Tuesday, January 27, 2015

The Greek Elections and the European Great Depression

-- Posted by Neil H. Buchanan

Three years ago, in a Dorf on Law post titled (in what is easily my most cringe-worthy play on words) "Owed on a Grecian Urge," I described how Greece had become the reflexive cautionary tale for those in the United States and Europe who view themselves as fiscally "responsible."  In the time since then, the misuse of the Greek story has become utterly commonplace, with Republicans routinely saying that President Obama and the Democrats are going to turn the United States into Greece any day now (even though our debt-to-GDP ratio remains slightly below that of Germany, which is supposedly the paragon of fiscal probity).

As I noted, Greece does seem to be the one and only case of a European country whose economic troubles were significantly attributable to pre-crisis fiscal mismanagement -- but I should emphasize that their budgetary problems arise mostly from a chronic failure to collect taxes owed, not from "out of control spending," which is the false analogy that the Republicans who invoke Greece are trying to draw to U.S. economic policy.

And even if Greece's problems were caused by fiscal imbalances, that most definitely does not mean that the way to solve the problem now is through fiscal contraction: "The answer to having driven off a cliff is often not to try to drive back up the side of the cliff."  I do not know why I qualified that sentence with the word "often," but the point is that there are better ways to recover from a crisis than to imagine that doing the exact opposite will achieve the exact opposite results, no matter how much circumstances have changed.

At the time that I wrote that post, I would have imagined that depression-level unemployment and continued austerity in any country would have led to a near-term political explosion.  Yet Greece, Spain, Portugal, Italy, and some other European countries have experienced years of economic disaster that are every bit as bad as the Great Depression of the 1930's was in the U.S. and Europe.  That is not an exaggeration: Measured unemployment in the U.S. topped out at 25% at the worst of the Great Depression, while Greece's unemployment rate has hit 28% (60% among young people).  Similarly shocking suffering is being seen in Spain (which did not run fiscal deficits before the crisis) and in the other countries that I mentioned.

What would the "political explosion" that I imagined have looked like?  I was not optimistic enough to think that it would definitely be peaceful.  Years of pain and hopelessness can cause people to turn to extreme measures.  And even if there were no outright revolutions, certainly the results at the ballot box would not necessarily be pleasant.  Extremist parties (a few on the left, but mostly on the right) have been proliferating across Europe, with the usual anti-foreigner ugliness that one sees whenever people feel desperate.

And this week, elections in Greece swept into power a party whose name, Syriza, translates to "coalition of the radical left."  As an analysis by Neil Irwin in yesterday's New York Times put it, "the real surprise is not that Greek leftists have been elected. The surprise is that it took this long."  Again, I do think that it is surprising that it was a leftist party that won, rather than a crypto-fascist party (or even a not-so-crypto one), given the economic devastation, but I agree with Irwin that something like this was a long time coming.

What is perhaps more surprising is that this coalition of the radical left is anything but radical.  In Greece, during the worst economy seen in almost anyone's lifetime, it was apparently politically prudent to oversell the radicalism of the party, in order to gain political support.  But the new Prime Minister, Alexis Tsipras, is not saying anything remotely extreme.  He is, in fact, simply saying that austerity policies during a Depression are a terrible idea, which is what the vast majority of economists would have said pre-2008, and what the majority of economists still say (the difference between the "vast majority" and simple majority being those who decided to abandon the evidence in order to side with Republicans and European financial elites).

This is not, moreover, a theoretical matter.  We have seen the supposedly prudent German government impose austerity on the rest of the continent for five years, and we have seen the results.  The response from the pro-austerity crowd?  Keep bleeding the patient, and he'll get better any day now.  Mr. Tsipras is saying that Greeks have had enough, and that there is a better way.  And he is right.

What makes this supposedly radical left party even less radical is its stance on the euro.  Apparently, Mr. Tsipras has promised that he will not have Greece withdraw from the common currency.  Again, this is a fascinating political dynamic.  The Greek people, who surely know that the ability of richer countries to impose oppressive conditions on Greece stems largely from controlling the currency -- which, by the way, acts as an effective subsidy to the German economy -- are nonetheless willing to elect a man who is insistent that Greece not leave the Euro Zone.  I can imagine arguments that the costs of dropping the euro would be high, and maybe (but not necessarily) even higher than the costs of staying, but I am surprised that such a rational cost-benefit analysis could be going on inside a country that has experienced years of pain, all while being lectured by their tormenters for being weak-willed and irresponsible.

In any event, the financial markets are calm, and there is apparently little if any concern that the "radical left" takeover of Greece will be a major event in the modern history of Europe.  I would imagine that the Syriza example will be copied across Europe.  Certainly, the mock-left nothingness of Francois Hollande in France has done nothing but allow the cruel austerity to continue.  Europeans should, in fact, hope that the Greeks are showing the way forward, because there are many bad alternatives out there that are truly radical.

7 comments:

García said...

People outside Europe often minimise the level of commitment that the European peoples show towards the idea of European integration. Asking why the Greeks are willing to stay in the euro even though it is arguably not in their national best interest in the short term is --to a certain extent-- like asking why the people of Missouri are willing to submit to a federal system that produces federal governments that are far more progressive that Missourians would normally like. In both situations there is a sense of shared destiny and identity, even though there is disgust in relation to specific political results. (No doubt, that sense of national identity is much stronger in the case of American states.)

My guess is that these perceptions from people outside Europe are caused by the formal understanding that EU Member States are still sovereign nations and that the EU is nothing more than a international organisation. I would say that, even though the economic crisis has generated national tensions, there is still a European political understading that our Union works as a quasi-federal system and that "federal" cooperation and loyalty are desirable.

Neil H. Buchanan said...

Very interesting comment from Garcia. His description of how non-Europeans think about Europeans' attitudes toward the union certainly applies to me. Or, it applied to me. Thank you for the corrective.

James Longfellow said...

Greeks are sluts. They will never get along with those German cunts and they view with distaste the French and the English's whorish fascination with money.

The commitment that the European peoples show towards the idea of European integration is based upon xenophobia. There is nothing like a good old fashioned "out group" to sharpen the admiration for one's neighbor. The irony is that Europe needs immigration for the same reason the US does--cheap labor. The result is Euro hell--forever conjoined and never reconciled.

García said...

Professor,

Although my observation certainly applied to your article, it was not intended as a corrective (at least not in any negative sense). I simply wanted to introduce a variable that, it seems to me, is not always taken into account by non-Europeans: the subtle emergence of a common European identity.

During the crisis, trust in EU institutions has remained higher than trust in national governments [1] and the feeling of European identity is at maximum historical levels (63-65%) [2]. Even in Britain more people feel citizens of Europe than not (50 v 49%) [3]. As a result (at least I see some causality), support for the euro has remained strong both in the Member States of the euro-zone (62-67%) and in the Union overall (51-56%) [4].

Admittedly, people in Greece are very fed up, and a majority of them now say that they don't feel European citizens (45 v 55%) [5], but they still support the euro by a wide margin (63 v 35%) [6]. Still these Greek numbers (taken from a poll in November/December 2014) are probably somewhat more negative than what they have been lately, perhaps by the latest news cycle in Greece, and I expect them to recover after this election.
_____
For references, see Eurobarometer 82 (Nov./Dec. 2014):
[1] Pp. 6-8, specially p. 8.
[2] P. 26.
[3] P. 27.
[4] Pp. 23-25.
[5] P. 27.
[6] P. 26.

Neil H. Buchanan said...

My thanks to Garcia for his interesting follow-up comment. Yes, I took his original comment as a constructive corrective, not a negative one. I'm learning important information here, and I appreciate it.

I am truly surprised to learn that even an economic depression has not turned Europeans against the idea of a unified Europe with a common identity. My surprise, however, is of the delighted kind. Although Europeans' commitment to unity gives the German government too much power in the immediate term (because it removes the serious prospect of countries dropping the euro), this commitment to Europe bodes well for the future overall.

I would have imagined that the current depression could have splintered the Euro Zone, with serious political consequences that would have taken decades to reverse. Although there is no excuse for the imposition of pain via austerity on millions of struggling people, it is a testament to their resilience and optimism that they are willing to bear the burden in the hope of a better world.

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