Tuesday’s markets really liked hearing that Greece’s new “radical-left” leaders had, once in office, backpedalled on their demand for debt restructuring. Now they apparently just want the country’s unmanageable debt to be rescheduled. See Hopes for Greek Debt Deal Rise After Athens Softens Tone.
This, of course, is just semantics. Either a big chunk of Greece’s debt somehow goes away or its economy implodes, so whatever they call the deal it will have to amount to a massive haircut if it’s to prevent a default in 2015.
Meanwhile, Syriza’s other policies include reversing electricity and oil privatizations, re-hiring of laid-off public sector workers, scrapping recently-streamlined labor laws, raising the minimum wage and restoring the practice of paying an extra month’s benefits to pensioners. In other words, if given free rein they’ll do exactly the things that always produce a bloated public sector that leads to excessive borrowing that in turn guarantees a currency crisis.
Now on to Spain, where that country’s version of Syriza, known as Podemos, just brought 100,000 people into the streets of Madrid and currently leads in public opinion polls. Its policies include a 35-hour work week, ramped-up public spending, and a lower age of retirement. Oh, and they’d like to ban profitable companies from firing workers.
This rebellion is fun to watch and easy to cheer. But the results of a rebel victory would emphatically not be fun. And the problem isn’t just with the left. A takeover by a right-wing party like France’s National Front would probably bring its own set of unworkable policies, like big cuts in government spending in the middle of a deflationary recession.
The hard truth is that when a country borrows too much money the existing tools of both left and right stop working. There is no policy mix that allows a system based on fiat currency and fractional reserve banking to survive long-term. So today’s amusing political theater is not the same thing as positive change. That comes — if it does come — only after the current system dissolves.
