Suppose you are the parent of a child of small academic ability.
Your child’s school opens a new enrichment program, intended for the most competent and gifted scholars, in which duties will be rigorous and homework will be extreme. To be able to qualify, children whose parents wish them to participate must be analyzed. School officials will then examine the results and decide which children make the cut.
You know your child’s scores will not put him in the academic elite for which the new program is designed. However, you wish your child could be eligible, because not only will the talented class receive more work, but also more privileges. Maybe more pressingly, you don’t want your child to be left out of the high performer class and classed with the other run-of-the-mill students.
Can you lie to get your child into the elite group?
That’s exactly what Greece’s leaders did. Except instead of a gifted and talented class, they lied to get their run-of-the-mill country into the eurozone.
Otmar Issing, former chief economist for the European Central Bank, claims that the euro’s gatekeepers have been”too polite” to set up adequate sanctions against Greece, Bloomberg reported. (1) The nation cheated on its entrance exam in 2000, misstating its shortage relative to gross domestic product. In actuality, the nation hasn’t been within the threshold for that measure anytime between that entry exam and today.
Greece lied to get in the eurozone, and it lied about its economic statistics after it adopted the euro, at least until it could no longer conceal the truth.
Syriza, a far-left party, formed a coalition with the Independent Greeks, a right-leaning party which agrees with Syriza on small except the rejection of austerity. This issue was enough, evidently, to form the basis of the agreement that gives the coalition a clear majority in Parliament. (2)
Greeks are tired of trying to keep up with the homework that is assigned by the”troika” – the parties responsible for determining whether Athens will continue receiving the life-sustaining IV of European currency which allows it to pay its bills and its already-rescheduled debts. A lot of that money comes from Germany, the super-smart kid that everybody in class resents and envies.
The Greeks have, actually, made a valiant attempt to keep up with the troika’s assignments under the just-defeated government, achieving a primary budget surplus in which, for the first time since roughly the days of Aristotle, the central government is collecting more in taxes than it pays to keep the lights on. (The overall budget remains in deficit, because Greece is still repaying the debts that it ran up under the truth-challenged former authorities after it joined the euro.) But the achievement has come at tremendous price. A huge number of Greeks lost their jobs when the bureaucracy was slashed, and about one in four Greek employees is officially unemployed. Given the history of Greek statistics and the tendency in that country to game all kinds of government programs, however, my guess is that the real figure is somewhat lower, once the under-the-table part of the economy is considered.
Tsipras promised he would renegotiate with Greece’s creditors and remain in the euro. The country’s creditors may, in fact, end up offering some concessions, possibly by extending out debts yet again. I don’t believe those concessions will be large, and they’ll almost certainly not be enough to satisfy a lot of those who voted for Tsipras and people who ran alongside him.
So, despite Tsipras’ promises, there is a very real possibility that Greece will drop out of the euro class. Maybe it should.
Syriza’s victory has raised the specter of similar anti-austerity (read: anti-homework) parties gaining power, or at least influence, in places like Italy, Spain and perhaps even France. These, also, are nations that have trouble keeping up with the real high performers. Like Greece, they have gained from the extra enrichment opportunities open to them: the elimination of currency conversion costs, the simplification of cross-border contracts and the improvement of tourism. But those extras have come at the cost of high unemployment, prolonged austerity and an inability to devalue their way out of recession.
Needless to say, if you pull enough kids out of the enriched class, you may not have enough children left to warrant having a class anymore. That’s fundamentally the danger that threatens the euro’s future. Yet even if individual nations demonstrate that they can come and go, I do not believe the euro is going to go away any time soon. High achievers such as Germany, Holland and Luxembourg have too many incentives to stay within the unified currency. New enrollees like Lithuania are prepared to make sacrifices to attempt to keep up with the fast crowd. Ireland demonstrated that austerity need neither be permanent nor debilitating; the Irish came from their recession-induced diet with government financing in fighting trim, and a developing economy besides.
However, Ireland and Greece are two very different children. Ireland has a modern, lean and efficient market system. It got into trouble because of its overextended banks and its government’s willingness to back those banks at whatever cost to the population, the wisdom of which can be debated. Those, however, were one-time costs that could be paid. Greece fell into its crisis with a backward and inefficient economy, a hugely bloated public sector, enormous external debt and a bunch of statistical lies. In other words, with a bit of extra tutoring, the Irish have shown they can keep up with the Germans and the Dutch. The Greeks have not.
If they can’t, possibly the best thing for all concerned is to confront the truth and let them go back to school with the typical kids again.