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Putting Greece Where It Belongs

Alexis Tsipras and an unidentified man sitting in front of a banner at the Subversive Festival, Zagreb
Alexis Tsipras, right, in 2013. Photo by Matthew Tsimitak.

Suppose you are the parent of a child of modest academic ability.

Your child’s school opens a new enrichment program, intended for the most capable and gifted scholars, in which assignments will be rigorous and homework will be intense. In order to qualify, children whose parents wish them to participate must be tested. School officials will then review the results and decide which children make the cut.

You know your child’s scores will not put him in the academic elite for which the new program is designed. But you wish your child could qualify, since not only will the gifted class receive more work, but also more privileges. Perhaps more pressingly, you don’t want your child to be left out of the high performer category and classed with the other run-of-the-mill students.

Would you lie to get your child into the elite group?

That is exactly what Greece’s leaders did. Except instead of a gifted and talented class, they lied to get their run-of-the-mill country into the eurozone.

Otmar Issing, former chief economist for the European Central Bank, claims that the euro’s gatekeepers have been “too polite” to deploy adequate sanctions against Greece, Bloomberg reported. The country cheated on its entrance exam in 2000, misstating its deficit relative to gross domestic product. In fact, the country hasn’t been within the threshold for that measure at any time between that entrance exam and today.

Greece lied to get into the eurozone, and it lied about its economic statistics after it adopted the euro, at least until it could no longer hide the truth. Greece never belonged in the euro. Now, with the election of a radical left-wing government that includes a significant component of Marxist academics, the question is what to do about it.

Syriza, a far-left party, formed a coalition with the Independent Greeks, a right-leaning party which agrees with Syriza on little except the rejection of austerity. This issue was enough, evidently, to form the basis of the agreement that gives the coalition a clear majority in Parliament. Alexis Tsipras, Syriza’s leader, said in a victory speech on Sunday, “The Greek people have given a clear, indisputable mandate for Greece to leave behind austerity.”

Greeks are tired of trying to keep up with the homework that is assigned by the “troika” - the parties responsible for determining whether Athens will continue receiving the life-sustaining IV of European money that allows it to pay its bills and its already-rescheduled debts. A lot of that money comes from Germany, the super-smart kid that everybody in class resents and yet envies.

The Greeks have, in fact, made a valiant effort to keep up with the troika’s assignments under the just-defeated government, achieving a primary budget surplus in which, for the first time since roughly the days of Aristotle, the central government is collecting more in taxes than it pays to keep the lights on. (The overall budget remains in deficit, because Greece is still repaying the debts it ran up under the truth-challenged former governments after it joined the euro.) But the achievement has come at enormous cost. A huge number of Greeks lost their jobs when the bureaucracy was slashed, and about one in four Greek workers is officially unemployed. Given the history of Greek statistics and the tendency in that country to game all sorts of government programs, however, my guess is that the real figure is somewhat lower, once the under-the-table portion of the economy is considered.

Tsipras promised he would renegotiate with Greece’s creditors and remain in the euro. The country’s creditors may, in fact, end up offering some concessions, perhaps by stretching out debts yet again. I don’t think those concessions will be big, and they will almost certainly not be enough to satisfy many of those who voted for Tsipras and those who ran alongside him.

So, despite Tsipras’ promises, there is a very real possibility that Greece will drop out of the euro class. Maybe it should.

Syriza’s victory has raised the specter of similar anti-austerity (read: anti-homework) parties gaining power, or at least influence, in places like Italy, Spain and perhaps even France. These, too, are countries that have trouble keeping up with the genuine high performers. Like Greece, they have gained from the extra enrichment opportunities open to them: the elimination of currency conversion costs, the simplification of cross-border contracts and the enhancement of tourism. But those extras have come at the cost of high unemployment, prolonged austerity and an inability to devalue their way out of recession.

Of course, if you pull enough kids out of the enriched class, you may not have enough kids left to justify having a class anymore. That is basically the risk that threatens the euro’s future. Yet even if individual countries demonstrate that they can come and go, I don’t think the euro is going to go away any time soon. High achievers like Germany, Holland and Luxembourg have too many incentives to stay within the unified currency. New enrollees like Lithuania are willing to make sacrifices to try to keep up with the fast crowd. Ireland proved that austerity need neither be permanent nor debilitating; the Irish came out of their recession-induced diet with government finances in fighting trim, and a growing economy besides.

But Ireland and Greece are two very different children. Ireland has a modern, lean and efficient market system. It got into trouble because of its overextended banks and its government’s willingness to back those banks at whatever cost to the population, the wisdom of which can be debated. Those, however, were one-time costs that could be compensated. Greece fell into its crisis with a backward and inefficient economy, a hugely bloated public sector, enormous external debt and a pack of statistical lies. In other words, with a bit of extra tutoring, the Irish have shown they can keep up with the Germans and the Dutch. The Greeks have not.

If they can’t, maybe the best thing for all concerned is to face the truth and let them go back to school with the average kids again.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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