Greece: New Year brings past woes

The only positive spill-over stemming from switching to a populist government in Greece would be the lesson conveyed on other countries. The swift plunge into economic plight should serve others to think it twice before casting a vote due to deliver massive disruption. Those prone to dishonour financial pledges will have a first hand view of the awesome consequences such a reckless attitude entails.

As the campaign starts, the Syriza leaders are already eager to disengage themselves from past promises. They no longer support a breach in debt payments, promoting a concerted action for restructuring outstanding public liabilities. Their main efforts focus on selling good news, such as increasing wages by 50% or cutting down dramatically energy prices. These last-minute  tactics will hardly bemuse the markets. A Syriza victory will cripple the Greek economy turning it into a new Cyprus nightmare.

Potential partisans of radical economics in other European countries should take due note of the Greek highly unsettling precedent. Those commanding the Eurozone should also learn the lesson. Austerity is unable to cope with huge fiscal imbalances should it drive to never-ending recession. For all the support channelled to keep the Greek economy abreast, its debt ratio now runs at 170% GDP, well beyond the pre-crisis level. You cannot expect it to pay back creditors when the economy is crumbling.

Caving in to populist reckless demands would only turn things worse. European leaders should make it clear to any newly formed Greek government that the huge competitive gap confronting its country requires drastic action. Up to now, adjustments have mainly fallen on living standards. It is good time to perfom sweeping structural reforms, duly underpinned by massive financial support and debt relief.

About the Author

JP Marin Arrese
Juan Pedro Marín Arrese is a Madrid-based economic analyst and observer. He regularly publishes articles in the Spanish leading financial newspaper 'Expansión'.

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