At the outset, I want to say that I have mixed feelings about Syriza's victory in Greek parliamentary elections. On the one hand, I am innately sympathetic with the goals of any left-wing party/coalition and the determination of such parties to address disparities in wealth and income and to improve or expand the availability of public services and rewarding employment opportunities to lower and middle income populations. Of course, I am glad that Syriza will be challenging the German-mandated, quasi-punitive fiscal austerity measures enforced on Greece as a condition of EC/ECB assistance to avoid sovereign debt default. In this manner, I adamantly reject the notion that the principal sources of Greece's sovereign debt crisis are located in the expansion of social spending by the Greek government in the 1980s and lingering expectations by the Greek populace for generous public employment and social services and relatively high private sector wages. On the other hand, I want to argue that there is at least something to the critique that Greece needs to foster a more flexible and entrepreneurial private sector to develop, initially, in Jacobs' terminology, more aggressive import replacement and, subsequently, over the long term, the generation of new export commodities corresponding to evolving patterns of comparative advantage with a changing array of trading partners. It is one thing to say, like Krugman and many other macroeconomic policy analysts on the Keynesian left, that austerity measures in the face of short run declining output and national income are not policies favorable to the stimulation of aggregate demand and, thus, exuberant private investment in new productive capacity. Austerity, as a fiscal policy regime, has been an unmitigated disaster for Greece that will not be reversed by imposing still more austerity measures or by allowing Greece to go into sovereign debt default. However, if aggressive public spending is to be undertaken in an economy like that of Greece to stimulate short run aggregate demand and begin to address the country's massive unemployment problem (25 percent of the available labor force!), the state needs to fully consider how its expenditures will impact the long term growth of the private sector, particularly in targeted industries.
Emphatically, how will Syriza's decision not to permit the sale of the port facility of Piraeus to China's Cosco Group aid the Greek state to develop a more ambitious and long term policy of transportation and logistical infrastructure development in support of export-oriented business growth? Will Syriza's efforts to halt the privatization of government shares in the Public Power Corporation of Greece enable it to undertake investment decisions that will reduce aggregate energy expenditures by Greek industries in the long term, or will these efforts simply constitute an additional budgetary loadstone that the state will have to overcome in order to avoid debt default? At what point can national pride and the aspiration for democratic self-determination of fiscal policies by the Greek electorate against demands for austerity by Germany and the international financial community impede the articulation of a clear vision by the Tsipras government for a new post-austerity Greek fiscal policy that might actually benefit private sector economic development over the long term? In view of the initially steps being undertaken in fulfillment of campaign promises by Syriza, I perceive very real problems for the Greek economy to turn a corner, even if the ECB and other financial sector agents confer a substantial forgiveness of sovereign debt.
Having stated my misgivings over the perceived direction being taken by Syriza at its arrival in power, I want to reinforce my larger argument that the single largest problem facing Greece and, for that matter, Spain, Ireland, Portugal, as well as parts of the Italian and French economies is not profligate public spending but monetary union. Contrary to those corners of professional economic analysis who insist with monetarist zeal that money is neuter with respect to real economic development, I insist, on Jacobsean lines, that the expansion of a monetary zone to incorporate diverse and heterogeneous internal economies can only manifest a continuous pro-cyclical effect on private investment, favoring aggressive economic development in already strong internal economies and virtual abandonment of weaker internal economies. In the absence of a full-blown European fiscal union, incorporating explicit transfers of income from Germany and other stronger Euro-zone economies to the weaker end economies, not simply in the form of debt relief but more emphatically as a continuous constitutional commitment to share the benefits of incommensurable German global competitiveness under the Euro, the European monetary union is doomed to fail, perhaps within the next five to seven years.
Beyond this point, I would argue that the end of the Euro would be a better outcome for all of the Euro-zone economies than the imposition of a fiscal union that would, in any case, impose on the entire zone a new and expensive governmental regime, organized to deprive each member state of its sovereign democratic capacities for self-government over a steadily expanding range of domestic policy issues. I do not think that, for all that Syriza stood for and against in its march to victory in Greece, the Greeks would want to confer power on a unified European fiscal authority to determine internal tax rates on Greek citizens from, say, Brussels. I am quite certain, as well, that the majority of German citizens would sooner secede from Europe than allow themselves to be taxed at exorbitantly high rates to cover budget deficits in Spain or Italy manifest through differential social service needs and demands at the national level. In the end, the overwhelming majority of Euro-zone states would be better off returning to their former national currencies or developing new, special-purpose regional currencies that might be more conducive to counter-cyclical monetary policy management across a European free-trading community.
Concluding this relatively short commentary on the coming crisis over Syriza's policies in Greece and their incompatibility with the fiscal austerity preferences of the net lending states of the Euro-zone, I think that a sovereign debt default is almost inevitable this year for Greece. The Tsipras government is not going to convince the troika (ECB, EC, and IMF) that it should write off significant quantities of Greek debt as a measure to restore European economic stability on a stronger, growth-oriented footing. Under the dominant influence of net lending states like Germany, these institutions will sooner allow Greece to default on its sovereign debt than acknowledge that the very monetary union that reinforced the dominant economic standing of these states led them to the point where their junior partner and debt peon, Greece, was marched off the cliff for failing to pay. When this happens, maybe Syriza will continue to exercise the mandate of the Greek people to exit the Euro-zone and make a go of the new economic landscape with its own currency and prohibitively high international lending rates to service its overly aggressive and, perhaps, somewhat ill-conceived ideas on social spending. In sum, I do not think that the powers that be in the troika are as yet quite willing to admit that they cannot allow the sovereign states of Europe to become prisoners to the prerogatives of international finance.
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