Monday, January 26, 2015

A comment about the Syriza election victory in Greece

 - by New Deal democrat

As he indicates in the last post, Bonddad has an article up at describing the economic situation in Greece.  His conclusion is straightforward:
          Looking at these simple numbers, the real question that should be asked is why did this take so long to happen?
 Bill McBride a/k/a Calculated Risk, made a similar point last night:
[I]n a democracy, austerity will eventually fail at the ballot box. The people will not tolerate 25% unemployment forever - with no hope in sight.
While I disagree with many of her Doomish posts,  Yves Smith at Naked Capitalism has a very good article this morning gaming out the possibilities.  Like her, I see no reason for Syriza not to take a Maximalist approach (for examples, see GW Bush, Scott Walker in Wisconsin).  Syriza has nothing to gain by starting out with a milquetoast, let's-meet-halfway approach.  On the contrary, they have everything to gain by starting out by saying to every agent of their creditors:  "We're leaving the Euro, and we're unilaterally writing down our debts in Drachma.  If you don't like it, screw you.  If you don't want us to do that, make us an offer."

The simple fact is, the Euro states, and the European Union itself, have as much at stake as Greece.  Everybody on both sides knows that Italy and Spain, and maybe several other countries as well, are waiting in the wings.  If similar parties come to power in those countries, the sustainability of the Eurozone, and the Euro itself, are very much called into question.  No further significant European integration has happened in the 15+ years since the Euro was adopted.  Reversing EMU strikes at the heart of the European project itself:  the binding together of mortal enemies to put an end to centuries of war.  Thus every reason for both sides to put on their poker faces and play and extremely high-risk game of chicken.

A more fundamental point is about human nature.  In any economic downturn, the powerful elites are going to try to deflect all of the suffering on the powerless masses.  In a representative democracy, eventually the majority will rebel at the ballot box and elect a party which promises to end their suffering.  That's what happened in Greece, and what may happen shortly in other European countries.

In an authoritarian state, however, no such safety valve exists.  That's why, per my studies long long ago in a galaxy far far away of European history, revolutions don't happen in an era of rising expectations.  They happen when rising expectations are dashed.  So long as China's economy continues to expand stoutly, expect no meaningful turbulence.  But someday China will have a recession, and then, dear reader, is when world history will get interesting.