Austerity vs. Democracy in Greece

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Mark Blyth and Cornel Ban in Foreign Affairs (registration required) (image by (Kostas Tsironis / Courtesy Reuters):

It may be odd to use a Roman metaphor to describe a Greek political event, but in this case, it’s apt. Just as Julius Caesar crossed the Rubicon river because he could, in spite of the warnings of the Roman Senate not to, so Alex Tsipras, leader of the anti-austerity party, Syriza, has decided to try to end austerity in Greece, in spite of Europe’s leaders saying he shouldn’t. Whether Tsipras will succeed is still unclear, but whatever happens, his victory represents a crucial turning point for Europe—a signal that time has run out on austerity policies.

A “Tsipras” had to happen somewhere eventually, because there’s only so long you can ask people to vote for impoverishment today based on promises of a better tomorrow that never arrives. If voting for impoverishment brings only more impoverishment, eventually people will stop voting for it—and the timing of “eventually” will depend on when people’s assets run out. In the Greek case, backers of the incumbent New Democracy party and its austerity policies constitute that quarter of the electorate who still have assets (pensions, paper, and portfolios) after five years of depression and who want to preserve what they have. The 36 percent that voted for Syriza were the young, the asset-less, and the unemployed—people who either lost what they once had or never had much to begin with. Greece’s 1.9 percent of growth last year means essentially nothing to a society that has lost nearly 30 percent of GDP in a little over half a decade; on the current course, it would take, by latest estimates, two generations for the country to get back above water.

Syriza’s victory presents two lessons for the rest of Europe. First, no one votes for a 15-year-long recession. Second, you can’t run a gold standard in a democracy. Either the gold standard goes, or democracy goes, and that is the choice Europe may face sooner than it thinks.

The Euro is the gold standard that pretends that it’s not one—and therein lies the rub. While Europe has a plethora of national parliaments and free and fair elections, as well as a European parliament and multiple institutions with delegated power to represent the interests of citizens, once a country is a member of the eurozone, certain things happen that bypass any possible democratic checks. On the upside, its credit history gets rewritten. Greece and Italy get to borrow like Germany (with predictable results). On the downside, when a eurozone country is hit with an economic shock, it cannot respond to it through the exchange rate (devaluation) or by using the printing press (inflation). It must choose between default, which is not allowed, and balancing its books through internal devaluation (austerity). And if that means a couple of constitutional coups d’état have to happen in the heart of democracy to get the policies through, as happened in Italy and Greece in 2011, then so be it.

More here. Also see this interview with Mark Blyth.

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