Alberto Mingardi  

On Greece

What is Ray Lopez Missing?... The CBO's forecast, with and w...

The world is pondering the odds of Mr Tsipras and Syriza succeeding. To win an election on a rather populist platform might be easy, but governing and entering into highly complex negotiations with European authorities is a different matter. I think Syriza's game may be easier than some expect, because it is much closer to the emerging consensus than it appears to many observers. Critics of "austerity" (whatever that means) have achieved a substantially hegemonic position in the European debate--not surprisingly, given the fact the European intelligentsia typically has a soft spot for higher spending.
I'd like to point out some interesting pieces.

On Forbes, Cato Fellow Doug Bandow summarizes the Greek story and writes that Syriza's victory may kill the Greek economy but save democracy. He maintains that, "A Eurocratic elite, consisting of politicians, academics, businessmen, journalists, bureaucrats, and lobbyists based in Brussels and national capitals, favors continental consolidation in part because the system suppresses self-rule and public accountability."

That may well be true, but I would disagree with Doug that "now popular opposition is exploding." I find there is very little sense of the need for "resistance against the ever increasing aggregation of power in Brussels" in most of the current wave of euro-critic forces (UKIP excluded). People who oppose "Troika" packages and "austerity" (again, whatever that means) would cherish tax harmonization at the European level, to give but one example. I think we are just witnessing the inordinate "Europeanization" of national politics. Those who favor ever-increasing public spending now argue for more spending at the EU rather than at the member state level, and deeply resent the EU treaties that are somehow forcing member states to some kind of fiscal discipline. Self-professed defenders of national sovereignty are also self-righteous proponents of a "transfer Union."

Italian journalist Alessandro Barbera of La Stampa pointed to an interesting piece written by the new Greek finance minister, economist Yanis Varoufakis, in June 2012. I find it a bit self-contradictory, not least because it claims both that "austerity" is marching Europe towards catastrophe and at the same time that the original Syriza manifesto "is not worth the paper it is written on. While replete with good intentions, it is short on detail, full of promises that cannot, and will not be fulfilled (the greatest one is that austerity will be cancelled), a hotchpotch of policies that are neither here nor there." Interestingly enough, Varoufakis told his readers not to fear Syriza's ultra-leftism because Syriza's economists "are good, moderate people with a decent grasp of reality." So, don't mind our propaganda, we're good men at heart! (which is in itself kind of an old propaganda trick)

By the way, Russ Roberts had a very enjoyable EconTalk with Varoufakis, in which Varoufakis discusses at length the philosophy of Valve Software, for which he was economist in residence.

Former Polish Treasury Minister and central banker Leszek Balcerowicz authored a timely op-ed, together with Andrzej Rzońca. Balcerowicz has an interesting take on Greek austerity, in that he points out that fiscal adjustment was pursued mostly by tax increases and not via spending cuts, as opposed to what happened elsewhere and to the kind of perception the propaganda by Syriza fosters. As Balcerowicz and Rzońca write:

In response to the crisis that emerged in 2010, Greece has found itself under the supervision of the Troika (the EU Commission, the ECB, and the IMF). There has been a sharp divergence between the agreed and the implemented programs, and the latter has had such a time structure that it has sharply reduced the inherited imbalances. But there have been high costs in the form of a deep cumulative decline in GDP (over 25% between 2010 and 2014) and a sharp increase in unemployment. The implemented policies relied first on the tax increases. They delayed reforms on the spending side as well as the structural reforms, which were absolutely essential to improve conditions for business. This was in sharp contrast to the policies implemented in the Baltics and in Ireland, where rebalancing of the economy after the acute boom bust episodes was achieved at much lower costs to GDP and employment. It had been the nature of the implemented programme in Greece and not 'austerity' (a bad word) which is to blame for the especially high costs of economic rebalancing in Greece.

Belcarowicz and Rzońca nonetheless argue that some progress has been made and that if "the implemented reforms are not reversed and other necessary improvements for the private sector and job creation are introduced (especially reforms of the bloated state structures and the privatisation of the state sector) Greece can be a surprisingly successful economy." Their policy suggestion to European leaders is to be flexible on "further restructuring the official debt" (but no debt forgiveness) but inflexible on reforms, to the point of accepting Eurexit if Greece stops the reform process. I doubt this would be a popular point of view in Europe, and yet I found it very reasonable. Brett Stephens has a good piece with the Balcerowicz's argument on steroids.

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CATEGORIES: Eurozone crisis

COMMENTS (3 to date)
ThomasH writes:

How will the ECB allow a needed expansion of credit to the Greek private sector to stimulate growth without a way to devalue internal prices relative to external prices? Some kind of dual currency system? The full employment exchange rate is greater than parity.

Ray Lopez writes:

Another good Euro piece by this author. As for economists changing their tune, this is common, witness Robert Bork becoming the US Justice Dept witness in the Microsoft antitrust litigation, and repudiating his book "The Antitrust Paradox". As the old joke says, the economist during an interview when asked "what is 2 + 2?" answers "what do you want me to say it is?"

George J. Georganas writes:

The real problems with "reforms" is that they are not guaranteed to produce results. Even if they do produce results, the timing of those results is unknown. Third, there are winners and losers from reforms, with losers much more prepared to fight their corner than winners. Thus, reforms are extremely hard for the electorate to swallow. Hence, Greek governments try, as best they can, to dilute, sabotage and, even, reverse them. It is no wonder that the EU partners of Greece tried to keep Greek governments on the path of reforms by supervising and micromanaging their implementation. Naturally, this led to resentment that, finally, registered itself at the polls.
One realistic way out is to assume that Greece cannot be reformed in any foreseeable time scale. Then, the Eurozone must examine how it can handle the cost of that assumption. In a family, other family members sometimes choose to carry the burden of a handicapped relative, rather than allow him to go out begging from strangers. Somehow, I doubt the electorates in other Eurozone countries will accept that "family solution". Thus, we a left with the option of other Eurozone members confessing to their inability to keep paying for Greek excesses. Of course, confessing to that inability gives rise to doubts about the entire Eurozone. It is up to the leaders of the Eurozone partners of Greece and to their electorates to make that decision. Clearly, despite any reassuring noises of the new Syriza government on the need for reforms, their explicit electoral mandate is to keep diluting, sabotaging and reversing reform. The Greek voters firmly believe, as they tell pollsters, that the "dim-witted Franks" will keep paying, whatever the Greeks do.

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