The premature date of the Greek elections surprised many, even Alexis Tsipras, the leader of SYRIZA. Most, including the Leader of the Opposition, thought – or rather hoped – that the last round of negotiations with the Troika would have been completed beforehand, so that Greece would have secured the financing it desperately needs until the end of 2015.
In the end, however, it became clear that the Troika never intended to conclude the negotiations before the elections, in spite of all the efforts of the Samaras government to fulfill the obligations owed to the lenders and despite all the concerns of the European political establishment over a likely SYRIZA government.
Why did the Troika – or to be more exact – the German Chancellor pull the rug under the legs of the Samaras government? There is only one logical explanation and this should worry all Greeks and in particular Mr. Tsipras.
Germany’s main concern is not Greece. Germany has the financial strength to easily withstand both a haircut of the Greek debt in order to make it manageable, and the significant cost to the Eurozone of a Grexit. Germany’s main concern is that it cannot afford to do the same with Spain, Portugal, Italy and even France.
For this reason, it wants to send a clear message to the European South before the Spanish and Portuguese elections later on this year: either you honor your commitments or you do not belong in the Eurozone.
Greece with its inability to elect a President of the Republic and its upcoming elections, offered itself up to become an example for the European South. In the next few months, we will find out whether Greece will be an example to follow or to avoid.
The Germans realize that, as the polls suggest, SYRIZA will be a part of the new government (by itself, or in a coalition with the Communist parties, or in a coalition with centrist parties, or in a grand coalition).
Following the elections, SYRIZA will either compromise and honor the existing memoranda with the Troika, or first the Greek banks and then the State will go bankrupt (this time officially) and will thus be forced to return to the drachma.
The German message is clear and officials keep repeating it almost daily. Unlike Greek politicians, Germans do not reverse their positions after elections.
However, Greek politicians seem to consciously ignore the German message and promise the Greek people better days, raises and fewer taxes but no one articulates the famous “Plan B” (i.e., what Greece will do if the Troika does not cave to the new government’s demands) because obviously no such plan exists.
Do Mr. Tsipras and his voters wonder why the Germans, who pulled the rug under the Samaras government (which, according to Mr. Tsipras, was Germany’s pawn) would make concessions to the (unofficial) leader of the European Radical Left who has been railing against them for years? What message would that send to Europe’s South?
If Greeks choose not to accept the reality that (since WWII) Germans are not known for “scoring own goals,” that will cause a lot of problems for Greece.
But no Greek politician or voter has the right to fool themselves that the new Greek government will be able to successfully negotiate with Germany.
Things are simple: either Mr. Tsipras will make a post-election U-turn (just like his two elected predecessors did) and compromise with the European establishment, or Greeks will form queues outside banks, gas stations and super markets.
Whichever path Mr. Tsipras chooses consciously or not, the European South will receive a very clear message from Germany that within the Eurozone no “Plan B” exists.
Unfortunately, given the sad state of Greek affairs, it is no longer clear which path (in or out of the Eurozone) is preferable. This is the case not only to Mr. Tsipras but to many Greeks; the choice is between the Scylla or the Charybdis.
The fault for its mess lies predominantly with Greece because the State borrowed a lot more that it should have, and did not use the money productively to improve infrastructure and growth.
However, the Troika shares part of the blame because they came to help, fully cognizant of the desperate situation and the Greek weaknesses, but focused mainly (if not exclusively) on protecting the lenders and not on the future of Greece within the Eurozone.
As the proverb goes: “give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.”
Had the Troika’s priority been Greece’s future within the Eurozone, they would have insisted much more on structural reforms that would bring economic flexibility, growth and the hope for a strong recovery and a better future, instead of insisting just on austerity and severely slashing salaries and pensions.
Few structural reforms were voted by the Greek Parliament; even fewer were actually implemented. The Greek people, after 5 exhausting years of austerity and unemployment of almost 25%, will not soon experience a strong recovery within the Eurozone with the austerity prescribed by the memoranda signed with the Troika; and of course they will not have the choice of remaining within the Eurozone without austerity.
On the other hand, a return to the drachma would theoretically help the rigid, inefficient and frail Greek economy which generates a significant part of its revenues from tourism, and would facilitate a faster return to real growth and a strong recovery.
This would occur in spite of the huge problems during an unpredictable and uncharted transitional period – if not panic – back to the drachma of a bankrupt country that needs to import fuel, food and medicine.
However, the unsurmountable problem is that this unprecedented change of currency will have to be implemented by an inexperienced government under an inexperienced leader, who does not possess economic background and understanding of the markets, and who faces opposition within his own party that is oftentimes harsher and more unpredictable than the opposition from other parties, and with many party members who openly express admiration for economic models that have been completely discredited and rejected, even by China; party members who are not troubled with Venezuela being bankrupt, in spite of having the largest oil reserves in the world.
The markets will remain shut and no foreign (or Greek) investor will invest in such conditions. The scourge of unemployment will not improve because, no matter what Mr. Tsipras claims, only private investments can generate productive jobs, especially in a bankrupt country.
Therefore, I believe that theoretically a return to the drachma would be preferable. However, “theoretically” requires a solid plan, a capable government to implement it, and people ready for new sacrifices during the transitional period, like shortages of fuel, food and medicine.
In practice, this is obviously impossible. This is why I reluctantly conclude that it is preferable to remain within the Eurozone fully cognizant that Greece’s European “partners” are not partners but lenders, and that it will take a very long time until a real recovery.
But at least we already know the downside of this alternative, and even though it is quite painful for many people, it is relatively manageable. Or if you prefer, better the devil you know than the one you don’t.
(Jason Papastavrou is Managing Director of ARIS Capital, member of the Board of Directors of United Rentals and XPO Logistics, formerly Professor of Industrial Engineering at Purdue University, BS, MS & PhD from MIT with specialization in decision making under uncertainty, and was born in Athens)