I was present at the outset when, after a brief consideration of restructuring Greece’s debt, EU authorities decided against it, mostly because that would have inflicted losses on large German and French banks and would have an uncertain impact on the markets. I was present when, much belatedly, reality finally forced the hand of the EU authorities, but pressure from banks holding Greek debt forced them not to go for deep haircuts. I was also present when after that failed first deal a second deeper round of restructuring was eventually carried out, but this time thwarted both by the banking sector and the Greman government not wanting Greece to get an “easy deal”.
In all three cases many sensible people and I pushed for a much deeper clean restructuring that would actually allow Greece to make a fresh start but we, together with the IMF, were thwarted by the EU’s powerful financial sector, as well as Eurozone politics. In the end, Greece has had to pay the price.
Yes, Greece’s governments had been irresponsible. Yes, it is not a mature democracy and is riddled with corruption. Yes, it lost competitiveness over the years. But much of this was known to the EU authorities who willingly overlooked Greece’s structural problems. The point is, that no matter what the problems or on whose shoulders the responsibility for these rests, the Eurozone’s approach to Greek debt had made things worse.
The excessive austerity that was imposed on Greece as a condition for the bailout made the debt problem worse, not better, by shrinking Greek GDP by a quarter, even as Greece cut down essential services to finance the build up of a primary surplus. The bailout package was not just financially unsustainable, but also economically wrong-headed, politically tone-deaf and socially callous. It has turned what was an aspiring first world country with third world institutions into a third world country with third world institutions. It has led to enormous personal suffering, triggered the rise of neo-Nazi movements, lain waste to productive capacity and created a cohort of the unemployed and the unemployable – a lost generation.
It has stretched Greece’s social fabric to a breaking point and perverted the democratic rights of citizens by vetoing their political choices. What is remarkable is not that Greeks have voted for Syriza, a new anti-establishment party that vows to get a better deal for Greek people, take on the powerful Greek oligarchy and stand up to Germany and the Eurozone. What is remarkable is that it took so long for them to do so.
I do not know Syriza well. I definitely do not know what they will do in government. I do not know all of their policies and disagree with some I do know about. But what I do know is that whatever Syriza may mean for the Greek economy, its election victory today is a victory for democracy. It also represents a rejection by Greek people of the two parties ND and Pasok that are responsible for the mess Greece finds itself in.
Of course, Syriza will not be able to deliver on most of its promises. Which modern political party can? But it is important that it tries. Domestically, there are few things as important as taking on entrenched interests both of the bureaucracy as well as the oligarchy. Not being beholden to them from before, it can. Internationally, Syriza had promised to get a better deal for the Greek people by lightening their debt burden. In private, the IMF, the European Commission and the markets all agree that Greek debt is unsustainable and needs to be written down. Syriza presents the best hope of tackling this elephant in the room and forcing this conversation at the European level. I know several Troika officials who were privately hoping for a Syriza victory so that they can finally stop pretending that 2 + 2 = 5.
Taken together, the steady moderation in Syriza’s tone and a gradual loosening of the Eurozone’s excessive austerity also augur well for a sensible loosening of fiscal policy not just in Greece, but in the whole of the Eurozone. Greece should be able to nudge the European conversation in this direction. The ECB’s belated QE should also help with a much needed looser monetary stance. While Draghi spoke of the need for governments to be fiscally responsible, he has privately and at Jackson Hole called for a looser fiscal stance as being necessary to help get the Eurozone back on its feet.
Take these together and Europe has a new opportunity for a fresh approach to tackling the Eurocrisis. One that is democratically more legitimate, socially more acceptable and economically more sensible.
Whether it takes this chance or not depends in part on what Syriza does with its new found power, but mostly on how Germany and the rest of the Eurozone respond. But the very fact that we at least have this new possibility is enough reason to celebrate a Syriza’s victory today. Let’s hope they do not let us and the Greek people down.
Sony Kapoor is Managing Director of Re-Define and a Senior Visiting Fellow at the London School of Economics.