Tired of dealing with the consequences of austerity, Greece appears to be run by a party inspired by the politics of Homer. Not the Greek Homer, mind you, I refer to the Springfieldian. Some may recall an episode of The Simpsons that saw Homer Simpson run for sanitation commissioner with the slogan “Can’t someone else do it”. Homer won, promptly implemented a garbage collection regime in which white gloved, handsomely uniformed men relieved Springfield of the need to even touch their garbage cans. It took one day to bankrupt his department.
Such is the appeal – and consequence – of parties such as Syriza, who deceive their electorates into believing that a nation can take on enormous debt, then simply shirk it at a later date. Now, having spent a week trying (and failing) to renegotiate with Greece’s European creditors, Greece’s new finance minister is readying himself for more of the same.
Responsibility and moral hazard
Yanis Varoufakis has been touring Europe, appealing that lenders “end the gross indignity” of Greece’s current crisis. But missing from Varoufakis’s appeal is an important recognition: the indignity is one of Greece’s own making, not, as the increasingly popular myth suggests, Germany’s or the eurozone’s.
It is true, austerity during recession is rarely the best course of action. But we should consider the circumstances that led to this: for decades, Greece slashed personal and corporate tax rates, simultaneously boosting defense and social security spending, while allowing tax evasion to become rife.
Granted, one could substitute this description for any number of countries, including the United States, but there’s one big difference: Greece took it way too far, now with a public debt to GDP ratio of 175%. Compounding this problem was the fact that the Greek government deliberately and systematically hid the magnitude of their debt problem from the eurozone regulators.
Let’s consider moral hazard. What would prevent Greece from doing the exact thing again if their debts are forgiven as proposed by Syriza? Rather than discourage future economic mismanagement, the Syriza approach incentivises it. Plus, Greece’s externalisation of its economic responsibility may mean further economic woes for other countries.
Concessions have been made
In assessing the validity of Syriza’s platform. We should also remember that much of Greece’s debt has already been retired, during the Greek investor “haircut” of 2012, and that while the austerity measures are indeed restrictive, they have come with significant financial aid from Europe. Still, extremists among Greece’s press and protest movement remain petulant, demanding further concessions while simultaneously deriding their European benefactors. A good question to ask at this point is: how generous would they be if the tables were turned?
The Germans are proving stern in the face of Syriza. It was they who forgave the largest share of Greek debt, and they who provided the largest share of the money that has funded the Greek government since the eurozone bailouts. To that end, it could be reasonably said that Greece has been living on German largess for the past decade. Yet, for having the audacity to insist that Greece should tighten spending and repay most – but not all – of its debt, Chancellor Merkel has been frequently compared to Hitler.
Debunking the anti-austerity case
In their appeals to the German finance minister, comparisons have been made to the leniency given to Germany following World War II and the decision to halve the country’s debt obligations from the Treaty of Versailles. On the surface, this makes Germany’s demand seem hypocritical.
But as economic historian Timothy Guinanne at Yale has shown, this argument “reflects a misunderstanding of the historical circumstances of the early 1950s, as well as the economic principles reflected in the [write-down] Agreement”. There should be no doubt that post-WWII Germany took its responsibilities seriously. Syriza seems unwilling to do the same.
Other anti-austerity arguments rely on the idea of debt-spirals, or the consequences of humiliating economic conditions. These focus on Greece being too far in the hole to repay its debts without further assistance; its economy is faltering; and the unemployment rate is too high. There are also uncomfortable parallels between the rise of fascism in present-day Greece, most notably in the guise of the Golden Dawn party, and the rise of Nazism in Germany – a point Syriza has made to its creditors.
Missing the point
These concerns are real, but the suggested remedy may be missing the point: while forgiving Greece’s debt may appear to be a quick fix to some, it would also act to incentivise countries to simply repeat the same mistakes. There’s also a question of fairness here: Europe hardly shares the views of Ayn Rand when it comes to helping those who are down, but there have to be limits to the magnitude of the help extended.
Clearly Greece’s debt problem is insurmountable without outside help, and the strife being endured by the Greek people is significant. The turn to extreme nationalism and Syriza style cure-alls, however, may be a remedy worse than the disease. The centrist parties that governed Greece until this election rightly pointed to Greece’s need to take on most of their debt burden and largely accept the conditions imposed under its bailout. Doing so represents a crucial step in correcting mistakes of the future – namely, dealing with the consequences of self-destructive behaviour.
However, if Greece is to receive further debt relief, there first needs to be a dramatic shift in the way the newly incumbent Greek government seeks it. The language from Syriza repeatedly emphasises an impost created by external forces. This must change in favour of a recognition that this disaster was of Greece’s own making. Any further help – including the significant assistance provided to date – should be received with humility. Such is a path that no country endures happily, but history unfailingly demonstrates that owning the actions of the past is crucial to avoiding the same mistakes again in future.