[Disclaimer: This post contains no shocking news and concludes that there will be “more of the same”.]
I’ve been to Greece once, about 10 years ago. It was a short visit – all I had was a 7-hour layover in Athens, and I went to see the city rather than hang around in the airport. The brand new subway, built for the 2004 Summer Olympics took me to town, past huge stadiums built only a year or two before, especially for the Olympics. Abandoned and disused since, the stadiums were already overgrown with weeds. Once in Athens, I didn’t do much – walked around town, climbed a hill to a church and a ruin, lunched on bread and olives from a local supermarket and headed back. The Greek capital did not leave a good impression. I found it dirty, the roads were cratered, the buildings in terrible disrepair and I’ve never seen such shortage of attractive women. Add to that constant harassment by street venders trying to sell me illegal cigarettes and counterfeited perfumes, and you’ll understand why I was relieved to go back to the airport. Greece was painfully far adrift from the cradle of Western Civilization it once was supposed to be.
As we all know, since my short visit (and totally unrelated to it) things have only been worse for Greece. Last weekend’s elections result has just thrown in an extra portion of uncertainty into the situation. Syriza, a militant alliance of radical left groups, has won on a populist promise to “end austerity”. The statements by Syriza leaders before and after the elections are, of course, rather contradictory (before: “[Syriza will demand to] write down on most of the nominal value of debt“; after: “We are not talking about writing off 50% of the nominal debt”). So what is going on there? And where will Greece (and the EU) go from here? The way I see it, there are 4 possible scenario’s:
- What Greece wants
The debts are forgiven (“written off”) and Greece is free to recover. Highly unlikely. The Greek have shown no intention to mend their ways. The rest of the EU is not bent on a repeat of the situation, having to save Greece again in 5 or 10 years. “Pardoning” Greece’s debt is politically unacceptable in the loaning countries (like Germany and the Netherlands) and will be met by similar demands by other bailed out countries (Spain, Portugal, Ireland). Such demands are clearly impossible to meet. Not an option.
- What the (Northern) EU wants
Greece paying its debts. Equally unlikely. By now it is clear that the Greek economy is simply unable to recover sufficiently to generate tax income that will allow the government to repay the current loans. The pace of reform has been virtually zero. Syriza promises a lot (an anti-corruption task force, “an end to both bureaucracy, corruption and tax immunity“) but these promises have been made by previous governments as well. There’s no sign or prospect of Greece’s economy becoming “Germanized”. And without drastic reforms, there’s simply no budget to pay back the loans. Won’t happen.
- A creative solution
Thinking out of the box and breaking taboo’s. Grexit is one such option. Again, unlikely. Greece has no intention of leaving the Eurozone. Grexit will deprive it from the only leverage it has – “help us or we will bring you down with us”. In plain words, we call it blackmailing, but its politics, so “using the available assets” is considered a more proper term. The EU has no legal means to force Greece to leave the Euro. And the fall-out will be too big for Grexit to be a real option. Other creative solutions are possible, but politicians are not really good in recognizing and applying them. Even less probable than the previous two scenario’s.
- More of the same
I recently learned that if weather forecast would simply state “tomorrow’s weather will be like today’s” it will be accurate in about 65% of the cases. The huge spending on meteorology improves the accuracy only marginally to 75% of the cases. My guess is that the same applies to economy. As a former boss of mine used to say: “The soup is being eaten cooler than it is served”. He meant that bold statements and stiff negotiations positions are usually watered down to match reality. In Greece’s case it will probably mean that:
a) Syriza-led government will find it difficult to negotiate a significantly better deal
b) The EU will have to write off some of the Greek debt (here a creative solution will be found – they will name it differently to avoid a scandal)
c) Syriza’s populist promises of higher wages and pensions, expanding the number of government jobs and such are easy to make but impossible to fulfil.
So expect drama in front of the cameras but little dramatic results at the end. The pale reaction of the international stock exchange markets to the elections result is a clear indicator that not much is going to change. Is this good news? No. But its much less bad that it could be.