Greek PM Outfoxes Self, Screws the Pooch, Saves Greek Economy

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Posted: Jul 13, 2015 12:15 PM
Greek PM Outfoxes Self, Screws the Pooch, Saves Greek Economy

Maybe Greek Prime Minister Alexei Tsipras deserves some sort of honorary Margaret Thatcher Free Market Economics Prize. He has unwittingly done more than anyone else to torpedo Athens’ leftist political aspirations and advance badly needly economic reforms. For the last five months he thought he was playing chess while everyone else was playing checkers. But his infantile strategy of sheer obstinance and bad faith bargaining has brought him and his far left party political ruin, but perhaps a new chance of economic revival for Greece’s plummeting economy.

Tsipras and his leftist government have been completely outfoxed by German Chancellor Angela Merkel. And the terms Merkel has imposed on Greece for the financial assistance it desperately needs are so humiliating it probably spells the end for the political career of the incompetent and childish Tsipras and his party Syriza (Coalition of the Far Left).

When Tsipras and Syriza came into power five months ago on a platform of die-hard opposition to any further demands for fiscal austerity from Greece’s creditors. And in negotiations with the European Union, led by Merkel, Tsipras first tried four months of Just Say No. He was so convinced that Merkel would fold first, out of fear that a Grexit would be a political and financial disaster for the EU. And so he repeatedly turned down a deal on the table that would have required some modest reforms and spending cuts in return for another bailout.

Well, Tsipras apparently didn’t realize that a certain degree of trust and goodwill are necessary when you are asking other people for tens of billions of dollars. He also didn’t figure out that his real maximum leverage was when the negotiations started. Back in February Merkel and other European leaders were still apprehensive enough about the consequences of Greece leaving the eurozone to cut Greece plenty of slack just to get a deal.

Then two weeks ago Tsipras really screwed the pooch. To the shock of his EU counterparts he announced that he would put their proposed deal before a national referendum, and that he would urge Greek voters to refuse its terms. He no doubt expected that when financial markets opened the following Monday the sharp sell-off would force Merkel’s hand.

Well, the markets sagged a bit, but there was no panic. The market considered the possibility of Grexit, and replied “eh, so what?” And when the Greeks voted overwhelming to reject the EU’s terms, voters in Germany and most of the rest of Europe decided “maybe it’s time to cut off these deadbeats.” This gave Merkel and other European leaders the assurance that it was actually in their power to Just Say No to Tsipras’ blackmail.

So when Tsipras went back to the EU hat in hand and suggested that he might be oh so reluctant but nonetheless willing to accept the old deal, he found to his dismay that train had gone and left. By now Merkel and Co. had had enough of bleeping around, and they had a new and much tougher deal in mind.

Greece still has to agree to serious cuts to its bloated and politically popular pension system and tax increases on its profitable tourism business, but harsher than the terms Tsipras deemed absolutely unacceptable a few months ago. And an even more stern measure requires Greece to privatize state owned enterprises and put the proceeds in a trust fund outside the control of the Greek treasury and dedicated to paying down some of the national debt.

It’s harsh medicine, and a bitter pill for the overly proud Greeks to accept, but necessary and overdue. What is a true shame is that by his reckless brinkmanship, Tsipras made Greeks suffer unnecessarily, with the economic losses of the last few weeks of chaos and fear estimated in the tens of billions.

This is the deal Merkel could only have dreamed of a few months ago, and that the Greek Left could only have imagined in their nightmares. And some Greeks will wail plaintively that this deal effectively surrenders national sovereignty over its economy. Well, it does, and its about time. Greece has so badly managed it affairs that it’s past time for some adult supervision. And in time with responsible policies Greece’s economy may begin to grow out of the hole successive Greek governments have dug for it. And other profligate and fiscally irresponsible leaders should pay heed to the lessons Alexei Tsipras has learned the hard way.

But Greece is not out of the woods yet, its parliament still has to approve the deal. And I do not rule out the possibility that Syriza dead-enders will prefer what they mistakenly consider “national suicide with honor” over “perfectly reasonable free market economic reforms to save the country.” So this particular Greek drama isn’t over just yet.