The new year will kick off with another financial crisis in Greece. The problem for Greece in 2012/13 was not that it defaulted, but that it didn’t default enough.
And this half-baked debt renegotiation is coming back to haunt Greece and the rest of the eurozone.
For the past two years there has been a narrative spun by Brussels and Frankfurt that the eurozone debt crisis is over. It is not; it has simply mutated.
This column has argued for many years that the best way to understand the stagnant politics that has afflicted all of Europe over the past decade is from an insider and outsider perspective. When economies stagnate and the growth rate plateaus, the game becomes an exercise in who gets the biggest slice of an ever smaller pie.
This then becomes a game of self-preservation, where each interest group in society rethinks their strategy with the ultimate objective of keeping their slice of the pie and trying to minimise whatever nastiness is coming down the track.
The interest groups are the insiders – those with a stake in society, those with influence and those who can affect the outcomes. Outsiders are on the margins, not sufficiently visible, organised or powerful to influence the self-preservation game.
As eurozone economies stop growing – because they are too old, too bureaucratic and are carrying too much debt in an overvalued currency – the manageable squabble between insiders and outsiders becomes an existential battle.
Insiders are on the left and the right.
On the right, Irish Water is a great example of an insider organisation. It will milk the punter until it is nice and fat and then sell itself off to shareholders, who will get rich. The people employed there will do extremely well, as will the consultants, lawyers and other experts drafted in.
But there are insiders on the left too. The upper echelons of the trade union movement and the loftier end of the public service are a great example of this. They make sure their interests are well looked after, and can cloak their strategy in the ham verbosity of fraternal struggle, deploying the misery of their brothers in the lower end of the public service to deflect from their own feather-bedded existence.
In a crisis, the insiders converge and the people who get crushed are the outsiders, those without a stake. These are the unemployed, the contract workers not protected by unions, immigrants and, of course, the young.
On the traditional right, they are the self-employed small business people who have no one to shout for them either and simply want to be able to sell their goods in the market without being encumbered by huge taxes, charges and levies.
The key for European politics in a crisis is to make sure that the insiders stay in charge at whatever price. This is why the statist left and corporatist right are in power in Italy, France and Spain, making them cozy bedfellows despite hollow ideological posturing aimed at trying to convince the electorate that they are opposed to each other, when in fact they are on the same team. You couldn’t find a better example of this insider alliance than our own coalition between the supposedly right-wing Fine Gael and the allegedly left-wing Labour Party.
When any party representing outsiders threatens the citadels of power in Europe, the insider elite that rule the eurozone get freaked out. One such party is Syriza in Greece. This party looks likely to win the Greek general election on January 25 and it has put the fear of God into Europe’s insider elite. Its policy of defaulting on Greece’s still enormous debt is just what most sensible economists would advocate and something that the IMF was advocating for countries with similar problems for years.
Syriza sets out its view of the problems facing Greece and the failure of policy in its manifesto.
The impact of austerity on the Greek economy and Greek society has been devastating. The austerity measures included cutting wages and pensions, reducing the cost of public utilities through privatisation, imposing extensive labour reforms and making cuts to health and welfare services. These led to an unprecedented unemployment rate of almost 30 per cent (among young people it is more than 60 per cent), widespread poverty – with a 98 per cent increase in the poverty rate, over-indebtedness of households, closures of many small shops and businesses and an economic recession which has exceeded 20 per cent of GDP in the past five years. The government debt has further increased and young people are leaving the country – thus reducing the potential for future economic growth.
To put the entire episode in context, latest figures show that there are 3,586,900 Greeks employed now. In 2008, there were 4,639,600 employed. This means that almost one million Greek jobs have disappeared and wages are 14.2 per cent lower than they were in 2008. Is it any wonder that Greek voters are fed up?
So a Syriza government would default more. So what? That’s what a heavily indebted firm would do.
The financial markets are limiting their concerns right now to Greece as if Greece can be quarantined from the rest of the eurozone. However, there is still no mechanism by which a eurozone country can leave the euro.
The implication is that Greece will be allowed to default again and this will have absolutely no impact on the rest of the currency area. This hardly seems possible, does it?
The Greek economy has just gone through a 1930s-style contraction. During all this, the insiders managed to stay in power. The two big parties swapped and deals were done with the EU that involved the same civil servants who had always gone to Brussels before the collapse. There was no change in the old order.
Now there is the prospect of a real outsider party coming to power that represents the dispossessed. This terrifies the insiders and it may be the first of many such developments in Europe, from the right-wing National Front under Marine Le Pen in France to the left-wing Podemos in Spain.
Their messages are the same: the traditional centre left and the traditional centre right are all the same, their objective is power. This is not working for the average guy – so it has to change.
Maybe the same will happen here?