Sunday, 25 January 2015

The seeds of austerity reap a democratic whirlwind

A panel displaying exit poll results in Athens on 25 January, 2015.

Preliminary results from the elections in Greece indicate an landslide victory for Syriza who will be able to form a majority government without need to form any coalitions.

I had given persistent warnings that extreme austerity imposed on an economy in deep recession will eventually give demagogues who promise easy solutions to complex problems an unquestionable democratic mandate.

Tsipras is as yet an unknown Prime Ministerial quantity and it is bad to pre-judge him.   But Tsipras can only deliver what he promised if he forces onto Europe a programme of debt forgiveness or a rescheduling of Europe's credits to Greece which leads to the same effect of halving the  175% debt to  GDP load.

This will put creditor countries like Malta between a rock and a hard place.  If Tsipras fails to honour commitments already undertaken in the bailout programmes and Greece will be forced to exit the Euro, Greece will inevitably default on its debts.   If Tsipras succeeds to renegotiate better terms for Greece on its debt,  the creditors including Malta will incur a financial loss on their loan exposure to Greece.

Which brings me to the question I had asked in an article on this blog in November 2011.   Why has Malta agreed to participate in the Greece loan bailout when this load should have been carried by the members that had let Greece into the Euro in the first place?

2011/11/28 maltas-cross-efsf

Slovakia managed to stay out of it.   The Baltic countries that joined the Euro recently have not been obliged to carry their share of Greek credit.   So why had Malta agreed to take the risk of carrying Greece credit?.

I wish Syriza well.  Greece needs new leadership and I pray that Tsipras plays his cards well to stay in the Euro on terms which will truly permit the Greek economy to grow and shed off its unsustainable debt burden.    But the solidarity which Greece needs and deserves should be footed by those who were beneficiaries of Greece's misdemeanour's in the first place.

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