Your counterparts in Zimbabwe want the same thing
Will the freeloaders finally be given the finger?
Greeks have been living well beyond their means for several generations. Responsible politicians whom mature, sensible voters could pick went extinct a long time ago - maybe during the life of Pythagoras. When Greece was using its own currency, the drachma, the invisible hand of the free markets was able to fix some of the harmful trends. The increasing nominal salaries paid by the populist governments were translated to less quickly increasing real incomes because the drachma was constantly losing value. This was restoring some of the competitiveness.
When Greece managed to fraudulently obey the conditions and entered the eurozone, it lost its independent currency. The increasing nominal salaries in euros suddenly translated to increasing real salaries. The competitiveness was dropping like a stone. The public debt began to grow really quickly. It wasn't supposed to happen because the members of the eurozone were assumed to be nations with at least rudimentary responsibility and economic literacy. But it did happen.
In 2008, the Greek government's debt was formally equal to 115% of the Greek GDP which was reaching levels that can't be repaid easily. It was always clear – and sensible people including myself have always emphasized – that this figure 115% was way too optimistic. The reason is that the actual "sustainable" GDP was much lower than what the data were showing. Why? Because the relatively high GDP (which led to the figure of 115%) was calculated from prices in euros that were overstated because they were not competitive. This high domestic product included lots of overpriced products that were sold to overpaid or redundant government bureaucrats but these products would not be competitive if the overpaid or redundant bureaucrats were fired (which is obviously needed) and stripped of their undeserved salaries (or at least a big part of those salaries).
To return Greece to a sustainable path meant to fire lots of people whose work simply isn't competitive at their salary - and that inevitably means to lower the GDP.
Let me make this point in yet another way. 50% of the Greek workers were employed in the public sector two years ago – this huge percentage is the sign of the terrible communist mess that has spread in Greece. By a comparison with similar countries that are not producing a huge debt and where the same services are performed by a much thinner public sector, you may easily see that the same work may be done with a vastly smaller number of equally paid workers, perhaps 25% of the Greek workers. It means that to restore sanity, you have to fire at least 1/2 of the government employees.
If and when you do so, their "production" is no longer included in the GDP, and because they will have less money after they're fired, the GDP is also lowered by the overpriced products these redundant government employees used to be able to buy but they can no longer do so. The drop of the GDP was simply inevitable. Greece hasn't been competitive for quite some time and the reduction of salaries and local prices (a rather dramatic one) is needed for the restoration of the competitiveness.
A comparison with a country that is producing pretty much no debt, the Czech Republic, is particularly insightful. Both countries have slightly above 10 million people. In 2008, the Greek GDP was $340 billion in normal prices and the Czech one was $220 billion. Thanks to the post-2008 recession, both figures dropped by 2014 when the GDP was $245 billion in Greece and $200 billion in Czechia. Clearly, the drop in Greece was vastly more dramatic. Unlike Poland and others, Czechia hasn't returned to the 2008 level yet.
By now, it's clear that Greece, a country that has never been a part of the Soviet bloc, has about the same economy as Czechia, a country that was devastated by the "official", Soviet-bloc communists. But the current figures are clearly still too optimistic for Greece although the gap is less extreme than it was in 2008. In reality, the "actual" sustainable GDP of Greece could be another 30-50 percent lower than in Czechia. One reason to be sure that even after the promising 2 years of Samaras care, the GDP of Greece is still significantly overstated, is to realize that the exports from Czechia are approximately 6 times higher than those from Greece. Countries are different and the Czech economy is simply a textbook case of an export economy. But if you think about it, the factor of six is insane and can't be explained by a different "national character" because only self-sufficient countries may have very low exports (because they are also satisfied with low imports) and Greece isn't really one of those self-sufficient countries. To restore some balance in the finances, Greece will have to export vastly more than it is exporting now.
Let me remind you that Greece received a bailout in 2010. So some of the interest was effectively forbidden when most of the debt was transferred to the European fund for bailouts. In March 2012, Greece "peacefully bankrupted". Most of the creditors agreed to write off a part of the debt – and the rest was forced to do so, anyway. By this "supervised default", Greece was able to get rid of approximately €100 billion of debt (that goes beyond some huge interests that were de facto forgiven by the previous 2010 bailout). You know, this is some money that the Greeks ate and that the creditors will never see again.
This gift to Greece wasn't enough. And the overstated GDP got reduced. These days, the Greek GDP is about 1/3 lower than in 2008. Some of the redundant "50%" freeloaders – the government employees – got fired and the unemployment is about 25%. It seems like a lot but this situation is still vastly better and more transparent than when the public sector was (above) 50% of the workforce and all these people who do almost nothing useful pretended to employed.
Vaguely related: Thomas Sowell explains why bureaucrats in government agencies ultimately end up being counterproductive for the society etc. Hat tip: Honza U.
The recent two years under Samaras were clearly going in the right direction and to a large extent, Greeks saw what the "reality" looks like. The luxury isn't that excessive as it was under the huge-debt-creating populist governments before Samaras but on the other hand, they could have seen that the balanced budget is possible and the life doesn't end when the vital austerity is imposed. Greeks began to learn something that they need to learn if they want to become a civilized nation again: to fire redundant workers, to reduce salaries of people who don't do enough work or who are employed in uncompetitive companies, and similar "unpopular" things. These unpopular decisions lead to very positive side effects, and it is not just the smaller deficits: As the amount of money that shouldn't have been paid decreases, the prices decrease, too. So many people report that e.g. the same coffee in Athens that would cost €3 a few years ago may be bought for €1 now.
If Greece is thinking about staying in the eurozone and restoring balance, this trend is (well, was) obviously going in the right direction. The salaries must drop – even relatively to the current, end-of-Samaras-reign levels. And the prices of things in Greece should drop as well, although by a smaller percentage than the average salaries.
Unfortunately, Greece won't get the opportunity to fix itself in the peaceful way. Syriza, the coalition of Marxist, Maoist, Stalinist, environmentalist, and other extreme left-wing populist parties led by Alexis Tsipras is going to win the today's elections. Exit polls suggest they have earned between 36.5 percent, ahead of Samaras (current PM, center-right New Democracy) who has 29.2 percent. As winners, Syriza will get 50 bonus deputies in the Parliament. Another troubling detail is that the Nazis (Golden Dawn) are the 3rd most powerful party.
What does it mean? What do they plan? What will actually happen?
The party's plans are really insane. They produce about 3-6 times less than Czechia but they still want salaries and guaranteed minimal salaries etc. that are 2-3 times higher than in Czechia. It's insane. Of course that everything they promise is mathematically impossible.
Syriza wants much of the debt or all the debt to be "forgiven". It's of course plain lunacy. You can't just donate €300 billion to a bunch of arrogant parasites. German folks have been working hard and the Greeks have been eating a lot, building useless superhighways, and so on, and so on. Mistakes have happened but I don't think that people want the mistakes to be repeated.
After those years, plans exist in Germany and ECB how to kick Greece out of the eurozone – and perhaps the European Union – if it starts to behave in a really insane way, e.g. demand the whole debt to be nullified, or something similarly unacceptable. That would hopefully stop all the subsidies and money transfers that end up in the Greek black hole. Two years ago, everyone was still afraid of these changes. But the fear is much lower today. The eurozone may split. The Greece may switch from the European Union to the union with Zimbabwe if they want. Nations whose near-majority vote for something like Syriza belong among countries such as Zimbabwe, of course.
The creditors are (secretly) ready to accept the fact that they will never see some of the debt. No one has revealed how much he is ready to sacrifice. But it's very clear that what will be acceptable for the creditors is something like "another March 2012". Perhaps, the debt currently at 175 percent of the GDP may be reduced to 120 percent of GDP by another controllable default. Because the value of the GDP is much more realistic now than it was in 2008, these 120 percent of GDP represent debt that can arguably be repaid. Samaras is no right-wing hero but he might be enough to achieve this goal.
But Syriza may want something more extreme. To refuse to repay the debt altogether. They may break the calendar. And so on. So there may be a dramatic uncontrollable dirty default. Creditors may lose almost everything. It seems pretty clear to me that Greece that would do something like that will be expelled not only from the eurozone but also from the European Union. I don't like the excessive integration that has already taken place in the EU and that is still deepening.
But I don't really think that this integration is really the essence of the problem. At the end, the debt really represents something that e.g. the German employees and they government lended to the Greek ones. Most of this huge debt would exist even if Greece were still using the drachmas. A huge amount of money. It doesn't matter much whether you express the debt in drachmas, euros, or dollars. It's still huge. It doesn't matter much whether the Germans and Greeks look at themselves as independent nations or parts of some European Union or eurozone or European Soviet Union or whatever. The essence is still the same.
Because the European Union is something that already forces some financial transfers but regularly repeated transfers worth €100 billion a year or more are simply unacceptable, someone who wants to "suck" this much money simply can't be tolerated in a "group of friends". Those €300+ billion that Greece owes by now represent a huge amount but I don't think that it is really the main amount that defines the current problem.
The main problem is that the Greeks got used to this parasitism and they want to suck similar amounts of money from others every couple of years, again and again. It is pretty clear that others don't want to work hard for Greeks to eat a lot without doing almost any meaningful work. And to isolate the other nations from Greece is more or less needed to prevent the risk that they will do it again.
And be sure that they want to do it again and again. I am sometimes unsatisfied with some Czech politicians etc. but when it comes to the budget, there doesn't exist anyone comparably hopeless and šitty to Syriza, not even "our" Communist Party. For example, the Syriza loons want to establish the minimum salary of €751 when the average is €1,000 (the minimum salary is €300, which is still too much but much less, in the comparable Czech economy). This is absolutely insane. Almost no one will hire the currently unemployed people and many people whose salaries are lower than the required minimal salary will have to be fired. It's a promise that may sound attractive to the lowest-quality voters, e.g. the Greek voters, but that may only cripple the economy and every voter who is at least slightly sensible knows that this is a road to hell.
And Syriza's program is full of insanities like that. They want the 13th pension for all pensioners whose pension is below the huge amount of €700 a month. Syriza also wants to provide the "poor households" with electricity for free! They also propose all kinds of dirty tricks dealing with the gasoline taxes etc. Even more progressive taxation that will repel high earners from the country and make the country's economic potential even more hopeless. And Syriza says that these "wonderful ideas" don't have any impact on the budget. Holy cow. How stupid someone has to be to believe such a proclamation?
While Syriza represents Greece that wants to become a nation of codified full-fledged parasites who constantly rob the creditors, they want to introduce the same system within Greece, too: Creditors are robbed and the borrowers may have everything for free.
For example, Syriza also wants to ban foreclosures on houses up to €300,000. It effectively means that up to this amount, everyone can borrow without any risk that he will have to repay or face any problems! ;-) If you borrow money, you can never be ordered to pay more than 1/3 of your salary so that you don't lose your comfort because of something as optional as repayments ;-), and so on, and so on. It is totally obvious that these insane policies favoring the borrower would create gigantic holes in the budgets of the lenders. The commercial lenders would go out of business, too, or they would depend on new transfers – on additional money stolen from Germany. This extra huge debt – effectively household debt – would be created on top of the already huge and new government debt.
To summarize, Syriza promises the Greeks not only to eliminate most of the existing debt but also to steal hundreds of billions of dollars from Germans and others in every year in the future.
Well, if your potato field is full of Colorado potato beetles that eat almost everything, I think that you will finally use some DDT or another cure to solve or reduce the problem. What will the already existing creditors – and potential "creditors" (really "donors" who are obliged to donate according to Syriza's program) do with the Greeks whose most powerful party plans to behave exactly as the colony of the Colorado potato beetles?
And I haven't mentioned that they want to say that they are in the same situation as Germany in 1953 – when much of Germany's old debt was forgiven by other countries. A "tiny" difference is that Germany was bombarded and flattened by the allies in the Second World War – while the "analogous" problem in Greece is that the Greek government "workers" have consumed too much for many decades. Is it really the same thing? And Greece also wants Germany to pay some extra reparations that the Greeks have invented. Do you really think that this is the way to create the friendly relations in which someone will be happy to send you new giant financial donations?
I think it's necessary for the Germans and others not to surrender to this blackmail, realize that Greece is pretty much irrelevant, we know how to disconnect it, and we should encourage lots of the Greeks to starve to death for the remainder to have a chance to learn at least something important in the future. The moral collapse of most of the Greeks is really the worst problem – a much worse than some €300 billion – and if there's a way to help the Greeks by some shock therapy to help them to regain the basic morality, it should be done. If Germany allowed to be blackmailed, it could easily encourage "remotely similar" parties in other countries, especially "Podemos" in Spain, to demand the same thing. In that case, Germany (et al.) could easily see the limits of its wealth and resilience and the whole European economy could go bust.
The business in Europe simply can't be based on this international communism and unchecked and nearly infinite financial transfers from those who work hard to the parasites. This is much more important for me than some other technical questions about the European integration.
This doomsday scenario involving Podemos (and perhaps many others) is easily avoided. Greece is just 2% of the European economy and its business links (especially Greek exports) to the rest of the continent are virtually non-existent. So if Greece is just cutoff, it is simply not a problem. It's reality today that Greece is "de facto" close to Bulgaria by its output, work discipline etc., and it's probably worse than Bulgaria, so if Greece drops to the level of Bulgaria – or Albania or Moldova – it will only be a confirmation of the "actual reality" that has been masked by dirty tricks.
I won't spend time by discussing what should actually happen in Greece for the country to return to the sustainable growth path because I don't believe that Syriza will allow anything of the sort. Even if Greece under Syriza goes bust, nullifies the debt, and regains its own currency when it's kicked out of the eurozone and perhaps the EU, it will still fail to be an OK place for investment exactly because this kind of populist junk, philosophy of "everything for free", "borrower may have everything", "huge minimum salaries" etc.
Whether you like it or not, thanks to the overwhelming support of the Greeks for the Syriza-like junk that is unlikely to go away in the foreseeable future, at least not for a prolonged period, Greece will only become a place "ready for investments and growth" once it executes most of the exponents of Syriza and similar parties and restores a government similar to the era between 1967 and 1974. This epoch of the Greek history doesn't deserve to be called a democracy but it was still by far the most successful era of the Greek history in the recent 50 years. The inflation and unemployment were very low and the growth rate was very high. This correlation between the economic success and the lack of democracy is no coincidence in Greece because Greeks have degenerated to the level that they're incapable of living in democracy right now, as the title summarizes.
Benjamin Franklin — "When the people find that they can vote themselves money that will herald the end of the republic." Greeks have found out and their republic is over. What awaits their Syriza-led über-socialist post-republic? Margaret Thatcher said that "Socialists are happy until they run out of other people's money" and that moment is getting closer.
Update: On Monday, the EU finance ministers will announce that if the new Greek government refuses to sign to the previously agreed upon basic framework of the reforms and austerity conditions, all the Greek banks – which pretty much universally depend on financial injections – will be let to collapse, and that is likely to happen by the end of February. I hope that some irrational fear won't change this determination.