Spare a thought on Sunday for the
ordinary Greek voter. These are the people who paid their taxes,
weren’t corrupt, didn’t get early retirement as hair stylists,
and whose sons and daughters are rioting or emigrating because
they’ve no prospect of employment for a decade to come.
There are many such Greeks. They’re the object of a
cacophony of warnings that if they support the wrong party on
Sunday, they will trigger Europe’s economic implosion, their
own, or both. With Spanish and Italian bond yields soaring
Thursday, in Spain’s case to an unsustainable 6.95 percent, that
isn’t hype. Europe is unprepared for Greece to leave the euro.
In the past few days, Greeks have heard from German Finance
Minister Wolfgang Schaeuble that they can expect no relief from
austerity. His U.K. counterpart, George Osborne, said Germany
may even want Greece to leave the euro, because that would help
persuade German taxpayers to rescue more important economies. An
interactive online game to create Greek scenarios includes a
maze of 57 possible steps that all end badly, if in different
This is bewildering stuff, so it’s more than possible that
the outcome of Sunday’s election will spell yet more trouble for
Greeks themselves and for the wider European economy. The reason
to focus on ordinary Greeks -- neither less virtuous than
ordinary Germans and Frenchmen, nor more responsible for the
euro’s imbalances -- is to prevent a haze of blame from clouding
decisions that the country’s international creditors will have
to make after the vote to minimize the fallout. Given the dismal
choices on the ballot, how Greece’s creditors behave will matter
at least as much as how its citizens vote.
Greece’s parliamentary election, a rerun from an indecisive
ballot last month, has become a two-horse race between the
conservative New Democracy and the leftist Syriza.
New Democracy is telling Greeks they can either vote for
the conservatives, stay in the euro and continue the European
Union’s austerity program; or vote for Syriza, default, leave
the euro and suffer even more. This is probably true. However,
New Democracy got Greece into the mess it’s in, through an orgy
of overspending and state-sanctioned corruption. It’s hard to
imagine the party driving through the changes that Greece will
need to grow again, if left alone.
Syriza’s fiery young leader, Alexis Tsipras, says Greece
can junk the austerity program attached to its bailout, and that
Europe will go on lending money for a pro-growth stimulus
package. As we’ve said before, that’s a fantasy with potentially
bad consequences for Greeks, Italians, Spaniards and the global
economy as a whole. The best hope is that Tsipras doesn’t
believe it himself and would prove a pragmatist once in power.
The result is that the next Greek government will be led
either by radicals who have no experience in government, or by a
party that has proved itself incapable of reforming Greece’s
dysfunctional state. Whichever side wins -- New Democracy would
be the less calamitous as it is committed at least in principle
to the bailout terms -- the so-called troika that represents
Greece’s creditors will have to lead the way to the least
disruptive path forward.
By the end of March, Greece had already received 112
billion euros ($140 billion) of aid. But Europe’s leaders and
the troika -- the International Monetary Fund, the European
Commission and the European Central Bank -- are also partly
responsible for the political and economic mess Greece is in.
Sunday’s election, for example, wouldn’t be happening, were it
not for the decision of EU leaders in November to force then-
Prime Minister George Papandreou to call off his planned
referendum on Greece’s future in the euro. Publicly humiliated,
he resigned days later.
As for the troika’s austerity program, it came in two
parts. The first, in May 2010, contained structural reforms
Greece was supposed to make, as well as budget cuts. Only the
budget cuts materialized; the government failed to implement
most reforms. When it came time for a second bailout this year,
the terms were almost punitive. Support for the political
center, made up of parties that supported this bailout process,
disintegrated, fueling the rise of Syriza.
Greece has to undergo more austerity. Greek unit labor
costs rose 30 percent from 2000 to 2008, while they fell by 8
percent in Germany. That has to be rolled back. The Greek state
bureaucracy is dysfunctional; it has to be rebuilt. Yet to
survive more than a few months, any new coalition government in
Greece is going to need to negotiate a more achievable austerity
program -- and the IMF, at least, recently indicated it is open
The troika should be ready with proposals of its own that
are more flexible on timing and more targeted in cutting public-
service jobs to improve Greece’s inefficient state, rather than
just meeting head counts. In doing so they should try to
remember the ordinary Greeks they are stepping in to help,
rather than the feckless politicians who have so frustrated
efforts to date. This would doubtless take more money, primarily
from Greece’s reluctant euro-area partners, including Germany.
The alternative is a high stakes roll of the dice on Greek