Recently, Greece’s finance minister, Yanis Varoufakis was sidelined by his own government in the negotiation with its European partners. This followed a lack of progress in the talks to unlock more loans in exchange for reforms. The problem is that the Greek government was elected to roll back the reforms which entails painful austerity measures. To get more money from the IMF and its European partners, Greece needs to continue these austerity measures.
Following this reshuffle in the negotiation team, the Greek stock market boomed. Investors interpreted the sidelining of Varoufakis as a sign that the Greek government is willing to see reality and give up on its election promises.
Greece has an ultra leftist government – Syriza led by Alexis Tsipras. Like most leftists, they have an unrealistic worldview – that there is such thing as a free lunch. Like all Socialists, they had built their political career based on promising people free stuff paid for by high taxes and government debt. They were elected by the Greek people who are fed up with the austerity measures imposed by the troika – the European Commission, the European Central Bank and the IMF..
The Greek government is broke. The bankruptcy came about after decades of giving people a welfare state that they could not afford. Like nearly all democracies, the Greek politicians win votes by promising people free stuff and a cushy retirement paid for by taxpayers. The EU wants the Greeks to cut spending, including raising the retirement age.
Greece has one of the lowest retirement age in the world. In December last year, the former Labour Minister, Yannis Vroutsis revealed that 75% of Greeks retired at the age of 60 and below.
No wonder the Germans are mad. They retire later than the Greeks. Though this link is 5 years old, it still captures the mood in Germany. Here is an excerpt from the link:
“The Greeks go to the streets to protest against the increase of the pension age from 61 to 63. Does that mean that the Germans must extend the working age from 67 to 69 so that Greeks can enjoy their retirement?”
The Greeks voted in this ultra leftist government to roll back the austerity measures. In exchange for loans, ultimately from EU taxpayers, the Greek government was supposed to reform their government. They have to cut spending and do more to attract investors. This includes raising the retirement age and lowering the pension payments, privatizations and changing the labour laws to make them more investor friendly.
But to do so would be to betray its voters. This would make them unpopular. But if they do not stick to the austerity measures, they won’t get any more money to pay the bills. They would have to leave the EU. If they do, they will have to pay their civil servants and pensioners in Drachmas.
The Greeks can retire as early as they want because the government can always print as much Drachmas as they want. Of course, you get inflation and the Drachmas won’t buy much. But if they stay, they must abide by the austerity measures. Either way, they will end up poorer. Most Greeks do not want to leave the EU. So what do they want?
They want the EU to continue to subsidize their slothful lifestyle where their civil servants do little work and they retire early. That’s what they voted for when they elected Syriza in January this year. Syriza promised them they will get loans from the other Europeans to pay for the good old times they lost with austerity..
In effect, Syriza was promising them Other People’s Money (much of it German taxpayers’ money). How else can they continue their unproductive lifestyle unless subsidized by their European partners? But can Syriza deliver on this promise?
Unfortunately for the Greeks, the North Europeans are balking at lending money so that Greeks can retire earlier than they do. Leftist politicians, all over the world, make lucrative careers promising their voters Other People’s Money. There are makers and takers in every society. They promise to tax the makers and redistribute the hard earned money to the takers.
There are more takers than makers. That is why all democracies end up with welfare states which reward the takers at the expense of the makers. This was what happened to Greece and the reason why it went broke. As Margaret Thatcher once said, “The problem with Socialism is that you eventually run out of Other People’s Money.”
The way to a good life lies in working hard to produce something that people want to buy and not redistributing wealth from the makers to the takers. Has Syriza finally realized this and is now willing to reform the system?
Does the negotiation team reshuffle that sidelined the popular Varoufakis mean that Syriza is going to cave in to EU demands? Have they seen reality? Do they now realize that they were wrong all these years to promise their voters Other People’s Money?
Will they acknowledge that Socialism eventually leads to bankruptcy? Will they tell the voters that they have to work for their living and not expect to be subsidized by Germans and other Europeans?. I doubt it. It would be political suicide for the leftists in Syriza. They love power too much. The best they can hope for is a face saving way out. What I think they will do is to hold a referendum after getting the best deal they can from the negotiations. The North Europeans won’t back down much.
Greece will have to continue with the austerity measures substantially the same as under the previous government if they want to get more loans. Syriza will let the people decide whether to accept this deal or not. They will have the choice of continuing the hated austerity program (which means they have to work for a living) or leaving the EU and cope with massive economic disruptions. In the end, the Greeks will have to face reality. No matter what they choose, they are going to be poorer. If you want to live well, you have to work for it instead of voting yourself Other People’s Money.
That’s the lesson from Greece.