Monday, 26 January 2015

Will Greece Become Venezuela -- But Without The Oil

One can only say ‘Well Done’ to Syriza after running an energetic campaign promising the long-suffering Greek people a return to the good old days and an end to the struggle, however muted, of dragging the country into the 21st century with much-needed structural reforms. He successfully kept voter attention focused on the hated word ‘austerity’ instead of ‘reform’.  Something no one seems to want. By comparison, the former leading party New Democracy was effectively absent-without-leave during the campaign and ceded all the high, self-righteously indignant ground to the insurgent Syriza. As one observer noted New Democracy seemed tired, worn out, and basically conceded the election before the campaign even began.

            Winning the election is one thing. Transforming the rhetoric into reality is quite another. The Greek treasury is essentially empty. It is not altogether clear just how Syriza’s bold election promises will be met. The glow of victory could quickly fade once the next prime minister, Alexis Tsipras, has to deal with the twin problems of intractable creditors and an extremely fractious party whose more radical elements view the election as revenge for losing the civil war almost 70 years ago. Memories die hard in Greece. Will he be able to tame the parts of his own party that want to replicate Argentina and rip up the debt agreements and repudiate all of Greece’s debt? It’s much too early to tell.

Syriza leader Alexis Tsipras
            His campaign was filled with promises to renegotiate Greece’s debt burden, restore pensions, roll back structural reforms, and essentially remove the influence of the creditors on Greece’s internal policies. By the way, all of this is supposed to happen with Greece remaining in the Euro. Crowd pleasing stuff. Exactly what the Greek people wanted to hear. Unfortunately it has the real impact of one hand clapping.

The creditors wisely remained largely silent during the campaign. It will be interesting to see how they react when presented with Syriza’s ‘demands’. Probably not all that well. There may be room to adjust terms at the margins – possibly extend maturities, be flexible on interest rates, etc. But I expect the creditors to remain firm, initially at least, on demands for continued structural reforms to free up protected professions and reduce the highly politicized over-stuffed bureaucracy that stifles any economic initiative.

The creditors, led by the Troika of the  IMF,  European Central Bank and the European Commission, should be careful, however, because Tspiras is very skillful at changing the nature of the debate and winning the critical public relations battle. The debate will no longer be about the serial failures of Greek policy makers over the last several decades. Their inability or unwillingness to create an economic system that relies on more than state hand-outs to favoured clients will be pushed aside.

Tsipras will no doubt attempt to turn the debt negotiations into grand statements about ‘Greek sovereignty’, the ‘will of the people’ vs. narrow-minded accountants. He will attempt to broaden the argument far beyond Greece and become the spokesman for all the ‘beleaguered, debt-ridden, down-trodden’ people of Europe. Nowhere will there be any acknowledgement that the ultimate responsibility for this current Greek tragedy lies squarely with the Greek political class, or that perhaps billions of Euros of loans just might come with a few conditions. All these unpleasant facts will be buried under tons of ‘anti-bailout’ rhetoric.

This strategy just might work. He knows his opponents’ weakness very well. The bureaucrats of the so-called Troika are not very good at public communications. They act like small woodland creatures caught in the glare of head lights when confronted with media attacks. They either become road kill or retreat rapidly behind bland, bureaucratic statements that Tsipras will tear apart as he backs them into a public relations corner. He will turn them into heartless accountants intent on stripping the hapless people of Greece of their last shreds of dignity and welfare. Hedge fund managers could possibly stand up to this onslaught. But European bureaucrats and political leaders are made of less stern stuff. They will be looking for a way out. They would undoubtedly cover their retreat by saying they acted to preserve the Euro and the concept of European unity. The Germans hate the idea of bailing out what they consider the ‘feckless Greeks’, but even they may wind up bending rather than be painted as the bad guys of Europe once again.

Unfortunately, the actual welfare of the Greek people could be lost in all this upcoming theatre where high-pitched melodrama replaces real substance. Tsipras has a real opportunity to lead Greece out of its quagmire and demonstrate just how he intends to kick-start the Greek economy to provide the jobs and income the people deserve. Can he change the mind set of his countrymen from relying on state hand outs that have a short shelf life? Will be do something like this? Or will he be content with the colourful theatrics of opposition? This is by no means clear.

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