A very different European economic landscape beckons after the victory by Alexis Tsipras’ Syriza and the decision by the European Central Bank to begin a programme of quantitative easing in a desperate effort to goose the snoozing European economy. J. BROOKS SPECTOR tries to put these developments into perspective.
In the end, Alexis Tsipras’ Syriza Party bounced all of the traditional Greek electoral winners right out of the game, coming within two seats of winning an absolute majority of the country’s national parliament. To create a new government, Syriza then joined up with a centre-right minor party, Independent Greeks, to put it over the top. Syriza and Independent Greeks would, on the face of it, seem to have only one policy position in common – kill off the austerity programme – but maybe that is enough for the beleaguered Greeks. Syriza, of course, had campaigned on a platform of reversing and renegotiating the austerity policies that have so tormented the Greeks since it first became apparent to the rest of Europe that the Greek government was spending way beyond its means, with virtually no way to sort things out, and probably cooking the national economic books as well.
In the immediate aftermath of the financial meltdown of 2008-9, to keep the Greek government from going belly-up (and perhaps taking some other weak sister EU nations with it), the European Union, the European Central Bank and the IMF ultimately agreed to pony up with repeated tranches of loans to Greece. This was eventually agreed to by all parties, but only in exchange for a Spartan diet of government financial and monetary policies to force the Greek government and economy to starve itself back to prosperity (as austerity’s critics have argued). Of course, most of the money eventually has effectively come from Germany, and Germany has been the prime advocate, the avenging angel for sticking to austerity, taking one’s medicine, tightening belts, and sucking it up, in demanding the Greeks stay with the program. (Perhaps, as some argue, the Germans continue to channel national memories of the dreadful hyperinflation of the Weimar Republic in the 1920s in insisting that the medicine must be swallowed.)
In this case, for the Greeks, staying with the programme has meant government salaries and pensions were sliced, government jobs were peeled away, government assets were sold off, and government activities such as railroad lines with lots of employees and few trains or passengers were shuttered.
But, as economist Paul Krugman argued, the economic projections of Greece’s international paymasters had “assumed that Greece could impose harsh austerity with little effect on growth and employment. Greece was already in recession when the deal was reached, but the projections assumed that this downturn would end soon — that there would be only a small contraction in 2011, and that by 2012 Greece would be recovering.
“Unemployment, the projections conceded, would rise substantially, from 9.4 percent in 2009 to almost 15 percent in 2012, but would then begin coming down fairly quickly. What actually transpired was an economic and human nightmare. Far from ending in 2011, the Greek recession gathered momentum. Greece didn’t hit the bottom until 2014, and by that point it had experienced a full-fledged depression, with overall unemployment rising to 28 percent and youth unemployment rising to almost 60 percent. And the recovery now underway, such as it is, is barely visible…”
Krugman goes to explain, “Greece imposed savage cuts in public services, wages of government workers and social benefits. Thanks to repeated further waves of austerity, public spending was cut much more than the original programme envisaged, and it’s currently about 20 percent lower than it was in 2010. Yet Greek debt troubles are if anything worse than before the programme started. One reason is that the economic plunge has reduced revenues: The Greek government is collecting a substantially higher share of G.D.P. in taxes than it used to, but G.D.P. has fallen so quickly that the overall tax take is down.”
And so, like Popeye the sailor – “I’ve had enough and I can’t takes any more” – in the 25 January election, the Greek population responded to the siren song of Tsipras’ Syriza Party. Syriza’s position was simple: austerity had to be brought to a halt and those onerous terms of repayment and conditions of the EU/ECB/IMF loans must be renegotiated to more reasonable levels. This is so that Greece can implement government spending, stimulus creating, and reflating economic policies to provide relief to a put-upon population and help improve employment prospects for a disheartened populace.
The Germans, naturally enough, have been very reluctant to give the slightest indication of any flexibility on the conditions of the loans already outstanding – and to mutter rather ominously that any kind of movements towards defaulting on those already-extant loans would slam the loan window for the future. Not surprisingly, analysts are pointing to the fact that without access to such funding, the new Greek government will not have the money to pursue its promised expansionist policies to get unemployment down from its current dreadful levels – and probably not even have sufficient funds to cover the costs of its current government obligations such as salaries and pensions. That would probably not make Syriza very popular with a population already pretty much at its breaking point. (Since Greece is part of the euro zone, it doesn’t really have the ability to print money arbitrarily to spend itself out of its troubles.)
Moreover, one further problem for the Greeks (and the rest of the euro zone) is that they don’t really have easy access to the classical remedy for individual nations of pushing a drastic devaluation of their currency so as to increase the international competitiveness of their goods and services and to make their country an even better tourist destination than it already is. (Of course such policies also make imports much more expensive and can prove deeply unpopular anyway if the results don’t work out as promised.) On the other hand, the Germans, as well as the other better-off members of the euro zone don’t want the Greeks to leave the euro zone, if for no other reason than that it could possibly lead to a rush to the door to dump the euro by other weak sister economies.
Those countries, taking a leaf from the Greeks, would be similarly desperate to gain an advantage from revaluing their new individual currencies downward against the euro or other still-stronger currencies. This would lead to a more general collapse of the euro as a core project of European integration and place even more pressure on the German economy to keep things going for everyone else.
In the meantime, drawing on the experience of the US Federal Reserve Bank, the other day, right in the midst of the World Economic Forum meeting in Davos, after carrying out a bankerly version of the “Dance of the Seven Veils”, the ECB announced it would begin its version of quantitative easing at a rate of around $69 billion a month. This would be designed as an effort to reflate the European economy and thus keep it out of falling into a continent-wide recession.
Not all analysts are convinced this decision will do the trick. As Jacob Funk Kirkegaard of the Peterson Institute for International Economics argued just as the ECB’s QE was to be announced, “Additional asset purchases are unlikely to stimulate euro area short-term growth because of the difficulty of overcoming poor bank demand for new cheap ECB liquidity and already record low sovereign bond yields. Investors have placed increasing amounts in negative yielding euro area sovereign debt (€1.2 trillion recently, up from €500 billion in October 2014 and zero in June 2014), which suggests a modest portfolio rebalancing channel (the shift away from asset classes purchased by the central bank and into higher yielding riskier assets). Moreover, unlike the Federal Reserve and Bank of England in 2008–09, the ECB is not facing a crisis and cannot reap any crisis stabilisation benefits from its actions.
“But sovereign bond purchases ought to help bring longer-term inflation expectations back to about 2 percent, an important monetary achievement even if there is no growth boost. Politicians looking for the ECB to bail them out from painful decisions may of course not be satisfied.”
Back in Greece, the first real public splash by Alexis Tsipras, the Syriza-led coalition’s new prime minister, went to pay a call of respect at the memorial at Kaisariani, site of the massacre of some 200 Greek partisans and villagers by the occupying German army in retribution for the killing of a German army officer during the latter stages of World War II. While making that trip, the new prime minister also called on Germany to pay an honour debt for its harsh treatment of Greece during the war. As the Washington Post described his visit, “Syriza, in particular, has been outspoken about the need for Germany to atone for its past in Greece, or at least show a bit more leniency now as compensation. Tsipras has campaigned on the issue for more than a year, including in the build-up to Sunday’s election. ‘We are going to demand debt reduction, and the money Germany owes us from World War II, including reparations,’ he said earlier this month.
A 2013 study carried out by the previous Greek government of defeated Prime Minister Antonis Samaras estimated that Germany owed Greece some $200 billion for damages incurred during the Nazi occupation, the cost of rebuilding destroyed infrastructure as well as loans Nazi authorities forced Greece to pay between 1942 and 1944. The Samaras government, whose critics accused of being handmaidens to Brussels’ harsh mandates, did little with the report. Another advocacy group claims that the sum owed to Greece could be as much as $677 billion.” Hmm, perhaps this is the Greek version of chutzpah, but making this claim one of the new government’s first orders of business would also seem to be a symbolically important marker placed on the gaming table, right at the opening stages of its formal campaign to renegotiate the terms of those Greek loans.
The Post went on to say, “Syriza’s grandstanding on the issue can also be read as a savvy move to win over nationalist voters who would perhaps otherwise not favour the leftists. The far-right Golden Dawn party, which has neo-Nazi origins, polled far behind Syriza, but still came in third among the country’s many jostling parties. ‘It is our duty to pay homage and not forget that the European peoples live free and have defeated the spectre of intolerance, the dark ideology of fascism,’ Tsipras said last April, ahead of European elections. ‘There were thousands of those who sacrificed their lives in our country.’” Tsipras already seems to be one clever politician, aside from just being a winning one.
Then, late Tuesday night, Tsipras tossed yet another chip onto the table to cover his bet, publicly rebuffing an EU call for further sanctions against the Russians over Ukraine. The Financial Times reporting on this decision, noted, “Greece’s new radical left-wing-dominated government signalled on Tuesday that friction with its European partners might extend from economic to foreign policy when it distanced itself from an EU call to consider broader sanctions against Russia. A spokesman for the ruling coalition of Alexis Tsipras, prime minister, said Greece had not approved a statement from EU heads of government that asked their foreign ministers to review further sanctions in response to the latest flare-up of violence in eastern Ukraine, blamed by the US and most European nations on Russian-backed separatists.”
That, of course, allows one to contemplate just what will happen when Greece determines it must renegotiate the terms of any loans advanced to it from the Bank of England or even from private British banks. Imagine the opening moments when Tsipras points to those absolutely priceless, iconic Elgin Marbles still in the British Museum after they were purchased – or purloined – back when Greece was still part of the Ottoman Empire. The Greeks have, after all, already created a new venue to display the real ones, should they ever be repatriated to Greece, and there has long been a feeling those statues really belong for display where they were created in the first place.
Even without such public, symbolic feints, taken together, all of these movements seem to point to a long, complex, complicated dance over those outstanding Greek loans, the future of any further support for Greece’s economy from European or other international financial institutions, and even the real effectiveness of the ECB’s efforts to reinvigorate the European economy. Europe’s economic fortunes look clearly unsettled at this point. And that, for South Africans, is less than good news. Exports of South Africa’s basic commodities to Europe will not rise very much (and may even fall), and if the euro continues to decline against other currencies, the net earnings of those exports priced in euros will suffer as well. Big ouch. DM
Photo: Greek Prime Minister Alexis Tsipras (C) waves to spectators and media as he is on his way to enter the the Presidential Mansion, in Athens, Greece, 27 January 2015. It is the first government in the Greek history lead by a leftist Premier. EPA/YANNIS KOLESIDIS
- The ECB’s Coming New Stance on QE at the Peterson Institute for International Economics
- Greece’s new prime minister wants Germany to pay for Nazi war crimes at the Washington Post
- The Greek Election at the Portside.org website
- Ending Greece’s Nightmare, a column by Paul Krugman at the New York Times
- Greeks rebuff EU call for more Russia sanctions at the Financial Times
Daily Maverick © All rights reserved