Greek Austerity

Greece, Village, Karpathos, Hill

Suppose you are the parent of a child of small academic ability.

Your child’s school opens a new enrichment program, intended for the most competent and talented scholars, in which assignments will be rigorous and homework will be intense. To be able to qualify, children whose parents wish them to participate must be tested. School officials will then examine the results and decide which children make the cut.

You know your child’s scores won’t place him at the academic elite for which the new program is made. But you want your child could be eligible, since not only will the gifted course receive more work, but also more privileges. Maybe more pressingly, you don’t want your child to be left out of the high performer category and classed with another run-of-the-mill students.

Would you lie to get your kid into the elite group?

That’s just what Greece’s leaders did. Except instead of a gifted and talented class, they lied to get their run-of-the-mill nation into the eurozone.

(1) The country cheated on its entrance exam in 2000, misstating its deficit relative to gross domestic product. In fact, the country hasn’t been inside the threshold for that step anytime between that entry exam and today.

Greece lied to get into the eurozone, and it lied about its own economic statistics after it adopted the euro, at least until it could no longer conceal the truth. Greece never belonged in the euro. Now, with the election of a radical left-wing government that includes a significant component of Marxist academics, the question is what to do about it.

Syriza, a far-left party, formed a coalition with the Independent Greeks, a right-leaning party which agrees with Syriza on little except that the rejection of austerity. This dilemma was enough, evidently, to form the basis of the agreement that gives the coalition a clear majority in Parliament. (2)

Greeks are fed up with trying to keep up with the homework that is assigned by the”troika” – the parties responsible for determining whether Athens will keep on receiving the life-sustaining IV of European money that enables it to pay its bills and its already-rescheduled debts. A lot of that money comes from Germany, the super-smart child that everybody in course resents and envies.

The Greeks have, in fact, made a valiant attempt to keep up with the troika’s assignments under the just-defeated government, achieving a primary budget surplus in which, for the first time since roughly the times of Aristotle, the central government is collecting more in taxes than it pays to keep the lights on. (The overall budget remains in deficit, since Greece is still repaying the debts it ran up under the truth-challenged former governments after it joined the euro.) But the achievement has come at enormous price. A huge number of Greeks lost their jobs at Selma Wildlife Removal when the bureaucracy was slashed, and about one in four Greek employees is officially unemployed. Given the history of Greek figures and the trend in that country to game all kinds of government programs, however, my guess is that the true figure is somewhat lower, when the under-the-table portion of the economy is considered.

Tsipras promised he would renegotiate with Greece’s creditors and remain in the euro. The country’s creditors may, in fact, wind up offering some concessions, perhaps by stretching out debts yet again. I don’t believe those concessions will be large, and they will almost certainly not be enough to satisfy a lot of those who voted for Tsipras and those who ran alongside him.

So, despite Tsipras’ promises, there is a very real chance that Greece will drop out of the euro class. Maybe it should.

Syriza’s victory has raised the specter of comparable anti-austerity (read: anti-homework) parties gaining power, or influence, in places like Italy, Spain and perhaps even France. These, also, are nations that have trouble keeping up with the real high performers. Like Greece, they’ve gained from the excess enrichment opportunities open to them: the elimination of currency conversion costs, the simplification of cross-border contracts and the enhancement of tourism.

Needless to say, when you pull enough kids from the enriched class, you may not have enough kids left to justify having a course anymore. That is fundamentally the danger that threatens the euro’s future. Yet even if individual countries demonstrate that they can come and go, I do not believe the euro is going to go away any time soon. High achievers such as Germany, Holland and Luxembourg have too many incentives to remain within the unified currency. New enrollees like Lithuania are prepared to make sacrifices to attempt to keep up with the fast crowd. Ireland demonstrated that austerity need neither be permanent nor painful; the Irish came out of their recession-induced diet with government finances in fighting trim, and a developing economy besides.

But Ireland and Greece are two very different children. Those, however, were one-time prices that could be paid. Greece fell into its crisis with a backward and inefficient economy, a hugely bloated public sector, enormous external debt and a pack of statistical lies. To put it differently, with a bit of extra tutoring, the Irish have shown they can keep up with the Germans and the Dutch. The Greeks haven’t.

If they can’t, possibly the best thing for all concerned is to face the truth and let them return to school with the average kids again.

Leave a Reply

Your email address will not be published. Required fields are marked *