Sunday, July 05, 2015
Syriza dreamers snuffed out growth and made a difficult situation worse
Posted by David Smith at 12:00 PM
Category: David Smith's other articles

From The Sunday Times, July 5 2015

At the start of this year, things were looking up for the beleaguered Greek economy. Economists polled by Consensus Economics predicted growth of 2% this year, following last year’s modest 0.8% expansion. Unemployment, while still sky-high, had edged lower. There was a flickering light at the end of the tunnel.

That has now been blown out. The latest Consensus Economic assessment is that Greece will experience a small outright recession this year, a consensus forecast that could get a lot worse in the coming days and weeks. Nor can this be blamed on what is happening in the wider eurozone. Forecasters have become more optimistic about eurozone growth in recent months, raising their 2015 forecast from just over 1% to 1.5%.

The gloom has a single explanation. The election of the Syriza government in late January, and the chaotic months of negotiation with Greece’s creditors that followed, plunged the economy into uncertainty and snuffed out the embryonic recovery. The closure of the banks last week, inevitable once the Greek government announced a referendum for today on a bailout package that has since expired, was the final chaotic act by a government that has set new standards of incompetence.

The battle between Alexis Tsipras, the Greek prime minister, and his country’s creditors has been seen in some quarters, including in Britain, as David versus Goliath, dignity versus dictatorship, growth versus austerity, democracy versus the faceless bureaucrats. It could have been all of these things. When Syriza won power it brought with it to the negotiations with its creditors a lot of goodwill. It immediately won a fourth-month extension on its €240bn (£170bn) bailout, which dwarfs the other eurozone rescues, for Ireland, Portugal and the Spanish banking system.

The problem has been that if Syriza wanted to negotiate seriously, it showed little sign of doing so. A competent left-wing government, which built alliances and elicited sympathy for the pain the Greek people have suffered, could have won substantial concessions. Instead, Greece’s creditors were driven to distraction by negotiating positions that appeared to change with each meeting.
Elected on an anti-austerity programme, it has come to accept it, while simultaneously disowning it. It first opposed and promised to reverse privatization before changing its view.

It reversed some reforms previous Greek governments had agreed to, before partially reversing its reversal. It has flipped and flopped; within a few hours last Wednesday Tsipras was apparently willing to accept most of the creditors’ proposals, before going on TV to condemn them. TV images last Sunday showing a smiling Yanis Varoufakis, taking to the streets to join a protest march hours before the country’s banks were shut, told their own story.

If Greek voters say “no” in the referendum today, it will be the second time in six months that they have backed Syriza on a false promise. In January it was the false promise that there would be no more austerity and that the reforms insisted upon by creditors could be reversed. This time it is that a no vote will mean a better deal. It will not. A no vote would mean a return to the negotiating table for a Syriza government that the creditors have already decided they cannot deal with. Even the normally diplomatic Christine Lagarde, the managing director of the International Monetary Fund, has talked of the need for “adults” in the room. If a no vote does not mean a Greek exit from the euro, it is hard to see what would.

Though a “yes” vote should mean the end of Syriza, and its replacement by an alternative government, perhaps a government of technocrats, who would then negotiate with the creditors, Greece’s problems would be far from over. Its six-month experiment with a dysfunctional government of academics and dreamers have set the Greek economy back some years. It has also been expensive.

The IMF, in a “debt sustainability analysis” released last week said that “very significant changes in policies and in the outlook since early this year have resulted in a substantial increase in financing needs”. Having thought Greece would need no further debt relief, it now thinks it will need €50bn (£35bn) of support over the 2015-18 period, €36bn (£27bn) of it from Europe. The Syriza bill is a large one.