How Greece Can Win

06/07/2012 10:21 am EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

Electing radical opponents of austerity is the only way to escape the German yoke, writes senior editor Igor Greenwald.

Does Greece still matter? Maybe not to Germany. As the financial crisis gallops across Europe, Greece is left looking more and more like a spent battlefield abandoned to the corpses and the buzzards.

The world now faces bigger headaches in Spain and Italy, which need a much more expensive rescue than Athens and are refusing to be bullied in the same manner.

But Greece still matters to the people who live there, once recipients of promiscuous German lending, and lately victims of Berlin’s insistence that some of that be repaid even at the cost of economic collapse. The Greeks have a narrow window to make a dash for sovereignty and growth, if they can overcome fear of the unknown, fanned by those with most to lose should residents of Europe’s largest debtor prison decide they’ve finally had enough.

That would mean voting for the radical left Syriza bloc in the June 17 election rerun. Syriza promises to reneg on the austerity foisted on Greece as the condition of “its” bailouts, which were in fact bailouts of the money squandered on Greece by the European Central Bank and the International Monetary Fund. The alliance’s young, largely urban supporters don’t wish to spend their lives repaying debt from which they saw few benefits.

Syriza is running neck-and-neck with New Democracy, mainstream conservatives who helped run up the tab while in power back in the day, and now defend austerity as the price of staying in the Eurozone. This platform appeals most to the people who can still afford both food and the increasingly scarce medicines, as well as those who wish to preserve access to second homes in Switzerland and Germany.

The parties have seesawed in the polls, but the latest tally gives the lead to Syriza’s have-nots.

This is the Greeks’ only responsible choice, because the alternative—austerity on German terms—dooms their grandchildren to indentured servitude.

An open debt default would leave the Greek government with just about enough revenue to maintain its minimal current services. The primary budget deficit excluding debt repayments is now down to 1% of the gross domestic product, close enough to make a fresh start feasible.

The Germans and the Greek conservatives may be bluffing in insisting that the default would mean an exit from the Euro—it’s not clear that Greece could be kicked out against its will, and in any case doing so would cost Germany hundreds of billions of euros.

Life without the euro wouldn’t be easy, but it would be much more promising than the current purgatory. Domestic manufacturing of import substitutes would stimulate growth, as was the case a decade ago in Argentina. Greek exports would become competitive once again. And tourists would return in force once public order was assured.

The biggest downside would be the loss of whatever euro deposits still remain in the Greek banks, as these are now entirely at the mercy of the European Central Bank, which could pull the plug at any time.

But this downside diminishes every time a Greek withdraws his money from a bank, a process that would only gather speed after a Syriza victory. And in the meantime, Germany’s costs grow ever larger. A victorious Syriza would in fact have plenty of leverage and time on its side in negotiations with European paymasters.

This is why those with a stake in current European misery have tried so hard to scare the Greeks into prolonging it. With any luck Greece will find the courage to break free. It will still have lots of sacrifices to make, but for the first time in a long time they won’t be pointless.

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