Sunday, January 11, 2015

SYRIZA, Greece and the eurozone

Aljazeera English has a couple of opinion pieces offering different perspectives on whether a left-leaning, anti-austerity contagion of sorts might be in the works if SYRIZA led by Alexis Tsipras win the January 25 elections in Greece.

Current SYRIZA poster featuring Alexis Tsipras (Aλέχης Tσίπρας)

Matthaios Tsimitakis in If Greece turns left, will Europe follow? 01/01/2015 thinks it's likely:

Despite the fact that both the German and the Greek conservative governments present the current bailout programme as a "success story", most analysts around the globe agree that it has actually failed. Six years of continuing recession have resulted in a loss of 25 percent of GDP and a rise of unemployment to 27 percent.

Greek debt is well over 170 percent of GDP now and according to Troika estimations it will be no less than 120 percent by 2020.

These facts translate to two things. Firstly, there can be no development under austerity policies for the majority of the population, even if the Eurozone fixes its competitiveness problem and exits deflation and the Greek economy starts developing at a growth rate of over 4 percent - which is highly unlikely.

Secondly, there can be no functioning democracy so long as Greece is not given choices other than poverty, degrowth and exclusion. Greece is in the state of protectorate at the moment, bound in a bailout agreement that strips its ability to produce and reject different solutions.
And, as he says, "it's not just Greece."

Austerity is also failing with varying degrees of harmful consequences for the population in Ireland, Italy, Spain, Portugal and even France. Even Austria, which has tended to be one of the countries relatively benefiting from the euro currency, is suffering unusually high unemployment.

In this environment, a SYRIZA victory would mean two very important things; the return of the power to decide to a democratically elected government and the restoration of inclusiveness and national sovereignty and the opening of a new chapter in European politics, where the parties and the organisations who challenge austerity will have the momentum. [my emphasis]
That seems to be a statement of hope as well as analysis, and I share that hope. It certainly looks realistic to me. It's worth noting in this regard that the left-leaning Podemos party in Spain is now leading the polls there: Anabel Díez, Podemos consolida su ascenso y Ciudadanos irrumpe con fuerza El País 11.01.2015. Similarly to SYRIZA in Greece, Podemos has captured to anti-austerity, center-left political space that their respective social-democratic parties abonaded in favor of crass Herbert Hoover/Heinrich Brüning austerity policies.

Menelaos Tzafalia and Thanassis Koukakis, on the other hand, seem to think Greece is condemned to the austerity road, no matter what. (The empty threat of Greece leaving the euro 1/07/2015):

If Greece defies its euro area creditors, some argue it will have no choice but to pick the "Grexit" path which in turn will lead to even tougher fiscal austerity and unprecedented shortages in imported goods and raw materials. The country also would experience a collapse in investments, further exacerbating the situation after six years of painful recession.

Others argue that by leaving the euro, reverting to its own currency and charting its own monetary policy, Greece quickly will recover. But even for proponents of this scenario, the recovery will take place in an unfriendly international environment.

Whatever comes to pass and until a resolution is reached, the pain for euro area and Greek taxpayers will be great. Much greater than what it already is.
There are a lot of factors affecting this. Germany and the ECB could credibly threaten to shut the Greek banking system down by cutting of the liquidity for which Greek banks depend on the EU. That would be incredibly heavy-handed, but no less so than Merkel's brutal Hoover/Brüning austerity policies and the pressure she used to oust elected governments in Greece and Italy.

Tzafalia and Koukakis also explain why Merkel's threats to kick Greece out of the eurozone if the Greek voters don't knuckle under to her massively destructive demands are mostly hot air. Although given her dogmatic adherence to the Hooover/Brüning policies and her Brezhnev-like approach to leading the eurozone, she might try to bulldoze ahead with the idea despite the risks. Tzafalia and Koukakis give figures on the amount of debt other nations in the eurozone hold that would potentially evaporate in the event of a "Grexit."

Joe Stiglitz looks at the eurozone now stuck in a deflationary situation as a result of Europe’s Lapse of Reason Project Syndicate 01/08/2015:

Now Greece is posing yet another test for Europe. The decline in Greek GDP since 2010 is far worse than that which confronted America during the Great Depression of the 1930s. Youth unemployment is over 50%. Prime Minister Antonis Samaras’s government has failed, and now, owing to the parliament’s inability to choose a new Greek president, an early general election will be held on January 25.

The left opposition Syriza party, which is committed to renegotiating the terms of Greece’s EU bailout, is ahead in opinion polls. If Syriza wins but does not take power, a principal reason will be fear of how the EU will respond. Fear is not the noblest of emotions, and it will not give rise to the kind of national consensus that Greece needs in order to move forward.

The issue is not Greece. It is Europe. If Europe does not change its ways – if it does not reform the eurozone and repeal austerity – a popular backlash will become inevitable. Greece may stay the course this time. But this economic madness cannot continue forever. Democracy will not permit it. But how much more pain will Europe have to endure before reason is restored? [my emphasis]

Ambrose Evans-Pritchard in EMU deflation is the final betrayal of southern Europe The Telegraph 01/07/2014 seems to have a pretty vague idea about the structural problems of the euro, for which he uses the term European monetary unit (EMU): "The Telegraph has argued since Maastricht that a currency union of disparate cultures with no EMU treasury or political authority to guide it would end in paralysis, with feedback loops entrenching divisions over time." A term like "disparate cultures" doesn't really tell us much about the euro and its problems.

But he does give us an idea of how a deflation situation like that now in the eurozone can lend an up-is-down aspect to more conventional economic assumptions:

A chorus of economists began warning two years ago that the region was sailing close to the wind by letting inflation drift ever lower, leaving itself one shock away from a loss of policy traction. That shock is now hitting in successive waves: the Russia crisis; China's over-investment glut; and now the collapse of oil prices.

Textbook theory suggests that a halving of energy costs should be cause for celebration, a tax cut for consumers. It is very different calculus when inflation is already zero, bond yields are plummeting to 14th century lows across the world, and market psychology is becoming "unhinged" - to use central banking vernacular.

“Normally, any central bank would prefer to look through a positive supply shock," said Peter Praet, the European Central Bank's chief economist. "But we may not have that luxury at present. Shocks can change: in certain circumstances supply shocks can morph into demand shocks via second-round effects."

Mr Praet said families and firms are already adapting pre-emptively to the new order, describing what amounts to a classic deflation trap. "There is a risk of a real economic vicious cycle: less investment, which in turn reduces potential growth, the future becomes even grimmer and investment is reduced even further," he told Börsen-Zeitung. [my emphasis]
Greece's current situation has important similarities to that Argentina faced in the financial and political crisis of 2001-2. This Spanish-language report from TV Pública argentina, V7inter - Grecia y Syriza desafían a Europa 01/10/2015, describes the current SYRIZA campaign and its Keynesian solutions to the immediate crisis, including a reduction of the debt burden which the eurozone's so-called rescue policies have made even more severe. And the fear-mongering campaign that the current Angie-bot conservative Prime Minister Georgios Samaras is waging to keep his government and Merkel's austerity policies going:

The commentators call attention to the absurdity of Merkel's government, including its Hoover/Brüning Social Democratic junior partner, accusing Greece of blackmail. In the German government's view, when the victims of their failed, destructive policies put up resistance, that is the blackmail. (The commentators say explicitly that they've been almost promoting SYRIZA on their "Vision 7" program.) This report also suggests that Georgios Papandreou's new social-democratic party may be an attempt to steal a critical margin from SYRIZA in the election by attracting left-leaning anti-austerity voters that may be scared off from SYRIZA by the propaganda blitzkrieg against it.

Marcus Bensasson reports for Bloomberg News that SYRIZA is still in the lead in polls two weeks out from the election, Samaras Still Trails Syriza 14 Days Before Greek Election 01/11/2015:

Tsipras ... reiterated his party’s plan to direct social spending toward households reduced to poverty during Greece’s economic crisis. Speaking in Corinth, Tsipras also pledged to raise the tax-free income threshold to 12,000 euros ($14,000) and hit back at Samaras for trying to link the Paris attacks with Syriza’s policies on border control.

“It was a mistake by Samaras to try to link the very unfortunate events in France to the flow of uncontrolled migration into Greece,” said Sotiropoulos. “This kind of reaction alienates the centrist voters who could have voted for Samaras.”
Also in a very interesting development, economist Yanis Varoufakis is running for a Parliamentary seat on the SYRIZA ticket, as he explains in Why I am running for a parliamentary seat on SYRIZA’s ticket 01/09/2015. I'm quoting a large part of that post announcing his candidacy here:

As the Eurozone’s inevitable crisis was addressed by a cynical transfer of banking losses onto the shoulders of the weakest taxpayers, politicians and commentators who tied their colours onto the so-called bailouts’ mast demonstrated precisely no interest in rational debate.

Instead of discussing, in the European Union’s fora, the nature of our systemic crisis, the powers-that-be were busy fiscally waterboarding proud nations, letting them take a few short breaths before submerging them again into the waters of illiquidity. Thus Europe began to lose its integrity and its soul, turning from a realm of shared prosperity to an iron cage, a debt prison, a form of Victorian workhouse.

At the economic front, this crisis-denial led to contagion in the sovereign bond markets, beginning with Greece where the combination of savage austerity and huge loans was tried and tested, before being exported to the rest of the Eurozone. Predictably (as this blog was illustrating day in day out) the contagion was only made worse, reaching Italy with extreme prejudice and forcing the ECB to step in in the summer of 2012 with Mr Draghi’s famous “whatever it takes” moment. Only the crisis never went away but, rather, it was transferred from the bond markets to the real economy, yielding vicious deflationary forces that have now rendered Spain, Italy and France fiscally unsustainable.

At the social front, crisis-denial and the logic of the bailouts gave rise to a humanitarian crisis that Europe should be deeply ashamed of. Again predictably, the result was the fanning of the flames of misanthropy, of racist nationalism, of all those sinister forces that are demolishing European democracy and replacing it with self-propagating authoritarianism. The results of the last European Parliament elections confirmed that sad truth but did nothing to sway the powers-that-be away from the policies of deconstruction that are behind the emergent bigotry.

Greece is where all this started. It must be where a reversal of Europe’s fragmentation begins too. Regular readers of this blog are familiar with my efforts to come up with a sensible, modest proposal for resolving the euro crisis. Such proposals have no chance, I have now understood, until and unless they are tabled at the Eurogroup, in Econfin at the EU summit.

This is the reason that when Alexis Tsipras honoured me with the offer to run for an Athens parliamentary seat, and with a view to play a role in Greece’s negotiation with Berlin, Frankfurt and Brussels, I could not but accept.

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