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Tuesday, October 9, 2012

Disappointing news from Mr. Tsipras

I have previously said good things about Alexis Tsipras, focusing on his talent as a political leader who can motivate masses and convey hope to suffering people. I have always questioned his judgement as regards solutions to Greece's economic problems. His article in The Guardian confirms my suspicion that he is on the wrong track as regards solutions to Greece's economic problems.

Yes, the article reads well. Yes, if I were among the suffering people of Europe, I would go for it. And yes, if I went for it, I would later regret it!

Mr. Tsipras does not seem to understand that growth is not necessarily growth and austerity is not necessarily austerity. Good growth, the kind of growth Greece needs, must be sustainable growth. The kind of growth which creates sustainable jobs, which creates value, which creates returns which, in turn, can be reinvested. Bad growth is like the blaze which occurs when you throw gasoline into a dying fire - the blaze evaporates when the gasoline has burnt out.

Greece has had very high growth rates until the crisis erupted but it was growth caused by gasoline being thrown into a fire, a lot of gasoline! From 2001-2010, approximately 300 BEUR of new foreign debt (net) was thrown into the Greek economy plus billions and billions of EU grants. If you throw that kind of money into the middle of the desert, growth will occur even there. If austerity causes that kind of growth to disappear, it causes pain in the short term but can create value in the longer term (if it is intelligent austerity).

A tsunami of cheap money was made available by lenders in the last decade or two and, I hasten to add, lenders made poor lending decisions. A tsunami of cheap money was borrowed in the last decade or two and, I hasten to add, it was misspent by borrowers. Greece or the Southern Periphery were not alone in this. Look at Iceland, or even at California, for that matter. This is not the time for a morality play. Instead, it is a time for recognizing causes/effects and for making good decisions for the future based on that recognition.

Yes, the situation in Greece has been aggravated by the way austerity policies were imposed and/or implemented. Yes, austerity policies have led to cuts in benefits and caused a critical deterioration of the welfare state. From the distance, I cannot tell to what extent that kind of austerity was "imposed" on Greece or whether it was the choice of Greece to overburden one part of society while leaving another part of society nearly unscathed.

But it is wrong to say outright that austerity measures are preventing the Greek economy from returning to growth. Yes, they prevent the Greek economy from returning to the type of unsustainable growth which Greece has had (overspending borrowed money on consumption, above all on imported consumption). But they should not prevent the Greek economy from intitiating reforms which will lead to sustained growth.

Yes, an economic plan should prioritise the needs of workers, pensioners and the unemployed, not only in Greece but in any economy of the civilized world. If Mr. Tsipras thinks that only popular struggles will achieve that goal, he is taking Greeks back to the mindset of more than a century ago.

Mr. Tsipras does not have to remind European tax payers that the bulk of the so-called "help for Greece" has so far been, in reality, help for Greece's creditors and for exporters to Greece. European tax payers have understood that by now and they are equally angry about it as Mr. Tsipras is.

Mr. Tsipras does not need to remind European tax payers that they may be losing their money; they know that by now. But they also know that they are losing their money not because of austerity in Greece but, instead, because the Greek economy does not generate sufficient value to support the country's debt and the kind of living standard which Greece has had since the Euro.

Mr. Tsipras continues to fall irresponsibly short of pointing out how the Greek economy could return to generating value instead of spending borrowed money on imports and consumption. He seems to prefer giving a hungry man a fish to cure his hunger instead of teaching him how to fish. A more convincing case would be for Mr. Tsipras to use his talents at motivation to motivate Greeks to substitute imports with new domestic production wherever possible (a "buy-Greek" move), to become obsessed with expanding exports, to seek and welcome foreign investment and to extend support to the EU Task Force to help Greece to get its public administration on modern footings.

Yes, to keep alive democracy, equality, freedom and solidarity as the most important values of the European political tradition is the correct objective. To brainwash people into believing that there is such a thing as a free lunch is the best way to destroy them.

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