After Chris and John’s posts, a lot of which I agree with, I thought it made sense to look at the third member in the three-cornered disaster in Euroland …

When you look at this series, two things strike the eye. One, good God what a long and deep recession. And two, it was coming to an end. Even the worst policy mistakes don’t last forever and a combination of time, human resilience and the Pigou Effect will usually prevail. Greece had two quarters of consecutive growth at the beginning of 2014. Unemployment also began to fall. They were issuing bonds on the open market and had some hopes of completing the second bailout program with a degree of success.

Then, Syriza happened.

That isn’t quite accurate. The problems were set in motion by the Samaras government, which tried to exit too fast from the program, and refused to agree a third financing package, setting a booby trap which later detonated under the Greek economy. They lost the support of Parliament and then lost the resulting snap election. But then things got really bad.

As I said, when Syriza came to power, they were facing a situation where the second program was about to expire, and a third one had not been agreed. The priority should have been to arrange more financing (I’ve posted elsewhere, in detail, that the massive advantage Greece has over developing world debtors is that it has an economic megapower which is prepared to lend to it at below-market rates. This piece by Paul DeGrauwe gives you an idea of the scale of this advantage. As a proportion of GDP, Greece’s debt service costs are lower than France. If the same interest rates and maturities had been kept, this could only have been achieved by a reduction in the headline amount of about a half.) First, an extension to the second programme needed to be agreed, to buy time. And then, a third program needed to be negotiated.

This wasn’t what Syriza did. They wasted a month or so on refusing to negotiate a program extension, trying instead to agree a four month “bridge” with no conditionality. They even refused to meet with the technical teams administering the program, demanding to deal directly with governments and the IMF. They proliferated new “bright ideas”, some of which were actively ridiculous in terms of their technical quality. And they practiced a studied form of anti-diplomacy. When in Germany – mention the Nazis! When in Italy – claim the country is insolvent! When in Brussels – have shouting matches! And always, leak important proposals and then complain about it on your blog when anyone else does the same.

This wasn’t a negotiating strategy. There was a job of diplomacy to be done here, and it involved building up very delicate matters of trust in an EC which lacks a functioning constitution or institutions, and so where trust is all there is. And it’s hard to build up trust in a party that seems to arrive at every summit having ripped up all the tentative progress made at the last one, and demands that the whole process be restarted on the basis of a brand new proposal of their own invention.

This, according to Deputy Finance Minister Tsakalotos respresented a deliberate policy of generating uncertainty about their commitment to Euro membership (something which, of course, had been a core part of Syriza’s campaign), in order to extract concessions. As such, it might have worked. But it came with a huge cost in terms of confidence in the Greek economy, and in terms of generating capital flight. The one solid achievement of Syriza’s negotiating style is to make sure that, if and when Euro exit happens, there won’t be a single drachma held by an oligarch – their money will all have been moved off shore. And this is a real cost to real people – by the end of the year, the effect of a year’s corrosive uncertainty could be of the order 5% of GDP. This is not “confidence fairy” reasoning – it’s the obvious and predictable effect of an overhanging currency crisis.

And what have they got to show for it? An offer that is very close indeed to one available in February. And, despite the fact that the two sides were inches apart (the fiscal distance was much less than 1% of GDP in terms of the primary surpluses agreed), they walked out and started the current referendum. A referendum in which, like the SNP of last year, Syriza continue to claim to the electorate that their supported “NO” vote would not have any implications for Euro membership, while refusing to even discuss what might happen if they turn out to be wrong. At present, the same polls which present “YES” and “NO” as neck and neck around 42% record Greek support for Euro membership at 75%. This strongly suggests that a lot of people are being misinformed.

I had high hopes for Syriza when they came to power, like lots of people. I still think they’re all intelligent people of integrity. But they were tragically (that word, but it is impossible to avoid) ill-suited to the job that lay before them. The way that they have handled the discussions has been very bad indeed.

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