It sounds a bit odd these days but economics was actually invented by the Greeks. Back then, in ancient Greece, the ethos of economics was to keep the house in order and generally manage finances in a way that would make Wolfgang Schäuble blush with embarrassment for extravagant habits. Now economics is about to get a new meaning for Greeks. Perhaps not a science, but Greekonomics is now the art of killing an economy softly.
The Greek tragedy is not that it teeters on the brink of default. Greece is going to get its deal – and its euro membership will live to die another day. The deal that is fleshed out in Brussels now will just help to push the country to the next time it needs financial support to pay its creditors. Greece won’t get the substantial debt write-off it desires – and needs. Creditors will demand continued austerity, which now mostly means tax increases, and reinforce the forces of debt deflation.
Syriza’s own economic policies will just make matters worse – it’s reforming neither its client list institutions nor the supply side of its economy, still suffocated by regulations, cartels and corporate welfare queens. But the show will go on for yet another while.
A departure from the Eurozone now would crash and burn the Hellenic economy. However, it is equally obvious that Greece is not a good match for a monetary union dominated by the way the German economy behaves. For countries in the Eurozone to prosper their economies need to move in the same direction and roughly at the same speed as Germany. It represents more than one third of the total Eurozone economy and whatever way you look at it, euro policies will inevitably reflect Germany’s economic cycle and its structural character.
Germany is a mercantilist industrial economy; Greece is a service economy with a trade deficit. Savings and investment differ. Germany is plugged into the global production networks of the world; Greece is not. Germany’s markets connect with global prices; Greece’s don’t.
Add to that the basic rule for the creation of the European Monetary Union – that it would copy the Bundesbank’s rigid hard-currency rules – and you can see why Greece will steadily decline its economy and become a permanent beggar if it stays inside the Eurozone.
Others disagree. The chattering classes of economics, especially those of crude or ‘Old Testament’ Keynesian faith, have rather argued that what Greece needs is a credit-financed demand shock. But this notion simply doesn’t stand up. Angela Merkel and other hawks are not going to have a late-night conversion this week about Keynesian orthodoxy. Right or wrong, the heavy lifting of managing its crises will still have to be done by Greece. Bailout conditions can be tweaked here and there. But if Greece wants to tap creditors’ money, it will have to follow the rules, or give the appearance that it will.
The real Greek tragedy is that it will be trapped inside the Eurozone for a good while longer. Its current government has made an orderly exit impossible. Syriza won the election on the promise to return economic sovereignty to Greece. It is now looking more distant than ever.