Monday, January 26, 2015

The Greek Warning

At WSJ, "Radical parties rise when mainstream parties tolerate stagnation":
The exit polls Sunday night suggested that Greece’s far-left Syriza party will score a major victory in the weekend’s parliamentary election. The fallout for Europe will take time to sort out, but the warning should be clear enough about the political consequences of economic stagnation.

With Syriza poised to capture around 35% of the vote barely four years after it rose to national prominence, its leader, Alexis Tsipras, will have the first chance to form a new government. Mr. Tsipras is a former civil engineer who once favored Greece leaving the eurozone. He has tempered that demand as he sought power, but at a minimum he will try to renegotiate Greece’s bailouts with the troika of the European Commission, European Central Bank and International Monetary Fund.

A Greek euro exit isn’t likely, at least not immediately or intentionally. Some on the left favor the idea, but polls show most Greeks don’t. They know a return to the drachma would mean a crushing devaluation with catastrophic results for the average Greek’s standard of living.

The Syriza victory is nonetheless a rebuke to European leaders. Greeks believe, not unreasonably, that the conditions imposed by the troika have been disastrous. The 2010 and 2012 bailouts came with draconian fiscal tightening, in the usual IMF fashion, with too little attention to promoting pro-growth reforms. The result has been falling wages and pensions and rising taxes, with no growth in return for the pain.

Those results cost the incumbent center-right New Democracy party led by soon-to-be-former Prime Minister Antonis Samaras. His chief failing was a lack of conviction and skill in implementing reforms to labor markets, business regulations and a crackdown on corruption that would have promoted growth.

Instead he chose to meet the troika’s fiscal targets through the growth-killing combination of much higher taxes and deep but unevenly applied spending cuts. As one example: Greeks now pay a 23% value-added tax, while the eurozone average is 20.8%. Ireland also has a high VAT rate but it has a 12.5% corporate tax rate to attract capital. That‘s an example for Greece to follow...
Keep reading.

And see WSJ's main article, "Leftists Sweep to Power in Greece" (via Memeorandum):
With nearly all votes counted, opposition party Syriza was on track to win about half the seats in Parliament. In the wee hours of the morning, it clinched a coalition deal with a small right-wing party also opposed to Europe’s economic policy to give the two a clear majority.

“Today the Greek people have written history,” Syriza’s young leader and likely new prime minister, Alexis Tsipras, said in his victory speech late Sunday. “The Greek people have given a clear, indisputable mandate for Greece to leave behind austerity.”

A Syriza victory marks an astonishing upset of Europe’s political order, which decades ago settled into an orthodox centrism while many in Syriza describe themselves as Marxists. It emboldens the challenges of other radical parties, from the right-wing National Front in France to the newly formed left-wing Podemos party in Spain, and it sets Greece on a collision course with Germany and its other eurozone rescuers.
This is what's absolutely fascinating to me: It's a parliamentary system with proportional representation, which facilitates the electoral fortunes of what would normally be fringe parties. And Syriza's forming a government with a "small right-wing party also opposed to Europe’s economic policy..."

That's the populism that MSM hacks keep warning about.

The rough equivalent to that "small right-wing party" in Greece" is France's National Front under Marine Le Pen, which will vie for the presidency in 2017. These are extremely momentous times in Europe. And the onus will be on the so-called mainstream parties to reform political systems and restore robust economic growth with low unemployment. The difference between right and the left, however --- and this is huge --- is that radical leftist parties repudiate the war on terror and they encourage the political power of radical Islamists. Francois Holland took something like 90 percent of the Muslim vote when he was elected to office in 2012. And thus, while both right and left are billed as populists, the actual policy differences (and consequences) of their respective governing regimes are enormous. Ms. Le Pen is committed to pulling up the drawbridge on French immigration, and that entails working to eliminate the E.U.'s open borders regulations allowing the free flow of goods and people across Europe. The effect of these has been to allow terrorists to roam free and organize the jihad conquest. The left parties will facilitate that development rather than fight it. And on other issues as well, far-left parties will welcome the further evisceration of traditional culture and atheistic malevolence.

These are far from insignificant issues to ponder as Europe grapples with the impact of Greece's monumental election.