In case you missed it, Greece is in for more turmoil.
Greek Prime Minister Alexis Tsipras recently resigned and called for new elections as his party struggles with internal dissent. It’s the latest installment in Greece’s ongoing battle against harsh debt repayment conditions imposed by its European neighbors – especially Germany.
But now it’s more twisted than ever.
Tsipras is nothing if not politically savvy. Only 41, he created his Syriza party out of a disjointed group of former Eurocommunists and disaffected members of Greece’s center-left PASOK party, along with a host of smaller groups.
Tsipras campaigned as a strong opponent of Europe’s austerity measures, which required devastating cuts in Greek public services and steep tax hikes in exchange for short-term bailout funds. He promised that he’d refuse the terms, even if it meant a Greek exit from the Eurozone.
Apparently, Greeks liked what they heard. Syriza’s election victory earlier this year marked a watershed moment in European politics – the first time an anti-austerity party had won power in an indebted country.
The euphoria was short-lived, however.
Tsipras went into negotiations with his European creditors demanding that foreign banks accept a “haircut” – that is, a write-off of at least a portion of Greece’s debt – or else an extension of the time Greece got to repay the loans. He got neither.
Instead, the troika – that is, the European Commission, the European Central Bank, and the International Monetary Fund – demanded more austerity. When Tsipras put the question to Greek voters in a referendum this summer, 61 percent voted to reject those demands.
Yet then, mysteriously, Tsipras accepted them. He claimed that a Greek exit from the Eurozone – a possible result of rejecting the bailout – would be simply too painful.
The move prompted protests and defections from Tsipras’ own party members. In fact, 25 of them broke away and formed a new party to compete against Syriza in the September 20 election.
But new elections are still a good thing for Tsipras and for the troika. Why?
Because, so far at least, public opinion polls show Tsipras winning reelection handily. He may even be able to form a government without having to partner with any of the country’s smaller parties.
As a result, he’ll get rid of the firebrands who embarrassed him in the negotiations and in the press, and he’ll continue to negotiate with the troika and the Germans. There will be no haircut and no extension of the repayment timetable. Greece will remain mired in depression.
As things stand now, Greece keeps borrowing money in order to pay the interest on its previous debts. That’s only the interest. There’s never any reduction in the principal of the loans.
Greece owes its creditors about $375 billion. That’s 220 percent of its gross domestic product. By contrast, the U.S. national debt is about 100 percent of its GDP.
It’s not a bold prediction for me to say that the Greeks are never going to repay that debt. They can’t. Greece has practically no industry besides tourism, a little olive oil, a little wine, and some mining. There’s no manufacturing base – no way for Greeks to work themselves out of the debt.
Meanwhile, the most highly skilled Greeks – doctors, lawyers, engineers, professors, and businessmen – are leaving the country, causing a brain drain unprecedented since the aftermath of the First World War.
The international community should stop repeating the mantra that Greece’s bloated government is wasting European money. The country’s public sector is no bigger than the average for developed countries – and smaller than many others in Europe.
What the international community should be focusing on instead is how Goldman Sachs and other big banks and investment firms, which were supposed to be auditing and guiding the Greek economy, ended up robbing it and walking away.
But when even Greece’s leading voice against austerity falls into line with the creditors, the country’s in big trouble.