Get real — Greece edition

It was natural that a platform like that of the Syriza party would emerge in Greece. Essentially: “We’ll do all the right things (confront our creditors, etc etc), and you don’t have to part company with the euro.” After all, who would want to substitute their euros with an inferior money? Certainly not Greeks. This is the Turkeys-don’t-vote-for-Christmas problem. We saw it in the Scottish referendum in spades. 

I am seized by a feeling of terrible irresponsibility in all this. Briefly: It can’t work. Not unless Greece’s EU partners decide to federalise Greece’s debt (pdf), i.e. share it round as an EU debt. Failing that, what will take place are some compromises round the edges — a loan maturity here, a tax cut there. But the constraints are huge. Having sold the Greek electorate on the sweet music of liberation, only to deliver them to further purgatory, the patchwork that is Syriza is going to do terrible harm. 

The harm is in the dashed hopes. Bound to the euro, there will be no return to growth, no serious reduction in unemployment. What Syriza has done is open the way for the far-right in Greece to play the honesty card. It is them who will soon be saying, “We can deliver you from all this. We have no illusion about staying in the euro. It is time to get real.” In fact, they are already saying so

It will be crushing to see the correct policy seized by the wrong party. You might hate historical comparisons, but there’s no denying that the two clearest (and, economically, most successful) rejections of the hard-money orthodoxy of the Great Depression (necessitated by the gold standard then, as today’s austerity is necessitated by the euro) were carried out by ultranationalists: Germany’s Nazi party and Japan’s Seiyukai.

In their 2000 paper on austerity’s culpability in the Great Depression, Peter Temin and Barry Eichengreen recall the German political situation circa 1930, as the austerity policies of Germany’s chancellor, Heinrich Brüning, were sending the economy into a tailspin:

In Germany the Socialists were as committed to the gold standard as Brüning, which they showed by rejecting calls within their party for more expansionary policies. By increasing their seats from twelve to 107, German voters transformed the Nazis from a fringe party to a presence in the Reichstag in the 1930 election.

Note that the Nazis, even in their landslide two years later, did not achieve a parliamentary majority:

Instead, the voters conferred enough respectability on the Nazis to allow Hindenburg, the Weimar President, to invite the Nazis into the government. It was all the Nazis needed to take over German society and cause endless grief to their own and other people.

Source:

Eichengreen, B. and Temin, P. (2000), “The gold standard and the great depression”, Contemporary European History 9:2 (July)
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