governance, political economy, institutional development and economic regulation

dionysus

For rational people, if this breed actually exists other than in the imagination of economists, the most logical way out of the Grexit logjam was for Greece to vote “yes, we can”. Just by agreeing to take the pain of austerity measures, they would have got the amount required for this year, estimated at around 80 billion euros.

Banks would have re-opened, ATMs would have started functioning and Greeks could have happily gone back to sipping their Ouzos in their favourite cafés. Meanwhile, negotiations could have carried on with Brussels and the International Monetary Fund on the minutiae of the minimum austerity measures required to access the 240 billion euros bailout package.

Negotiations and a hot head do not mix

If only the Syriza government had the foresight to seek technical assistance from the bureaucracy of any Latin American, African or Asian country on how to deal with agitated lenders, they would never have got into the mess they are in now. Developing countries, which went through the notorious IMF “structural adjustments” during the 1980s, have mastered the art of walking the thin line between throwing the bath water, but keeping the baby.

This is not an art the Greeks are skilled in. Greek theatre dating back to 500 BC has a tradition of keeping the two main genres — tragedy and comedy — strictly separate. Compare this with Indian theatre and Bollywood where the surefire mantra for success is to mix and match, masala. This is the underlying core of Indian flexibility and the omnipresent gene of jugaad.

But all is not lost. Greece and the rest of Europe are bonded by more than economics.

Greece is not alone

First, it’s not just Greece. Greece is beautiful, sunny and laid back. But it is not the only one. Italy, Portugal, Malta and even rainy Ireland, have all benefited from northern Europe’s largesse and subsidy. These partners in destitution are honour bound to press for softening the terms of the austerity measures. Whilst they don’t have much weight in decision-making, they can be the medium for an honourable back down, both for Greece and the lenders.

A group of southern Europeans (Spain, Italy, Portugal, Malta, Cyprus) pleading for mercy on behalf of Greece would allow Germany and the hard-working northern Europeans to back down without abandoning their harsh standards with respect to performance, keeping promises and fiscal discipline — the things prosperous countries care about.

Italy and Spain, the two big economies (together they account for 27 per cent of Eurozone GDP), are sunny, hot-blooded Mediterranean countries with an iffy record of fiscal rectitude. It would serve them well to make common cause with smaller economies in southern Europe just in case they need similar fiscal accommodations in future.

Sellers need buyers

Second, remember, the world faces a demand recession and growth is slowing. What could be better for Germany’s Northern Alliance than to show some noblesse oblige and allow Greece to continue to buy manufactured goods sourced from them, with borrowed money, in return for “progress on reforms” — making it easier to hire and fire workers and adjusting the liberal social security downwards?

After all, this dance of fiscal profligacy by borrowers and fiscal fundamentalism by lenders is not new. Developing countries have routinely needed and received such accommodation, paid for by taxpayers in the developed world. Generations of developing country citizens have suffered and endured precisely such privations brought about by the actions of their profligate, corrupt and inefficient governments. Why then should the developing country assistance code not apply to Greece?

Street fighters are rarely credible as administrators

Third, mind the credibility gap. History establishes that “Dutch courage” is difficult to sustain. The negotiating strategy of the Syriza government has been built around the assumption that Brussels would blink before they do.

This did not happen and Greece defaulted on its loan repayment to the IMF on June 30. Desperate to seek time, the Syriza government sought refuge in a referendum to support their hard talk. Many must have hoped that the people would betray them and vote “yes”, thereby enabling them to negotiate a surrender with the lenders, ostensibly out of deference to the will of the people.

They were thwarted in this plan by the campaigning of their charismatic, media-savvy finance minister, Yanis Varoufakis, who tapped into wounded Greek pride and induced the massive “no” vote. He subsequently resigned and left the people he incited to their own devices. This is a familiar ploy of street fighters who live on in public memory by seemingly heroic actions which burnish their esteem, never mind that people bear the consequences thereof.

But the civilizational glue still sticks

Fourth, the Syriza overestimated the value of the glue they provide to the Eurozone. Greece is less than two per cent of the Eurozone GDP. Turkey, now with an increasingly hard-line Islamic government, has been waiting to accede to the EU since 1987. Its GDP is double than that of Greece. But the problem is not economic; it is civilisational. An EU without Greece — the cradle of European civilisation — would be like Ramlila minus Ram or Bhairavi sung at midnight.

A new deal is needed to thwart the Russo-China combine

Whilst a departure by Greece does open a door for China or Russia to consolidate their influence in the Mediterranean, the burden of history is against this happening just yet. If the proud Greeks will not bend before the Germans, can one possibly imagine them in bondage to China?

Cosying up to Russia would be far more acceptable. But low oil prices constrain the oil-dependent Russian economy from becoming even more profligate than it already is in foreign adventures.

No room for those who don’t tie their own bootstraps

Truth be told, the Syriza’s strategy was audacious and imprudent. Here is why. The world no longer suffers those who do not help themselves. For the multilateral and bilateral lenders and banks to depart significantly, just for Greece, from the fiscal rectitude economic mantra they espouse worldwide, would mean different strokes for different folks. This would be unconscionable and overtly iniquitous in these politically correct times.
Adapted from an article by the author in Asian Age July 7, 2015 http://www.asianage.com/columnists/barbarians-temple-dionysus-026
Advertisements

Comments on: "Barbarians in the temple of Dionysus" (1)

  1. Irvinder Singh said:

    If they give in to Greece why should Portugal Italy and Spain pay their dues. They should and will ease Greece out of the Euro after completing the formality of going through the proposals put up by Greece.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Tag Cloud

%d bloggers like this: