Tuesday, February 24, 2015

When Idealism Collides With Reality

Alexis Tspiras, the figurehead of the Greek Syriza party and newly elected Prime Minister of Greece, campaigned on anti-austerity policy that seemed almost recalcitrant - much to the chagrin of the eurozone, and the praise of the Greek public. Since the collapse of the euro during the global financial crisis years ago, Greece's economy has just barely kept its head above water; today, the country's debt is roughly 175% of their GDP, and unemployment remains at an astounding 25% for the working age population and nearly 50% for youth. Bailouts from the Central Bank, IMF, and other creditors have required extreme austerity measures for Greece, which has exacerbated and even created the social inequality and what leaders in Greece have begun to call a "humanitarian crisis." These issues gave rise to the anti-austerity sentiment that Prime Minister Tspiras used to propel himself into office recently. Based on the sweeping support his party received, it is apparent that the public is ready for a change from the harsh austerity it has endured.

That change will not be coming anytime soon, however - at least not as dramatic a change as Greece has hoped for. Prime Minister Tspiras' rhetoric alarmed creditors, and it has taken weeks for Greece to reach a compromise on reform plans that continue certain austerity measures in order to continue receiving bailout funding. This comes after talk of a "Grexit", or Greek exit from the eurozone, which would likely have had catastrophic effects on both the Greek economy and the eurozone's economy. Both sides have worked hard to ensure that this does not happen.

These compromises - tax reform, better regulation of smuggled products, etc. - are a major political blow to Syriza and Prime Minister Tspiras. This is not the anti-austerity his constituents wanted. In the battle between idealism and reality, idealism seldom wins, and it has certainly not won in this instance. Greece will live to fight another day, however, and that's what matters.

Reality should play a larger role in discussions about the eurozone as a whole, though. The notion that multiple countries with wildly different cultures, languages, and most important, economies, can share a currency is irresponsible at best and dangerous at worse. It is simply too difficult to manage a currency when you have a spectrum of economies that ranges from Greece to Germany (which has nearly full employment today). Just because the eurozone has staved off a Greek exit and economic catastrophe does not mean such catastrophe is not inevitable.

Real reform - reform that puts the European economy on the right track - involves a comprehensive overhaul of the eurozone and the way the Central Bank functions. Greece may have avoided the financial apocalypse for now, much to the disappointment of Prime Minister Tspiras and his constituents, but a bandaid on a gunshot wound is not an effective policy going forward.

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