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Monday, May 14, 2012

Four out of five Greek voters still committed to the euro: Will the Greek anti-austerity parties blink first?

Over on the Telegraph blog, we argue: 
There’s a paradox at the heart of the Greek euro debate: voters have comprehensively rejected EU-mandated austerity – parties that are (more or less) in favour of ripping up the bailout conditions mustered 68pc of the votes. And yet, according to a new poll, 78pc of Greeks are still in favour of the new government doing “whatever it takes” for the country to stay inside the Eurozone.

On one level, this phenomenon is an extreme case of having your cake and eating it. Clearly, Greece needs root-and-branch reform if it’s going to have any hope of remaining inside the euro, and naturally, Germans and other creditors will want guarantees in return for putting up cash.

But this paradox may also hold three clues to Greece’s future inside the eurozone.

First, it illustrates the conflicting view inside Greece of "Europe". The country has been an EU member for 31 out of 38 years as a democracy (at least in modern times). EU membership is still associated with stability, prosperity and democracy, which explains why four out of five Greeks remain committed to the euro. Therefore, when German ministers, central bankers and others dare Greece to tear up the bailout deal and face an imminent euro exit, they also dare Athens to risk all which marks the break from its chequered past of colonels and instability. Rhetoric aside, are Greek parties really willing to pull the trigger?
 At the same time, though, on the current austerity path there must be a tipping point for Greece, when the euro and/or the EU becomes predominantly associated with a whole range of negatives, including undermining democracy, meaning Greece will almost certainly decide to leave. Though we’re not there yet, there are plenty of signs already.
Secondly, the Greek population is in some ways rational in its opposition to a euro exit. Yes, the country is stuck with a hopelessly overvalued currency. Yes, it was a mistake to allow it in and the rest of it. But whether staying or going, Greece is in for a very rough ride. Just to illustrate: the Greek banking sector is completely reliant on the eurozone for recapitalisation and liquidity (via the EFSF and ECB). If Greece exited, the newly independent Greek Central Bank would be forced to fill this void by essentially printing huge amounts of money, perhaps equal to half of Greek GDP. Hyperinflation would be a real threat as would the collapse of the banking sector. Would SYRIZA and others dare to risk it?

Thirdly, the Greek population isn’t entirely irrational in its opposition to the EU/ECB/IMF programme either. This programme is based on unrealistic assumptions and is choking off any chance of growth. This is not an endorsement of debt-funded growth à la Hollande – which is what put Greece in this mess in the first place – but of giving Greece some flexibility to enact structural reforms, for example via a full restructuring (which is now much harder due to the ‘private sector involvement’ in the second bailout). If the Troika could loosen the reins slightly, and a new Greek government use that to boost chances for growth while also and saving face at home, perhaps there’s a compromise to be had between Greece, Germany and the IMF – and Greece can live another day inside the euro. Though the euro still would have plenty of issues, at least, this could give Greece time to recapitalise its banking sector and achieve a primary surplus, both of which would make managing an exit easier.

In any case, in the ongoing game of chicken between Germany and the Greek anti-austerity parties, given the huge stakes, it may well be the Greek parties that blink first.

5 comments:

Rik can ypou make the words to be typed changed in the window as well 2x typing everything is pretty irritating said...

The Greek population is totally unrealistic. The country does everything to make it as unattractive for investors as possible. It is leaving laborcosts aside as attractive for investments as say Rumenia at best and just look up what are the labourcosts overthere.
There will simply have to be u huge correction and corrections are not meant to be painless.

So basically it is who is still willing to put money in a totally bankrupt joint. The only idiots available were EZ countries and EZ institutions. Basically all the money Greece get now is a de facto gift as it will not or only for a marginal percentage be repaid (and the latter with heavily subsidised interest rates.

Starting from there with no political or social animo to make structural reforms. They are best of by grapping all the money they can get and as said the EZ are the only ones foolish enough to drop money in that blackhole. They are simply jeopardising the continuation of that money flow at the moment.

You mix up the fact that the Greek model is completely bankrupt and the fact that the Greeks simply oppose necessary change with the present degree of austerity going too far. Even the present standard of living there is well over a one that is sustainable.

Rollo said...

It is certainly a problem, and very sad. But Greece does not have the ability to become a wealth-generating country. Its agricultrue is made difficult by the terrain and the weather. Its fishing is depleted. It has very limited natuaral resources so mining is out. It has difficult links to the market; and there is no way that Greece could become like the Ruhr valley and become an industrial superpower. What is left? Tourism, but Greece has killed that off by being in the Euro, and paying themselves as if they were Germans in Germany; so even a meal out is grossly overpriced. When they do drop out, and devalue, the country will start to recover; but it will not become rich.

christina Speight said...

Greek voters and anti-austerity parties would do well to think for once. They'd be well advised to quit the euro while there is still someone there interested in ensuring (and helping with) an orderly withdrawal. Otherwise there'll just be an almighty crash.

Germany won't sit around much longer if it too is going to ,be dragged into the maelstrom - like the rest of US, though it must be admitted that the PIIGS are helping Germany no end by keeping the euro.- and with it German exports - cheap and booming. Germany is getting all the benefits of devaluing with so far none of the snags. It's alright for some !

Alvaro said...

I can understand why a possible majority of the greeks are against leaving the Euro.
I am portuguese and, in my country, the Euro had been a catastrophic option. Since we join the "common" currency, the development of the my country pratically stoped. We live more or less as in 2000 but with a higher, much higher debt.

Before 2000, the Portuguese debt was much lower than the average in the European Union, now is one of the highest!

So, the option to leave the Euro seems obvious.
But no, a lot of the portuguese citizens are against, may be not a majority but, at least, almost a majority.
And why? Because the newspapers, Tv and so on are ful of genious explaining that if we leave the Euro the public officers and the retired wil cease to receive their wages or pensions, the price of the imported goods probably will double and so on.
The economist and the political scientist that defend that Portugal must leave the Euro are never or, rarely, called to the TV.

Probably in Greece is the same.

Rik said...

More than half the population lives from paycheck to paycheck and that is their horizon. And almost all of them would be worse off within that horizon. So it first might fall apart by itself if the problems caused by staying inthe EZ are bigger than those from an exit.
So likely irrationality like we see in Greece now (thinking they can have their cake and eat it) or lenders will pull the plug out.

People simply have to get used to the idea that welfare simply doesnot fall from the sky and somebody will have to earn it first (and if that doesnot happen...).