‘The road is open before us for work and struggle’
Alexis Tsipras, Greece Prime Minister.
The Greek people know a thing or two about struggling. Since 2009, when the debt crisis took hold, Greece has endured nothing but struggle. Standing toe to toe with creditors, Greece has been on the end of repeated hits. Every time it looks as if it’s regaining its feet, it receives another blow.
And so it was again this morning.
When Tsipras announced snap elections in August, it provoked mixed emotions. Some saw it as a final chance for Greece. An opportunity to remove the shackles of oppression. Others saw it for what it really was: a boost for austerity.
On that front, the elections didn’t disappoint.
Overnight, Syriza edged towards regaining its seat in power, securing 35% of the popular vote. That was enough to fend off the far-left New Democracy, which took 28% by comparison.
Syriza now has enough to form a minority coalition government. It expects to win support from the Independent Greeks party. The era of brutal austerity is just beginning.
The election doesn’t reflect popular opinion
The elections were the fifth time in six years Greeks have headed to the polls. Greece has now endured more elections in that time than Australia has had prime ministers…
But Greeks have never really had a choice. Every election is a sham. A sop to the idea of democracy and the right to voice one’s opinion.
Yet aren’t the people responsible for choosing austerity? Sort of. They had as much choice as someone with a gun to their head. It explains why so few bothered to vote in the first place.
Only 55% of eligible voters turned up. With Syriza taking less than half of this vote, we can hardly put it down to a majority decree.
At the same time, the outcome was a sign for how fed up and hopeless the Greek people feel. About Greek politics, the elections, and their lives in general.
Ultimately voters did choose austerity. This outcome was an admission, and acceptance, that change isn’t coming. No matter what they do, or who they elect, the end outcome will remain the same.
Look at it from the people’s perspective.
They’ve re-elected a government they brought into power in January to oppose austerity. Syriza campaigned on an anti-austerity, anti-creditor platform. It vowed to stand up to European banks and policymakers. Yet today Greece stands as a vassal of Brussels. Whatever sovereignty Greece once had, it’s given that away.
And it was handed over by the very people they thought they elected to protect them.
And for what? Billions of dollars of ‘rescue’ funds? Bailouts made possible only by punishing pension cuts and tax hikes? Funds drip-fed to Greece in exchange for plunging living standards?
We can’t absolve the Greek people of all responsibility. But the result of the election doesn’t capture what people really feel.
They’ve been tricked to believe that Eurozone membership was more important than self-determination. The powerbrokers in Brussels have convinced Greeks that its membership hinged on the acceptance of bailouts. We can’t be sure they would have made good on their threat. But the risk for Greeks was real enough.
What difference does it make if it’s Syriza, or New Democracy, or someone else? Eventually, the creditors win. The policy U-turn Syriza has performed since it came to power was as rapid as it was extreme. Who’s to say New Democracy wouldn’t do the same thing? No one can be trusted to make the decision the Greek people want.
This helplessness is an admission of defeat. The people can no longer tolerate uncertainty. They elected a ‘sure thing’, whatever the outcome. Life inside the Eurozone is more comforting than the thought of what awaits outside.
At least Mr Tsipras can sleep easier tonight. He used these elections in part to clear his own conscious. By unloading the responsibility onto the Greek people, he absolved himself of any blame for what’s coming.
Unfortunately, Greece’s problems are just beginning.
What happens next?
The outcome of the Greek elections gives everyone a small breather.
Creditor nations will paint it as a victory for the European project. But eventually the government will start carrying out reforms. Greece will then begin receiving tranches of its €90 billion bailout package.
But the problems will persist as long as the majority reject austerity.
What option does Greece have? It can default on its debts.
That sounds scarier than it actually is. Creditors, or banks, don’t like talking about defaults for a simple reason. It leaves them without a debtor, paying interest with no hope of ever paying back the principal amounts. It’s a debt trap that several European nations have encountered. Yet not everyone took the same road as Greece.
Take Iceland for example.
In 2009, Iceland allowed its banks to default. It moved domestic loans and savings into new banks. But it left all foreign assets and debts behind.
The Icelandic people then voted in favour of not repaying foreign creditors the money they lost during the default. Some nations, like the UK, have sued Iceland. But that’s about as bad it’s gotten.
Everything else improved for the better, benefitting the folks that matter — the Icelandic people.
Iceland’s economy is growing much faster than Greece’s, or any other bailout recipient. Iceland grew at an annual rate of 5.6% in the past year. Greece on the other hand is growing at 0.9%.
In the aftermath of the default, Iceland’s economy shrank 0.75% a year between 2008–2012. The Greek economy contracted by 2% during the same period.
Unemployment is faring much better in Iceland too, at 4.3%. That compares favourably to Greece’s 25% unemployment rate.
The only difference here is that Iceland had its own currency, something which Greece doesn’t. But there’s nothing stopping the Greeks from reintroducing the drachma. That would’ve been an inevitable outcome of a default.
Iceland shows what happens when nations reject creditor advances. Bailouts, and austerity, aren’t the only options. That defaulting is a reasonable way of retaking control of your own future. Short term pain is inevitable.
But this doesn’t mean that we’ve seen the final word on this.
I’d guess that we’ll see another election before 2017. Once the new austerity measures kick in, dissatisfaction among the people will rise again. This will take place over the next 6–18 months, as Greece rolls back welfare spending and hikes taxes.
For markets, the elections are a small victory. It’ll buoy traders’ confidence in the short term, from stocks, to currencies and bond markets.
A few months ago, Greece was seen as a tipping point for market volatility. But it matters far less today. Markets have shifted gears. They’re now focusing on the outlook, and fallout, of future US interest rate policy. That’s underpinned by the ongoing worry over the global economy, and where growth will come from.
That leaves Greece as a mere blip. Greece’s importance, and exposure, to the rest of the world is threadbare. It matters to European markets mostly.
European markets, from the FTSE to the DAX, should rise when they reopen tonight. The Euro is likely to see a small gain on currency markets as well. But none of this changes the medium-to-long term outcome for European markets.
With China, interest rates, and global growth in the background, Greece might be the least of their problems.
Contributor, The Daily Reckoning
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