The Ironies Of Possible Far Left Win In Greece

Due to an odd provision in the Greek constitution, where the parliament is dissolved and new elections launched, unless a qualified majority in the Greek parliament approves a President, the Greek debt crisis could resurface , as new elections risks putting the far left Syriza party in power, who demands another debt writedown while also calling for great increases in government spending that would turn Greece’s current primary (excluding interest) surplus into a deficit.

The first irony here is that this happens at a time when the Greek economy at long last is turning around. The previously enormous Greek current account deficit (15% of GDP in 2009) has turned into a surplus. The government budget now has a primary surplus. GDP is now growing again, and growing at a faster rate than the EU average.

While Greek unemployment is still intolerably high, it has started to fall fast. Some people assert that this just reflects Greeks leaving the country, but the main reason is in fact rising employment, which increased 2.3% in the year to September.

The second irony is that one of Syriza’s key policies, increasing government spending without increasing government revenues would disable it from achieving its other key demand, a debt writedown. As long as someone has a primary surplus, you can tell your creditors to shove it, at least as long as they don’t have some way of forcing you to pay (Which in the case of Greece they BTW could have by threatening to cut off EU funds to Greece).

But if you have a primary deficit then you can’t tell your creditors to shove it, because then they won’t give you any new loans which you need if you have a primary deficit. The combination of new “loans” and debt writedown in effect amounts to foreign aid, and there is no way that Germany and other creditor nations will agree to that.

Advertisements

1 Comment

  1. Pingback: Update On Greek Crisis | Stefan Karlsson's blogg

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s