serious structural reforms were going to be needed to prevent a new fiscal stimulus going down the same toilet as the extended previous one.  Better tax collection, yes, but a much more enterprise friendly environment, including a more flexible labour market and, in particular far, far less anti-commercial red tape.  And, not unconnected, a solution to the problem of a hideously bloated, rent-seeking and laughably ineffective public sector.

But, subject to all that, a much less pro-cyclical bailout would have been, to me, fully justified.  Not on the basis of neo-Keynesian orthodoxy, but because Germany (in particular) was reaping an export dividend from an artificially depressed Euro.  So a fiscal transfer to a fellow European country being hammered by the same exchange rate struck me as a fair balancing mechanism.  I put this argument to a table of German friends over dinner in Dusseldorf.  Maybe they’d had too much Riesling, but there were solemn nods all round.

I doubt that it would play out the same way today.

Last year, 2014, Greece had begun to emerge from one of the deepest recessions in living memory, was starting to grow again, and had achieved a comfortable primary fiscal surplus.  The government had singularly failed to drive through some of the necessary supply-side reforms, but all the same there was a very sound platform for negotiating a rescheduling of the debt (Mr Varoufakis’ subsequent proposal would have been perfectly sensible) alongside a substantive ‘phase 2’ reform programme backed by parliamentary legislation.  Things were definitely turning up, even though the effects weren’t yet being felt on the ground.

And then, my beautiful, chaotic friends, voted in Syriza, by a landslide.

From day one, Prime Minister Tsipras went out of his way to alienate virtually anyone with the power to help him.  Grandstanding on the deck of a Russian battleship, initiating re-employment of 13,000 public sector workers (including a symphony orchestra), raising a ludicrous (and insanely timed) bill for war reparations.  None of this was unforeseeable, and although the European Commission would have done virtually anything to accommodate the new Government, those actually accountable to European taxpayers, national governments, understandably took a very different view.

As I write, default looks inevitable and Grexit virtually unavoidable.  After which the word ‘austerity’ will acquire a completely new meaning.  Given Tsipras’ endless provocations it is a wonder to me how the creditors, and the much abused Frau Merkel in particular, haven’t already cut Greece off at the knees, instead of continuing to drip feed liquidity support through the ECB.

In my ideal world Greece would get the rescheduling it needs alongside some tough love – not cuts for the sake of cuts, but reforms to unleash the entrepreneurial spirit of the most hardworking people in Europe.

And Tsipras?  He’d be tipped over the side of his battleship.

 

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