Argentina’s Lessons for Greece

The last time Greeks faced a general election, two and a half years ago, the eurozone faced an existential crisis. There were rumors of bank runs in Athens, of pre-emptive Iberian exits from the monetary union, even of Germans unilaterally calling it quits. Greeks are now returning to the polls on Jan. 25 to face choices similar to those in 2012.

One beleaguered option is to “stay the course” of their international bailout arrangements and the harsh adjustments they impose. This is the position argued by Prime Minister Antonis Samaras. The alternative is “anything else” — a cacophonous policy mix proposed by the main opposition party, Syriza. Depending on whom you ask, this includes a unilateral moratorium on foreign debt and the rollback of the structural reforms that have helped restore international competitiveness and fiscal sustainability.

Yet something crucial that has been ignored by most media has changed since 2012. These elections are not about how to manage the economic debacle, but rather about how to steer an incipient recovery. The Greek economy has been growing since the first quarter of last year, according to Eurostat. In the third quarter, the country’s growth was higher than that of any other eurozone member, including Germany. This is not just a rebound: Unemployment has been declining and now stands roughly where it was before the worst point of the crisis two years ago. All this suggests that reforms are belatedly but surely yielding results.

Yet with elections just one week away, political risk is back in vogue. Over the last two months, as elections became certain, markets fretted. From the investors’ point of view, the main risk is that the Greeks will opt for a Syriza government, ushering a confrontation with the country’s lenders and a shaky macroeconomic policy plan based on nationalization, forced wage inflation and unaffordable subsidies. Given where polls stand, a Syriza government with some moderating coalition force is the most likely outcome.

Syriza’s leader, Alexis Tsipras, has worked to soften his party’s image since the last elections. A few months ago he could be found at the Ambrosetti Forum on the shores of Lake Como, preaching the values of European integration and the importance of the euro. He has surrounded himself with economists who profess a willingness to come to a “negotiated solution” with the country’s creditors and who frequently clash with the party rank-and-file who favor unilateral default and “Grexit.” Ultimately, however, there is no way around it: The party’s ideology is hostile to the market economy and the reforms Greece has been implementing.

The clearest indication of what Syriza’s policy plan would mean came from Tsipras himself. In September 2012, he stated in the Greek Parliament that he wished the country “had become Argentina.” Back in 2011 economists such as Nouriel Roubini and Paul Krugman also used Argentina as an example to follow. Even last weekend, in the midst of the campaign, Prime Minister Samaras addressed Argentina and its 2001 debt crisis. So what does it mean to “turn into Argentina?”

The last decade of Argentine economic history offers two valuable lessons for Greece. The first is that Syriza’s threat of a debt moratorium is an empty one: Debts do not go away just because one chooses not to pay them. Witness Argentina’s decade-long legal saga in New York courts. The country’s refusal to pay holdouts of its debt restructuring in 2005 has not ushered in prosperity; it has brought a prolonged legal battle, isolation from world markets, and as of last summer, a second default. There is no reason to believe a unilateral Greek refusal to pay would yield different results.

What is more, Greece’s eurozone partners have already said they would consider negotiating on debt relief — provided Greece sticks to its commitments and negotiates in earnest within the framework of the eurozone. And unlike in 2010, the monetary union now possesses the processes and institutions to deal with fiscal and macroeconomic imbalances in an orderly manner, rather than the ad hoc fashion — to put it mildly — advocated by Syriza.

The second lesson is perhaps more crucial: Economic populism and monetary wizardry are short-sighted. They do not yield development, only isolation and imbalances. In the case of Argentina, after a decade of extremely heterodox policy, citizens have to contend with stagflation — meaning negative growth and around 40 percent of annual inflation — capital controls, anachronistic foreign currency controls, and increasingly authoritarian economic management by a government eager to micromanage the behavior of private companies. This is why a country as energy-rich as Argentina finds itself importing natural gas at exorbitant prices just to keep the lights on.

No development can be built that way. It is hard to believe that Syriza’s talk of “free electricity” and a renationalization of the energy market would lead to a better outcome. It should therefore come as no surprise that when Argentines head to their own polls later this year, they will elect a government eager to undo these policies and reintegrate the country into the world.

The Greek dilemma is different from Argentina’s in yet another way. Its debt negotiations are not with private holdouts from an imperfect restructuring. They are with fellow eurozone countries, some of which are poorer than Greece, and pay higher interest rates to finance Greek loans. The moral dimension of defaulting on the Slovakian taxpayer — who has to make do with a much lower minimum wage than his Greek counterpart — is at least as dishonest as the economic rationale behind Syriza’s plans. The only alternative here is a negotiated way respecting both the existing agreements and European solidarity, a value that may not be financial but is at the cornerstone of the support Greece got at its time of most need.

Mr. Tsipras is right about one thing: Argentina offers apt economic parallels for the Greek electorate. But it is an example to avoid, not to follow. Debt default and unilateral withdrawal from the globalized world would not lead Greece to a renaissance. It would lead the country back to ruin. After years of recession and reforms, it would be a sad sight for Greece to follow Argentina, precisely when the former is recovering and the latter is finally about to turn its back on shortsighted populism.

Pierpaolo Barbieri and Dimitris Valatsas are executive director and European director, respectively, of Greenmantle, a geopolitical and macroeconomic consultancy. Mr. Barbieri is the author of the forthcoming book, Hitler’s Shadow Empire: Nazi Economics and the Spanish Civil War.

Deja una respuesta

Tu dirección de correo electrónico no será publicada.