Why Syriza Failed; Why Europe May Fail With It

Logo of the Greek Golden Dawn political party

by Gaius Publius

I haven't written much about Greece lately, but there's quite a story going on. It's not that difficult to follow, but you have to be careful whom you read. Conventional wisdom (backed by corporate, pro-austerity media outlets here and abroad) says it's a morality tale — bad Greeks who went into too much debt and now they can't pay up. Good German bankers want their money and are reluctant to forgive bad deeds because it might encourage other debt-owing entities to seek relief as well. They're calling that "moral hazard," fear that a bailout might encourage more bad behavior. There must be consequences, or so they think.

The bottom line of those who tell this tale — Greece provides a place for lovers of austerity (like cuts to social programs) to point and sneer. Their refrain, which I'm sure you've heard, is "We don't want to end up like Greece, do we?"

The reality of the Greek situation is different — not hard to understand, just different. Briefly, the Greek back story is a tale of looting, but by elites. Greek elites looted the economy through their control of government and their tax avoidance; American banks like Chase looted Greece by selling them unaffordable swap deals (the link is to Matt Taibbi's great reporting) which masked Greek economic problems, for a while; and at the same time, European bankers poured a ton of hot money into the Greek economy (and that of Spain, Italy, Portugal and other "peripheral" countries) looking for profit in a bubble.

Then the bubble burst in Europe — in Greece, Spain, Portugal, Italy, everywhere the hot money flowed. And now the European bankers, especially the Germans, want to be made whole. Despite the fact that the country is in depression and on the verge of radical political transformation, Greece, in their minds, must pay its debts. Period. 

All you need to know:

▪ The European elites — the European Central Bank (ECB) and the IMF — want to bail out Greek debt so that the Greeks can pay off the Germans and other European bankers. I hope you see that as Europeans using EU money to bail out the banks, because that's what it is. In the same way, the U.S. Treasury bailed out Goldman Sachs by bailing out AIG at 100 cents on the dollar.

▪ But those same European elites want their own money back from Greece, so they're trying to force Greece to agree to "austerity now and forever" until every dime is paid. Greece is being squeezed for every dime, and squeezed hard.

▪ As a result, the Greek government is on the verge of default and the economy is on the verge of collapse.

▪ Because unlike most other sovereign nation, Greece does not control its currency — the euro is controlled mainly by the Germans and their bankers — Greece is also on the verge of leaving the euro and reinstating the drachma, which they can control.

▪ In the last election, Greek citizens elected a political party, Syriza, that promised to fight back against the further destruction of the Greek economy by the big money in Europe.

▪ Syriza is not fighting back. They're trying to be "responsible." (See below for why.)

▪ None of the other Greek political parties are better. Decidedly worse is Golden Dawn, the neo-Nazi party, whom many Greeks are finding a very attractive alternative. (The irony of using neo-Nazis to resist German economic destruction is apparently lost on everyone. Yet that's their logo above. They really are neo-Nazis, with a capital "N".)

Something is about to break, and it could break very soon. If Greece defaults on its government debt, it will send shock waves around the world. If Greece also exits the euro, the consequences will likely be worse, though maybe not worse for Greece.

How Syriza Has Painted Itself Into a Corner

With all of that said, I want to send you to the best analytical article I've read about Greece and the problem facing Syriza. As you'll read, they tried to do something very clever. It didn't work. This comes via Naked Capitalism; please read Yves Smith's excellent introduction to this analysis, then the analysis itself. A taste (my occasional emphasis):

Why Syriza Failed

Yves here. While the path for the ruling Greek government to make a deal with its creditors is fraught, it is pressing forward to try to come to an agreement by the next Eurogroup meeting, May 11. Greece has an IMF payment due May 12 that it will find difficult to meet. With the new urgency and the, um, realignment of the negotiating team, the odds now look to favor Greece capitulating even in the event of a default even if the ruling coalition tries holding ground on some of its red lines like pensions. If a default were to occur, it’s not hard to imagine that the IMF and the ECB would make Greece an offer it can’t refuse: the IMF would reverse itself on giving Greece a grace period for its payment if it relented on the disputed issues, otherwise the ECB would have no choice in light of the default to remove or limit its support under the ELA [Emergency Liquidity Assistance][.] That would force Greece to impose capital controls, nationalize its banks, and issue drachma to [recapitalize] them. Both the Greek public and most Syriza members are opposed to a Grexit [Greek exit from the eurozone]. ...

With those dates in mind, especially May 12, consider the following. Yves printed it in full in her post. I'm including a portion, with the hope that you go to the source and read the rest. As I mentioned above, this is the most enlightened piece on where Greece stands now, and what Syriza has tried (and failed) to do, that I've seen anywhere.

From a Washington DC insider

Syriza Has Created a Beg-ocracy Based on Fear

It’s been two months since Syiza took power, which is enough time to do some sort of evaluation of their governing philosophy. Here’s what we know. When Alexis Tsipras was elected to head the new Greek state, his government promised two mutually exclusive objectives. The first was to stay in the Euro. The second was to repudiate the policies of austerity and the colonial arrangement of the institutions that manage the Euro. Both policies represented different wings of the Syriza coalition, and Tsipras believes both must be placated.

Tsipras’s strategy was not to pick one of these objectives and stick with it to the exclusion of the other, but to attempt to mesh the two of them in an audacious attempt to transform the entire Eurozone.

Tsipras decided to make Greece a demonstration project. When he was elected, he spoke early on of a “European New Deal”, in a nod to Franklin Delano Roosevelt’s new governing arrangements. And indeed, his early legislative attempts included things like ‘food stamps’ and electricity for the poor. His finance minister, Yanis Varoufakis, talked of European-wide investment in infrastructure to boost overall European aggregate demand.

By governing Greece reasonably well and reducing corruption, along with taking money from those who didn’t need it and giving it to those who do need it, they were hoping to show European elites and voters that another way was possible. With the added boost from more European economic activity, Greece could prosper. Certainly it would grow since its base state is so depressed.

In other words, Tsipras and Varoufakis sought to ‘save Europe from itself’ by demonstrating that the austerity policies peddled by European banking elites were tearing Europe apart....

The European project is one of the great achievements of humanity. From the fall of the Roman empire until 1945, [Europe] has basically been one giant warzone, with varying degrees of violence. The EU was essentially an American-brokered marriage between France and Germany. This union was then expanded outwards, with a strong social welfare state undergirding peace and prosperity. This is the EU that they want to save[.] ...

Keep that last in mind. The postwar "European project" is itself an attempt to prevent one more continent-wide disaster. To repeat: "From the fall of the Roman empire until 1945, [Europe] has basically been one giant warzone, with varying degrees of violence." And: "Tsipras and Varoufakis sought to ‘save Europe from itself’ by demonstrating that the austerity policies peddled by European banking elites were tearing Europe apart."

But it's not working:

Nevertheless, the EU has been inverted. It is now a set of actors going through a set of austerity policies that in geopolitical terms reflect the Saw horror films, sadistic conditions imposed by bankers and Eurocrats who just enjoy the torture. America is absent. Germany is dominant and malevolent, both corrupt and self-pitying. Nationalism and greed are increasingly rampant, with fewer and fewer institutional controls. It is in this environment that Syriza leaders are trying to negotiate what are essentially fiscal transfers in a structurally deficient currency union that has been organized to suck wealth from the periphery and transfer it to German banks.

Which leaves Syriza holding the bag. As the writer says:

What this means is that Tsipras and Varoufakis are now effectively working for bankers. [emphasis in original] They do not want to govern with an independent power base, they do not believe in governing along the lines of what they promised unless it is easy to do so, and they are organizing their governing apparatus as a beg-ocracy. ... It’s been two months straight of negotiations, which looks more and more like begging, and they have had no time to take control of the bureaucracies or to pay attention to what is going on in any area except the immediate political situation. The Greek economy is not improving, because the uncertainty has impeded what little commerce there was. ...

Syriza leaders ... are not bad people, and in ordinary situations, they might even be good leaders. But the strategy being pursued is bad and their attitude based on being afraid of the Europeans is worse. This is a fight over power, and Greek leaders simply aren’t willing to advocate for their own people in any serious way. They are deluding themselves about who they are up against. ...

I'll point you to the rest, and to the writer's bottom line. Syriza tried to save both Greece and Europe, at least by this analysis (one I think is essentially correct). It looks like Europe, driven by the culture of greed and by German elites, doesn't want to be saved. Like the hyper-rich everywhere, Europeans just want their money.

There's an inherent risk in lending, but they don't want to assume those consequences (talk about the "moral hazard" of never facing consequences). European bankers are doing everything in their power to "make themselves whole," but it's not going to work. And in my estimation it's going to not-work very soon. I agree with the writer: "Time’s about up."

I'm putting this up so what happens next won't catch you by surprise. TPP is the biggest hot story in the country right now, and rightly so. But the slow death of Greece, and potentially the "European project," is the biggest cold story, the one you hear nothing about. Until you do.

The world is collapsing because of greed and the unwillingness of those with billions to part with a dime. People are in debt because they're broke. Breaking them further just brings us closer to this. It's not dark yet, but it's getting there. Stay tuned.

GP