Austerity Angst

A Dangerous Moment

varoufakis_reuters_effect
Austerity is for wimps: New Greek finance minister Yanis Varoufakis.
  • Why it matters

    Why it matters

    If several euro-zone countries follow Greece’s lead and abandon austerity policies it could trigger another euro crisis.

  • Facts

    Facts

    • Greece’s radical-left Syriza party won national elections last month.
    • It wants to re-negotiate E.U. bailout debts and reverse austerity policies that have hobbled the country.
    • Anti-austerity groups in Spain, Portugal, France and Italy would like their countries to follow suit.
  • Audio

    Audio

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Greece’s newly elected government has made a show of avoiding contact with Berlin, to the point where it bordered on diplomatic rudeness.

As Alexis Tsipras, the new prime minister, embarked on a whirlwind tour of Europe, those instrumental in orchestrating the bailout of the euro, German chancellor Angela Merkel and her finance minister Wolfgang Schäuble, were reduced to watching from the sidelines.

Those around Ms. Merkel and Mr. Schäuble reacted to the snub with the proper composure. Ultimately, nothing happens in Europe without the consent of the German government.

The Greeks are well aware of that fact, which is why they are now putting an end to their Berlin boycott – finance minister Yanis Varoufakis has announced plans to pay an inaugural visit to Mr. Schäuble.

Some governments want to use Mr. Tsipras’ victory as an excuse to turn the European rescue policy in their favor.

Yet aside from cutting debts, other countries are taking a more forgiving tone towards Greece. Michel Sapin, France’s finance minister, described the Greeks’ pleas as “legitimate,” while his British counterpart, George Osborne, called for a stronger effort to create jobs and growth in the euro zone.

Even U.S. president Barack Obama noted that countries in the grip of a recession shouldn’t be put under too much pressure.

Such sympathy is surprising considering the populist blustering of Mr. Tsipras. It likely has less to do with empathy for the Greek prime minister and more to do with vested interests in Greece.

Some governments want to use Mr. Tsipras’ victory as an excuse to turn the European rescue policy in their favor. The Americans, British, French and Italians have long been annoyed by Ms. Merkel’s path of austerity and reform.

Things have changed since last year. Under new president Jean-Claude Juncker, the E.U.’s executive branch, the European Commission, talks a great deal about investment packages. And it is conspicuously slow to issue warnings to reform delinquents France and Italy or members who break its rules by slipping into deficit.

The election of Mr. Tsipras will likely accelerate this softer approach, particularly since populists are gaining ground in other nations, which also are distancing themselves from austerity measures.

French president Francois Hollande and Italian prime minister Matteo Renzi have already declared that they will bring a new balance emphasizing growth over austerity.

Ms. Merkel and Mr. Schäuble must stand against this trend. The specter of austerity continually conjured up in Rome and Paris is feared, but seldom seen. At least not in France and Italy, which have embraced far-reaching reforms over the past few years.

The euro zone resembles a marathon runner at the 35-kilometer mark. The worst is behind it yet the pain is particularly sharp. It’s a dangerous moment.

Things are different in Spain, Portugal and Greece, where bitter debates have erupted over the course of reform efforts. Many opponents of austerity measures in these countries are calling for a complete about-face.

In some aspects, the euro zone resembles a marathon runner at the 35-kilometer mark. The worst is behind it yet the pain is particularly sharp. It’s a dangerous moment.

Nowhere is this clearer than in Athens. Europeans and the International Monetary Fund have certainly made mistakes along the way by insisting for too long on cost cutting and too little on structural reform.

But now the priorities have been shifted and the first positive results are visible. Greece’s economy is growing again, albeit slowly and at a low level. But any progress made is increasingly at risk.

Mr. Tsipras purposely conflates cause and effect. The cure may not always have been the right dosage, but the treatment isn’t responsible for the ailment. The defacto state bankruptcy and the weak competitive position of the Greek economy are problems for which the nation’s leaders are responsible. They must solve them.

Greece, like all other euro-zone countries, must continue to reform. Hopefully, Mr. Tsipras will recognize this and the commitment made by other European political leaders won’t dwindle.

Reforms are extremely difficult to achieve, but it’s very easy to squander their gains.

 

 

To contact the author: hildebrand@handelsblatt.com

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