Finally Some Good News For Greece?

After more than eight years of being confined to the European Union’s intensive care ward with systemic, near-death, and highly contagious economic and political maladies is Greece finally ready to hobble out of bed? Although the team of EU fiscal doctors, aided by consultants from the International Monetary Fund, is not completely convinced there has been a noticeable positive shift in the tone of comments from friends and family.

We spent several months in Greece last year, and the mood was unremittingly gloomy all the time. Almost every conversation began and ended with a litany of the country’s problems: the idiocy of the government, the evil of the creditors, the collapse of the financial system, and on, and on, and on. The newly elected Syriza government, together with its tragi-comic finance minister Yiannis Varoufakis, was trying desperately to implement its version of the almost universally unsuccessful leftist economic and administrative ideology. All it succeeded in doing was to demonstrate its own incompetence and find new and unique ways to infuriate the people who were trying to keep Greece afloat. At one point, people on various islands were seriously investigating ways to secede from mainland Greece and create their own little versions of paradise.

While the underlying economic reality may not have changed very much, the election of a young, very smart, and dynamic leader as head of the main opposition New Democracy party has injected a whiff of change, the possibility of something better. Kyriakos Mitsotakis is the scion of one of Greece’s leading political families, but people should be careful of thinking of him merely as new wine in an old bottle. In addition to showing himself to be politically astute, he brings an impressive educational and professional resume to the job.

           

Kyriakos Mitsotakis -- the new leader of New Democracy

He graduated summa cum laude from Harvard and has graduate degrees from Stanford and the Harvard Business School. In addition to idiomatic English, he speaks French and German. He spent time in London working for the McKinsey consulting company. He also served as Minister of Administrative Reform in the government of Antonis Samaras from 2013 – 2015.  I met Mitsotakis several years ago when he was managing director of the venture capital arm of the National Bank of Greece. We worked on a cross-border investment project involving Greece and Turkey, and I found him smart, pragmatic, and focused on solving problems rather than advancing any particular theoretical approach.

Greece’s European partners will breathe a sigh of relief at the prospect of dealing with someone in Athens who literally, and figuratively, speaks their language. They would be making a serious mistake, however, to think that Mitsotakis will roll over and accept anything that comes out of Brussels. What they may well find is that instead of facing the profoundly unserious bombast of Syriza, they will be facing deeply analytical, thorough, and logical counterproposals to defend and advance Greece’s position. If Mitsotakis ever gets elected prime minister his counterparts in Brussels better be prepared to send the A Team to meetings with Greece.

Many of the people I spoke with on the island of Andros and in Athens greeted his victory in the race to lead New Democracy as a sign of very, very cautious hope.

“We hope, we wish,” said one shop owner. But with an expressive shrug of her shoulders she added, “But we really don’t trust any government anymore.” She, like thousands of other small businesses, is caught in the uncomfortable position of facing mounting taxes long before there is a hint of the economic recovery that could provide the money to pay the taxes.

A financial analyst in Thessaloniki said that Mitsotakis’ election has “re-energized the middle class. He is the flip-side of Syriza.” Others say Mitsotakis represents an important change in perception.

“Look, nothing fundamental has suddenly changed in Greece. Unemployment is still about 20%, the banks are fragile, and it looks like the capital controls will have to stay in place for the rest of 2016. But, in our politics, perception is very important. And right now, Kyriakos is benefitting from the perception that he may be the one to lead us out of this quagmire. The same dynamics of anger at the existing government and hope for change that brought Syriza to power in the first place could now benefit Kyriakos.”

Mitsotakis is certain to face the charge that he is nothing more than the latest manifestation of the dynastic politics that have plagued Greece for generations by focusing on punishing perceived enemies and rewarding clients rather than solving national problems. Another senior executive laughed and said ‘clients’ are nothing new in Greek affairs.

“Go back and re-read the Iliad. Homer gave the gods plenty of ‘clients’. Hera and Athena, for example, worked hard for the Achaeans while Aphrodite supported the Trojans. Kyriakos will undoubtedly face pressure from some so-called ‘clients’ but I think he is clever enough build bridges rather than simply settle old political scores.”

Under his very new leadership New Democracy has already received a bounce in the polls that puts them a few points ahead of Syriza.  It remains to be seen if Mitsotakis can ride this momentum to victory in a general election, but at this point not very many people would bet against that possibility.

The Greek People Deserve Much Better

The ancient Athenian dramatists would find plenty of subject matter in modern Greek politics. The only question would be whether Aristophanes or Euripides should write the play. There’s enough material for the comedies of the former or the tragedies of the latter.

            There is absolutely no question that the Greek people have been put through the economic and emotional wringer ever since the crisis began more than five years ago. The economy has almost ground to a halt, unemployment has soared, incomes have been slashed, the best and brightest young people are fleeing the country for greater opportunities elsewhere, and popular anger has reached a thundering crescendo. People are in the mood to roll a few heads.

           

            But whose? Therein lies the question. Unlike other troubled European economies such as Spain or Ireland, the problem, and any solution, go far beyond mere economics. Should they go after the entire Greek political class whose deceit, mismanagement and self-interest over the decades did so much to bring the country to its knees? Should they lash out at the current government that has very reluctantly started a half-hearted reform program? Better yet, should they vent their anger on the usual suspects – the perfidious outsiders who have the nerve to put strict conditions on the billions of Euros they have given Greece?

                That certainly is the position of the main opposition party, the left-tilting Syriza. This is where Aristophanes would have a field day. The main thrust of Syriza’s election campaign is promises to re-negotiate the bail-out agreement, force the creditors to take a bigger hair-cut, give free electricity to certain people, increase pensions, increase spending, do away with the real estate tax, raise the minimum wage, and, by the way, reinstate the €12,000 tax-free threshold. One would love to be in the room when these masters of Greek melodrama meet with the decidedly un-melodramatic German Finance Minister Wolfgang Schäuble to ‘renegotiate’ the terms of the bailout agreement. Good luck to them.

            While Syriza’s mishmash of proposals may sound contradictory and implausible to anyone with minimal financial knowledge they are consistent with the general anti-Western and anti-capitalist dogma of the Greek left that holds everyone except themselves responsible for the country’s problems. Rather than see the State with its old patronage system of politics as the author of many of Greece’s serial catastrophes many of the Greek left see the State – which they want to control – as the country’s salvation. There is not much room for private initiative in this resurrection of a failed system.

            So far the party has been relatively silent on its foreign policy objectives. This is understandable. Generally it has favoured anyone who has loudly resisted ‘Western imperialism’. But where do they turn now? The traditional international icons of the Greek left are fading past. Che Guevara and Hugo Chavez are dead. And the Castro brothers are competing to see who opens the first McDonald’s franchise in Havana. Even Iran is in serious negotiations with the Great Satan. Maybe they can turn to Kim Jong Un of North Korea. Or there’s always Hamas.

            Syriza maintains that it wants to remain in the European Union and the Euro. But it’s difficult to see how this goal is compatible with its demands of restructuring the bail-out package and back-peddling rapidly on even the small reforms that have been taken. What will Syriza do if the so-called Troika (European Commission, European Central Bank, and the IMF) refuse to budge? Will it stamp its feet and threaten to pull Greece out of the Euro? While the destabilizing effects of such a move are less than they were three years ago the thought of a member country leaving the Euro still makes people nervous. The idea of Greece back in the drachma may thrill the zealots. Others view it as collective suicide.

Syriza leader Alexis Tsipras: Backwards to the future?

            One hardened cynic in Athens says maybe it would be a good thing if Syriza wins. “Then,” he adds, “the Greek people will finally see that the Left has absolutely no answers. There is no money, no room for them to manoeuvre. There may be a fig of leaf of some debt rescheduling, but there won’t be any fundamental change in the conditions for further financial aid. Once the Greek people grasp the reality that there is no return to the old days they might just accept some serious reform.”

            Right now the election campaign seems locked in what The Wall Street Journal calls ResponsibleStagnation or Reckless Collapse. If Syriza represents the Collapse part of the headline, the government of Prime Minister Antonis Samaras represents the Responsible Stagnation. Indeed, the prime minister has never really pushed the reform agenda demanded by Greece’s creditors. He seems to present a picture of a weak person forced by unreasonable people into something he personally would rather not do. The result is that his opponents have been able to focus on the dreaded austerity instead of the much needed reform.  I haven’t heard anyone make a virtue out of the demands for reforms, and loudly proclaim that Greece has no choice. That the only hope for its young people is to break with the destructive old ways and build a new political and economic system.

Prime Minister Antonis Samaras: How much reform does he really want?

            Polls say the election will be very close. Syriza holds a small lead over New Democracy of Prime Minister Samaras, but many voters say they are undecided. The most likely outcome is a narrow victory with the winner forced to form an unstable coalition. There could well be another election this year before a stable government can be formed.

The stakes are huge, especially for the young generation of Greeks who would much prefer to remain in their native country rather than be forced to take their talents all over the world. There is no shortage of brilliant people in Greece. The real tragedy, suitable for Euripides, is that the existing political system does its best to reduce that brilliance to a weak candle glow. Time for things to change

Which Greece Will Show Up?

Which face of the Greek electorate will show up at the polls next Sunday in the second general election within six weeks? The angry, petulant, anti-everything voters who cast their votes for the extreme left and right in a fury of protest against the so-called ‘establishment’ blamed for bringing humiliation and poverty to Greece? Or will the slightly more sober side of Greece, afraid of being isolated and scorned outside the Euro,  hold its nose and vote for the charisma-challenged Antonis Samaras and the other parties ostensibly in favour of maintaining the tough reforms required to keep Greece in the Euro?

Will This Greece Win ?

This national schizophrenia was clearly seen in the latest polls that show a neck-and-neck race between the traditional centre-right New Democracy with its muddle-through policies and the anti-everything coalition of vaguely leftist groups under the banner of Syriza. The election rhetoric, if anything, has increased since the inconclusive results of the May 6 election when no group got enough votes to form a government.

Tourists Are Choosing The Baltic Over This

 While the politicians dither the economic situation deteriorates rapidly. The country is running out of money. Unemployment is at record levels with the proportion of young people without jobs topping 50%. Banks are paralyzed, and most sources of liquidity have dried up. Tourism bookings are dropping like a stone with many Europeans deciding that the North Sea or Baltic beaches are suddenly more attractive than Mykonos or Santorini.

No Comment Required

 Syriza’s cunning plans for breathing life into the comatose Greek economy range from unwinding all the half-hearted reforms made to date to increasing taxes on the rich and the shipping companies. Syriza conveniently ignores the fact that the rich and the shipping companies are much smarter than politicians and will always stay at last three steps ahead. Essentially, Syriza wants to maintain the very system that brought Greece to its knees. The only difference is that Syriza people would be in charge of the patronage.

New Democracy and its supporters don’t really have much to say, but thunder on anyway about the disastrous consequences of leaving the Euro. They say that only they can achieve the unachievable – have the creditors moderate the terms of the reform program and keep Greece in the single currency. Left unsaid in the New Democracy campaign is the humiliating reality that northern European technocrats will continue to exert enormous influence on the Greek economy and public administration.

The extremist parties have no real program other than yelling invective at each other, throwing glasses of water, and getting into slug-fests on television. The head of the neo-Nazi Golden Dawn party was quoted as saying he really didn’t believe in elections in the first place, and that they haven’t done any good for Greece.

Political Debate Greek Style

 International economists, like an ancient Greek chorus, offer a steady drumbeat of unsolicited advice. Most of them think Greece should leave the Euro and take its chances with the drachma. This might work if Greece had anything to export or had the industrial infrastructure to replace expensive imported goods with domestic goods. But it doesn’t. Other pundits wring their hands in desperation and moan that Europe really ‘should do something, anything’ to keep the grand Euro dream from becoming a nightmare. Unfortunately, they don’t really have a clear idea about exactly what should be done, or what could be done given the political realities of the European Union.

Will The Drachma Return?

There are faint whispers that voters just might opt for the reform program they know rather than jump into the unknown with Syriza. This theory says that Greek voters got all their complaints and frustration off their chest in the first election, but will ‘come to their senses’ in this election. Maybe, maybe not. But it is quite possible that the physical aggression shown by the neo-Nazi party Golden Dawn during a TV show might have shocked people into realizing the danger posed by extremes of either wing. Many people remember the vicious civil war that Greece suffered not that long ago, and they have no wish to repeat that particular tragedy.

There is another theory that says Greece would benefit from a total collapse that would force the entire system to be rebuilt from the rubble. As one Greek friend pointed out, the problem with this theory is who, exactly, would do the rebuilding. There is no obvious or credible alternative to the discredited existing political establishment.

Is there room to re-negotiate any terms of the existing program? The Germans continue to talk tough, but could this change slightly after the elections? The head of the IMF, Christine Lagarde, had a good point that may gain some traction. Her idea was to ease up on the budget cuts and give priority to the structural reforms that must be changed if the Greek is to have a chance to grow.  Maybe there is room to shift the priorities of the program and stretch out the savings program to ease the immediate pain.

The May 6 election seemed like a wake-up call for many Greeks. They were driven to the edge and didn't like what they saw in the abyss. This is their chance to pull back and return to the hard, long-term task of reforming their beautiful country.