A Break in the Greek Tragedy

Europe should count itself lucky that a leftwing anti-austerity party won the Greek elections, swept into office by citizens who've had enough. Elsewhere in Europe, seven years of stupid, punitive, and self-defeating austerity policies have led to gains by the far right.

If a radical left party is now in power in Athens and sending tremors through Europe's financial markets, the EU's smug leaders and their banker allies in Frankfurt, Brussels and Berlin have only themselves to blame.

Alexis Tsipras, leader of the winning Syriza coalition, says he doesn't want Greece to leave the Euro. He just wants Europe's leaders to renegotiate Greece's debt. It's about time.

If you turn the clock back to October 2009, that was when the incoming social democratic government led by PASOK's George Papandreou discovered and reported that the former conservative government had faked Greece's budget numbers. The Greek deficit, supposedly three percent of GDP, was more like 12 percent.

Financial speculators brutally began punishing Greece, abetted by the Merkel government in Berlin and its allies at the International Monetary Fund, the European Commission, and the European Central Bank.

The speculation against Greek sovereign debt created a "contagion effect," and pretty soon Portugal, Ireland, Italy and Spain were next. The financial press cutely referred to these nations as the PIIGS, as if their own greed had created the crisis. But the true pigs were the financial markets. The speculative orgy against sovereign debt, coupled with austerity demands to satisfy the financial sharks, only sent Europe deeper into depression and deflation, punishing the weakest.

This crisis could have ended years ago with far less suffering for ordinary people who had no responsibilities for the offending policies. Greece, after all, has about two percent of the EU's total economic product -- and it has about 25 percent less than it had before the crisis. (That's how well austerity medicine worked.) Writing off Greece's debt outright would have cost peanuts, and still would.

The EU should have given Greece serious debt relief in 2009. Now, finally, there is a government in Athens that will demand it. But that will require a very high stakes game of chicken. Tsipras has to be willing to risk a default, and the financial shocks that would set off. He has to gamble that the IMF and the European Commission would institute an emergency damage control plan.

It remains to be seen whether Tsipras will gain an absolute parliamentary majority of 151 seats out of 300. It appears that he will fall just short, at about 149 seats; late last night Tspiras struck a deal to govern with the support of a small, anti-austerity nationalist party.

But Tsipras will form a government, and he will bring to the bargaining table the power of the weak. Should Greece default on its debts, that will bring further hardship on the long-suffering Greeks -- but also on the rest of the European economy. It is in the interest of Merkel and the other leaders of the austerity bloc to relent. Otherwise, Europe's crisis will only deepen.

Ironically enough, earlier this month the European Central Bank under president Mario Draghi, after several years of fencing with Merkel, finally mustered the courage and political support to initiate a program of large-scale direct purchases of government bonds. The U.S. version, now winding down, is known by the euphemism Quantitative Easing.

Europe should have begun that policy years ago, before its depression and deflation deepened. Now, Europe is in such a self-inflicted hole that Draghi's bond purchases are likely to be too little and too late.

Merkel and her allies on the European Commission have discouraged these bond purchases because they enable governments to borrow cheaply. If governments can borrow without fear, that undercuts the pressure to cut spending and balance budgets -- the essence of the austerity program. If Draghi's program actually begins bearing some fruit, count on Merkel to frontally oppose it.

The Greeks have done the rest of Europe a huge service. They have called the question. There is finally a leader willing to stand up and say, enough is enough. Whether the austerity mongers will relent remains to be seen.

I have made this point before, but it bears repeating. The world greatest sinner when it came to profligate spending was one Adolf Hitler. He did a few other nefarious things as well. At the peak of World War II, Nazi Germany's sovereign debt was 675 percent of GDP.

But the allies did not treat a defeated Germany the way Merkel treats the Greeks. As part of the postwar reconstruction program, the allies allowed Germany to write off over 90 percent of its debt. In fact, by the early 1950s, Germany, which lost the war, had a much lower debt-to-GDP ratio than Britain or the U.S., which had won the war.

The allies did that because they had a Cold War to win, and needed the new German Federal Republic as a stable ally. The multiple sins of the Nazis were not permitted to interfere with a currency reform.

This act of macro-economic mercy has just dropped from German historical consciousness. You would think that Germany is simply associated with fiscal virtue and the Greeks with improvidence, not that German recovery was built on a generous write-off of prior debt by the occupying powers.

The Germans also seem to have forgotten that the Nazi occupation of Greece was one of Europe's most brutal. (That may explain the limited appeal of the neo-Nazi Golden Dawn party in Greece, which polled only about six percent.)

If only Greece had lost a war and required a reconstruction program.

In the 1940s and 1950s, the allies had Stalin to worry about. That made a debt write-off seem the lesser evil, even debt incurred by Hitler. There is no Stalin today, but a democratic leftist is governing in Athens. And far-right parties are banging on the doors of other European countries. Meanwhile, needless suffering in Greece and elsewhere is now in its seventh year.

Wouldn't it be fitting if a rebellion on the part of the brave Greeks led Europe to alter its broader policy of perverse austerity? It's almost too much to hope for, but it's a start.

Robert Kuttner is co-editor of The American Prospect and a visiting professor at Brandeis University's Heller School. His latest book is Debtors' Prison: The Politics of Austerity Versus Possibility.

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