Wednesday, 11 March 2015

Will Greece Remain On A 'Life-Support' System?

A great deal of ink and broadcast time has been spent over the last few months on the fate of Greece. Mind you, this is a discussion that self-obsessed Greeks have been having at least since Homer, but it seems to have gained traction recently. As a very smart, very well plugged-in Greek friend explained at dinner last night, “A lot of people in Greece love nothing better than the fact that Greece is on the front pages of the world’s newspapers. While the content of this news may escape them they consider such coverage proof that Greece is where it should be – at the centre of the universe.”

            My friend, who would describe himself as a ‘realist’ rather than a ‘cynic’, says the current stand-off between Greece and the rest of the Eurozone is ‘pure theatre – nothing more.’ Both sides, he says, are playing to domestic audiences. The Greek side uses its bizarre, confrontational negotiating style to please the home audience. Given the high approval ratings of this strategy seems to be working. The optics of the  ‘little guy’ standing up to the power of the ‘big bullies’ effectively obscures the reality that the country is broke and can barely meet its pension obligations. The heavyweights of the European Union, for their part, need to show their own domestic audiences that they are not giving in to the ‘profligate and corrupt’ Greeks. They are well aware of the rising chorus of resistance to further financial assistance. “Hans will not give one penny more to those shiftless bums. If Portugal and Ireland worked their way out of the recession why can’t Greece?” So goes the rhetoric.

            The reality is a bit more complex. My friend anticipates a messy continuation of the current situation. “The creditors and the Eurozone are well aware that there is no way the current Greek government, or indeed any foreseeable Greek government, will make the necessary structural reforms to generate growth and help the country stand on its own feet. Rigid, antiquated ideology combined with deeply entrenched vested interests make such reforms virtually impossible. It’s not just Syriza, the former New Democracy government was never serious about implementing reforms. It is far more likely that the creditors will keep Greece on a life-support system by drip feeding it just enough cash to keep it within the Euro zone. Then they can forget about Greece and move on to more pressing issues. No one wants to risk a complete break- up of the Euro over a possible Greek exit from the single currency.”

            The only flaw in this argument is that the so-called ‘Hard Left’ faction in Syriza doesn’t want to play this game. They would like to drop the constraints of the Euro and return to the national currency, the drachma. The language they use while spinning around in their own little galaxy is full of such stirring phrases as ‘national sovereignty, dignity, national honour, and freedom from oppression.’ When reminded that even fellow ‘austerity’ sufferers like Portugal, the Baltic states and Ireland, urge Greece to follow through on reforms this faction in Greece says this is merely proof that Europe is not ‘ready’ for a real left-wing government. You have to remember that Greece is about the only country left where political terms like ‘Left’  and ‘Right’ are actually used in serious conversation. Most other countries have moved on to more current challenges rather than re-fight old, stale political doctrine.

            Behind the ringing calls for ‘national sovereignty’ with a return to the drachma lies a far more mundane reality. Returning to the drachma means essentially a return to the rotten old system that broke Greece in the first place. The government could simply print as much money as it wanted, regardless of its value, and reward its friends with jobs, higher state hand-outs, even more restrictive labour practices, and protective barriers for favoured industries – those that are left in Greece that is. The economic hardships faced by ordinary people would be glossed over as ‘sacrifices necessary for the common good.’ In other words, ‘Stop whinging about the lack of food on the shelves and glory in the return of Greek pride.’

            Remaining in the Euro, with all its financial constraints and empty Greek treasury, makes this type of political spending more difficult. But not impossible. “Remember all those €70 billion in non-performing loans held by Greek banks.  Do you think it is a straightforward process determining whose loans will be forgiven and whose repayment will be demanded,” my friend asked rhetorically. “I dare say there will be some interesting discussions between the banks and the government on this issue.”

            He may be right in his ‘life support’ analysis, but there is always the risk that an accident between inexperienced Greek negotiators and tired, frustrated Eurozone finance officials could push the country into the cold, hard world outside the Euro.

Monday, 9 March 2015

Has The Post-Erdoğan Era Begun In Turkey?

Are the wheels starting to come off the Turkish wagon? The political stability and economic growth that have characterized Turkey since 2002 are beginning to fray at the edges just before critical general elections in June that could determine the country’s political direction for years to come.

            These elections will go a long way to determining whether President Tayyip Erdoğan will achieve his goal of complete control or be hampered by the current constitutional restraints on the president’s power. He runs the risk of being politically and legally isolated in his extravagant new palace unless the ruling Justice and Development Party (AKP) wins enough seats to unilaterally change the constitution the way he wants. Not content with the current largely ceremonial role of president, Erdoğan desperately wants a new constitution to enshrine his vision of a powerful, unchecked, unfettered presidency.

Is Prime Minister Davutoglu's Patience Running Out?
            A toxic combination of international and domestic problems is making this task more difficult than it was just a few years ago. On top of this a growing sense of ‘Erdoğan fatigue’ seems to have gripped even some members of his own party. Maybe they’re getting tired of 12 years of bombast. How much longer is Prime Minister Ahmet Davutoğlu going to put up with Erdoğan’s constant – and unconstitutional – interference? Furthermore, many rank-and-file AKP members have shown little enthusiasm for a change in Turkey’s governing structure.

            In order to unilaterally change the constitution the AKP must increase its members of parliament from the current 316 to 330. This is not an easy task in the best of times, and these are not the best of times.

            The AKP can no longer count on strong economic growth to support its election campaign. For several years the party would loudly trumpet the impressive growth figures and strong currency as confirmation of its ‘brilliant’ policies. Now it is reduced to finding excuses for below-forecast growth, a rapidly depreciating currency, declining exports, and stubbornly high unemployment.

The currency has depreciated more than 10% so far this year, unemployment has risen to 10% and is much higher in the volatile south eastern region, exports are declining, and president is hammering the Central Bank to lower interest rates. The cacophony and mixed signals over Turkey’s economic policies are making investors very nervous. The prime minister and his top economic aides were in New York last week in an apparently futile mission to calm these nerves.

This is very difficult to achieve when the president insists that the theoretically independent Central Bank lower interest rates in hopes of stimulating the economy and reviving the critical construction industry that has created so many millionaires during Erdoğan’s reign. Ali Babacan, the minister in charge of the economy for the last 12 years, understands finance and economics very well. He has done a masterful job keeping the country on the rails so far, but it remains to be seen just how long his rational policies will survive the onslaught of Erdoğan and his comical presidential ‘advisors’.

On top of the economic problems there are the Kurds. No one knows precisely how many Kurds live in Turkey, but common assumptions are about 15% of the total population, or roughly 12 million people. Kurdish guerrillas, the PKK, have been fighting a low-intensity war against the Turkish state for years. In an effort to end the violence and integrate the Kurdish population more completely into Turkish society the government has begun long, drawn-out ‘peace process’. While many applaud this effort, cynics accuse the government of simply trying to buy off the Kurds to gain votes in the upcoming election.

Regardless of the ultimate reason, the Kurds may well hold the key to the June election. Bear with me for a little background on the convoluted Turkish election system. In order to enter parliament a political party must gain at least 10% of the total votes cast. In the past the Kurdish political party did very well in the Kurdish districts of the south east, but failed to cross the 10% national barrier. In the event that a party fails to get the required 10% on the national level all that party’s votes are given to the runner-up in the districts in question. In the vast majority of cases this runner-up was the AKP candidate.

In order to circumvent this rule Kurdish candidates previously would enter the elections as independents who only had to win their districts to enter parliament. This time, however, the young, charismatic leader of the Kurdish Freedom and Democracy Party (HDP), Selahattin Demirtaş, has decided to risk everything by entering these elections as a party, subject to the 10% threshold. If he wins the Kurds will gain a powerful voice in parliament. If he loses the AKP will pick up several additional members of parliament – perhaps enough to take them over the 330 needed to change the constitution.

Is Kurdish Leader Selahattin Demirtas The Country's New Hope?
The real question is whether Demirtaş can broaden the party’s appeal to the non-Kurdish segments of the population. He has been helped positive images of Kurds in Iraq and Syria defying the barbarians of ISIS. He may also get some help from what is left of the disaffected, alienated liberal bloc as well as from those who dislike Erdoğan so much they will vote for the Kurdish party. “My deepest apologies to my grandfather who is turning over in his grave, but I will vote for the Kurds this time. Just to block Erdoğan,” said a typical ‘tactical’ voter.

Turkey is in for a very bumpy ride until the June elections. Then we shall see if Erdoğan gets his heartfelt wish for an imperial presidency, or whether is left roaming around his enormous new palace looking vainly for something to fill his days.