A Glimmer of Hope in Greece

Greece just made its IMF payment due last week, indicating that the socialist government still does not think it has strong enough support among the Greek general public to secede from the euro zone. It is unlikely that any other arguments will keep them from reintroducing the drachma; high inflation – an inevitable consequence of a drachma resurrection – does not discourage socialists in other countries, such as Venezuela, from pursuing reckless domestic policies. Syriza, whose leader Tsipras is a dyed-in-the-wool Chavista socialist, wants to be the first to bring the warped ideology of Hugo Chavez to Europe, and he is not going to let his plans be spoiled by petty things like currency turbulence or 50-percent inflation like they have in Venezuela.

However, if the population generally is against a currency secession, he runs the risk of a parliamentary challenge long before the next election. His majority is very slim, and depends critically on the participation of a small nationalist party that could be peeled away by a determined opposition. In other words, Tsipras is walking a thin line to get Greece to where he wants her to be.

One of the problems with this thin line is that it does not allow for any sound economic policies. Nothing that could actually revive the chronically depressed Greek economy is permitted in under the Tsipras government’s low ideological ceiling. Therefore, the following report from Euractiv should come as no surprise:

Greek Finance Minister Yanis Varoufakis said on Thursday (9 April) that the government was restarting its privatisation programme and was committed to avoiding going into a primary deficit again. Prime Minister Alexis Tsipras’ government has been opposed to some asset sales but has promised not to cancel completed privatisations, and only review some tenders as part of the terms of a four-month extension of its February bailout program me. “We are restarting the privatisation process as a programme making rational use of existing public assets,” said Varoufakis, speaking in Paris.

This is how they are going to balance the budget: by means of one-time sales of assets. It is like selling the living room couch to pay your mortgage. What are you going to sell next month?

The previous Greek government did the same thing, obviously to no avail. In fairness, though, the Greek government has very few options. Despite some weak signs of a fledgling recovery earlier this winter, there is no clear rebound in the Greek economy.

Figure 1

GREECE cons

Private consumption, measured as four-quarter moving averages and adjusted for inflation, has stabilized a bit under €30bn per quarter. This is a substantial loss from the €37bn per quarter recorded right before the Great Recession, and it means that the Greeks have basically been sent back to 2001 in terms of standard of living.

Since private consumption is the driving force of the economy, its decline and stagnation since 2008 is the most vivid expression of the deep suffering that the Greek people has had to live through. That said, they have also asked for more by electing a socialist for prime minister whose comprehension of economics is weak, to say the least.

Tsipras, like all socialists, sees government as the indispensable economic agent; everything else is either debatable or out of the question.

With all that in mind, there is actually a flickering light in the tunnel. When Greece’s private consumption is measured per employed person, it actually looks like there is a small rebound in there:

Figure 2

GREECE cons pr emp

With consumption again measured by quarter, with four-quarter moving average adjusted for inflation, and then divided by employee, it looks like the Greeks are able to work their way up a little bit in terms of purchasing power. In the first quarter of 2011 per-employee consumption was €8,004; for the last quarter on record, Q3 of 2014 it was €8,178.

This does not look like much of an increase, but the underlying trend is weakly positive. This means that while only 54 percent of the Greek population 20-64 actually have a job, those who do are slowly beginning to establish a “new normal” of consumption. It is a normal that is characterized by stagnation, with almost no outlook toward reasonable gains in the standard of living – it is in essence life under industrial poverty – but at the very least this little rebound is an indicator that things are not going to get worse.

Ceteris Paribus, of course… And as one of my favorite economics professors from back in college loved to point out: ceteris is not always paribus. Things change. And not always for the better. Especially when you have a prime minister dedicated to the mission of bringing Chavista socialism to Europe. Come Scylla or Charybdis.