The spectre of SYRIZA is now haunting some souls of the Bundesbank but not many others in Europe. The radical left party that is on the cusp of a historic victory is being portrayed as the arch villain by some. Actually, it is more like a Cassandra telling the brutal truth, telling the story and reacting to a future that has already happened. A future clearly foretold if you look at the graphs below.
Two striking things about the Greek sovereign debt (i) in raw terms it is very modest compared to other Euro countries, and (ii) approximately 80% in 2013 was held by the official sector (IMF, European Central Bank/Financial Stability Fund). Indeed the official sector is the only one with ‘skin in the game’ as the SYRIZA party has said that it will honour payments to the private sector in full and on time. Contrary to many reports, there will be no war with the markets from the SYRIZA side. Therefore on the side of the debtors, negotiations are with the financial powerhouse of the Eurozone (Germany) and to a more limited extent the IMF. The private sector is outside of the game.
The graphic above illustrates the punishing calculus rendering as unsustainable the current debt levels and repayment conditions. The size of the debt as a percentage of the GDP (size of the economy) means that other vital indicators of economic and social well-being will continue to languish or improve only very slowly and unevenly if repayment of principal and interest was actually to be attempted.
The debt level and repayment terms in tandem are unmanageable without a descent into a state of social decay and barbarism or outright revolt.
In short, a very large part of the money has already been lost. It was lost well before SYRIZA may come to power. It was lost by those two other established political parties managing Greece from 1974 all the way until now.
For the Germans it means this – You cannot now surrender what you have already lost.
Negotiating a sustainable debt level with reasonable terms and conditions is not a surrender of any sort. It is in fact the opposite. It is the quickest and most logical exit from the present brutal exposition of concentration camp economics – the economics of isolation, deprivation and punishment.
Adam Rorris is an economist and has worked with governments in Australia and abroad. He has worked as an advisor for United Nations agencies and the World Bank. In his spare time he is national coordinator of the Australia-Greece Solidarity Campaign.