Time for a Greek Exit

Member Group : Keith Naughton

Beware of Greeks bearing threats. Like a slow-motion collision, Greece and the European Union are headed for a reckoning with both sides engaged in kabuki rather than real negotiation. The strategy of Greek Prime Minister Alexis Tsipras is an only slightly less crude version of the classic National Lampoon marketing strategy. Meanwhile, the European Union plays the same austerity tune monotonously.

It’s simply time for the Greeks to be cut loose – in fact, cutting the Greeks loose is long overdue. At this point any deal will be a bad deal for Europe.

The fault for this state of affairs is not so much with Greece itself, but with the EU. After all, the Greeks are just doing what they have been doing for years – brinksmanship and dodgy accounting. The problem is that the EU has knowingly indulged this behavior.

But even more dangerous is the political contagion the EU has allowed to incubate in Europe as a result of its mishandling of Greece’s debt. The difficult day-to-day economic conditions imposed by austerity in the high-debt, low growth nations may be justifiable in the abstract, but it has driven many into the camps of neo-communist political parties like Syriza in Greece and Podemos in Spain.

The neocomm economic platform is a load of incoherent, free-rider trash – but it is seductive for the many voters in countries that have experienced years of austerity with no sign of light at the end of the tunnel. Even putatively right-wing parties like the National Front in France are espousing some version of their economics. It does not matter that the real problem is that the nations of Europe, particularly southern Europe, have failed to attack red tape, subsidy, cronyism and corruption. What the people see is penury imposed by the European Central Bank.

And it is this political contagion that is far worse a threat for Europe that the temporary economic fallout of a Greek default.

At this point any deal will be a boost to the socialists in Europe. If Greece is let off the hook, then highly indebted countries will be encouraged to demand the same treatment. Imagine the economic problems of Spain refusing to pay its debts. On the other hand, if Greece knuckles under to a more austerity, the neocomms will point to the misery in Greece and claim they have the solutions.

Only when the people see the bankruptcy of neocommunist economics is exposed will parties like Syriza and Podemos wither. No intellectual arguments will do.

Walking away from Greece – allowing the country to default, exit the Euro and devalue – will be tough medicine. The country could enter into an even more chaotic political period. Bond yields for Spain and Italy could spike significantly and the Euro could weaken. Tsipras and his neocomm allies could reach out to Russia and threaten to leave NATO.

But this is the case of choosing the least bad alternative. A post-Euro Greece could still be the recipient of financial aid by the EU. Weakness in sovereign debt should be temporary as nations make real changes to restore confidence.

As for the geopolitics, so what if Russia props up Greece. That just makes Russia leader in the Coalition of the Basket Cases. What brought the Soviet Union down was a non-competitive internal economy, falling oil prices and an overextended empire. Letting Putin blunder his way down that path again will be far more effective that the current impotent sanctions strategy.
The most important result from cutting Greece loose will be to snuff out Syriza, Podemos and their foolish economics. Killing that contagion will yield long-term benefits.

It’s been 25 years since communism collapsed. Unfortunately, the Europeans need to be reminded again collectivism simply does not work.