Politics as the art of the unfeasible: Bad politics for bad economics

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dimitriscc

On a debate with a good friend recently I had to explain why I am pessimistic on the prospect that any discussions on the Greek debt can be final.

The problem, as I see it, is that political culture and the public discourse have degraded to the lowest common denominator.  Political debates in Greece are framed in the language of populism: great ideals, preservation of honour, the rights of the dispossessed.  They lack relevance to reality and fail to deal with problems in a pragmatic manner.
Most alarmingly: A full 61% of Greeks do not recognise where the problem lies and were prepared to vote for aggravating the confrontation with its EU partners.  As of yesterday 39% of voters would support Syriza at elections.  The political elite in Greece and the bureaucratic elite in Europe have singularly failed to convey the real position of the country and its economy.  Currently Greece cannot fly airplanes to defend its airspace, conduct humanitarian rescues, look after the 80k migrants through its borders (just this year) or deploy its police force.
Obviously, if a new currency is introduced it will be in freefall for years.  In such a scenario inflation will be a permanent feature and shortages endemic.  Pensions will evaporate under inflation, while real estate will drop in value.  Maybe resistance to reality originates in the pronouncement of a former socialist minister on the largesse of previous governments “we all dined together“.  Alternatively, it is maybe a result of the pervasive nature of clientelism and contacts to authority, since Greeks have been universally complicit and therefore refuse to accept that their state and political culture has been at fault.  Easier to look for culprits elsewhere, the bad EU, the bad bankers, the bad Germans (a favourite of many nationalities), the bad deals, the bad former governments.

As a result of this refusal to accept responsibility, inevitably the Greeks have lost credibility in international negotiations.  No small part to this has to do with image management.  The former economics minister was making the sartorial statement of a middle aged clubber in Mykonos, the current one looks like he just got off the bus from the rough part of town.  These guys will speak the language of Europe’s bankers?  They will elicit empathy for Greece’s plight?  The difference between being idiosyncratic, tolerated as couleur local and seen as irrelevant is not big.  And the Greek negotiators have saddly crossed that threshold of credibility.

I think obvious that making further economic sacrifices without debt restructuring just transfers and aggravates a high debt problem to a future date. I also think restructuring without engaging in serious administrative reforms is pointless. In simple terms, the current government has played bad politics to deal with bad economics. But their signals (statements and actions) aimed at their domestic political clientèle contradict any signals of credibility to its foreign partnerts that demand administrative restructuring. The Syriza rallying cry of “honour and pride” is what I consider a smokescreen. This is populism 101.

There are many commentators, like Mark Blyth in Foreign Affairs, that have offered a good overview of why Greece is not to blame.  But that does not change the fact that private investors to Greek bonds have aready received a significant haircut and that the money owed has been borrowed.

[Caution: the following paragraph is my first attempt at science fiction]

What should a Greek government unencumbered by clientelistic politics, populism and corruption do?  They should have produced restructuring plans with realistic assumptions of growth, policies to improve business confidence and reasoned arguments on how the Greek debt should be handled.  This would have implied tackling head-on entreneched interests (lawyers, pharmacists, unions etc); getting civil servants to recognise that they work for the public interest and not the other way around; reinviogarting the legal system to reduce average time to a decision from 4 years to 4 months; upbraiding law and buraucracy to be fit for purpose; demolishing the interconnected interests of public media and oligarchs; tackling the pensions and insurance time-bomb (currently 17% of GDP!).  The human talent exists, and all this is feasible.  The only thing missing in such a solution are political actors not interested in re-election and I am hard-pressed to think of any such, not because they are universally corrupt but because they are universally self-important. A polity that can reform and improve its discourse can then act as an example to others.  Greece is a testbed of the impact of high levels of debt on an economically integrated, (semi) developed and peripheral state.  Many in EU’s periphery qualify for that definition.  Instead of Greece being an example of how it can be done it is the exact opposite.

As for the level of debt.  It is obvious that this debt cannot be serviced at the present state of the Greek economy.  The issue with Greece’s partners should be framed in terms of the ethics of growth (and not of evil capitalism as the current incumbents are doing).  If it is framed as a long term commitment on a 0% coupon the “capitalist ethic” of Greece’s partners is not offended.  Within that ethic there are multiple arguments why the debt should be reduced. If Greece can attain average growth and a balanced budget, in 30 years it will be well below current average debt obligations in the eurozone.  For instance, Greece can resume servicing its debt when it is below 60% of GDP as prescribed by EU treaties.  This does not mean running recessionary budgets, just a necessity to balance their budgets across the business cycle.

ON SYRIZA POLITICS, plagiarising myself from an earlier entry on this blog:

My argument is that a Syriza lack of preparedness and refusal to negotiate was repackaged as a dismissal of the terms of reference of the creditors. But they went further, they tried to convince the creditor bankers of their evil ways. Instead of presenting a credible growth policy based on some form of proposal for debt restructuring, Varoufakis and Tsipras lost credibility by making long-winded political statements on the faults of capitalism. Their choice of venue (say an EU finance ministers meeting) tells me that they believed they could play Greek politics at the EU arena. This is what politicians would do in Greek Parliament. Such a speech would be ignored in Greece if a politician lacks adequate support and would only get media attention when it purports to supplant a new tax law (of which I have lost count this year).  It is a sign of the pathologies of the Greek political discourse.  It is as if in a football tournament the Greek team decided to play basketball, and all other teams are now expected to change their game. A tall order when they have not demonstrated any capacity for change. The only ones cheering from the sides are Argentina, Cuba and Venezuela. Hardly the power brokers of world finance or the paragons of administrative efficiency.
The people of Greece were told that supporting a NO vote would allow them to regain their pride, to hold their head high and strengthen the government’s hand in negotiations. Such statements immediately get my anti-populist defences up. In practice a NO vote, to all European and international commentators, to all media outlets and analysts was taken to mean resistance to structural change, and demonstrated a will to exit the Eurozone. As was immediately evident it left the Greek government in a weaker negotiating position, if it aimed to negotiate. How can that dis-juncture be possible if the Greek government elite is presenting facts to the people? I conclude that there are “framing” distortions in the Greek government rhetoric. I judge this to be about ideological politicking and not about improving the lot of the average person or those hardest hit by the recession. The logic goes: We believe it, it is therefore true and if we can get 1% of the EU population to buy it, the 99% should convert to our view. The people have spoken. A nice and ambiguous Greek word was often used to describe the late Andreas Papandreou of whom Tsipras is a rightful heir: laoplanos. A people charmer or people deceiver: choice of slant depends on your interpretation of the leader’s impact.
To conclude, I accept that maybe I am cynical, since I was expecting more from a group of (mostly) intelligent people in government. To their credit, most in Syriza are not professional politicians after power and money. But their missmanagement has succeded in making professional politicians look good. I maintain that their handicap is their ideological blinders that do not let them do what is best for the country and those hit hardest by recession but what they perceive as “right”.  Politics should aim to be the art of the feasible, except in Greece.
PS.  An interesting article by Paul Krugman on the impossible terms the Germans have presented to the Greeks and the damage to the eurozone.  And one by Thomas Picketty on German and Greek debt.

2 responses

  1. Ray Avatar
    Ray

    This is the best analysis that I have read anywhere.At this point,a deal with Greece invites lots of moral hazard.What to do with Spain and Italy if their situations deteriorate?As well,the wolf may be at the door.Erdogan did not fare so well in the last elections and interving to assist his ‘oppressed brothers’ in Thrace certainly would help his popularity.It worked for Putin.-V. Raymond Busteigh

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  2. tom@peppermongers.co.uk Avatar
    tom@peppermongers.co.uk

    Dimitris

    Great post. (are you paid per word 🙂

    I think the best way to explain it to your students is like this;

    The Greeks faked their over-18 ID to get into the nightclub. Now they blame the bouncers – because they didn’t have any cash to pay the barman. And then they refuse to do the washing up. And now they’re fighting everyone with their shirts off on the pavement – and about to vomit up a gallon of unpaid for bacardi breezer …and get the nightclub shutdown.

    ______ An average night out in Mykonos? ____

    Keep on bloggin’

    Kind Regards

    Tom

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