Lessons from the Greek Economic Meltdown

Business News

RHODES, Greece – BUSINESS  – Economics is a subject with a long and distinguished pedigree, featuring such towering intellectuals and philosophers as Plato and Aristotle to economists like Sir James Steuart and Francois Quesnay, the Frenchman who gave the study its modern foundations.

Unfortunately, the discipline split into two distinctive subject areas in the 20th century – economics and political science. Each charted a different course of academic inquiry.

I have always maintained that the intellectual divorce between economics and political science was a big mistake. It made economics more abstract, lacking in political context and devoid of real world pragmatism. The failure to predict the global financial crisis of 2008, our inability to contain the economic contagion that swept around the world and the ongoing economic recession accompanied with mercilessly high unemployment rates support that observation.

In all of this, Greece stands out as the poster child of what ails modern economics.

On Jan. 25, the political landscape in Greece changed in a profound and radical manner. The electoral victory of a fledgling left wing political party, Syriza, trounced the two traditional ruling parties – New Democracy and PASOK. Syriza promised to repudiate the austerity measures that were conditions for the first and second bailouts to Greece by the European Central Bank, the European Commission and the International Monetary Fund.

The young, articulate and charismatic leader of the Syriza party and now Greece’s youngest ever Prime Minister, Alexis Tsipras, went to Brussels to stare down the trio of international creditors and demand that all austerity measures cease here and now. However, the international creditors would not budge.

Tsipras’s choice for his finance minister was an academic turned politician, Yanis Varoufakis. About a year ago this month I attended a book launch in Athens where Varoufakis presented the Greek version of his book on anti-austerity. Tsipras also spoke and lauded the new book as academic confirmation of his party’s stand on anti-austerity for Greece.

Varoufakis has a PhD in economics at the University of Essex in England. He wrote a textbook on game theory and lectured at the University of Athens, Greece, the University of Sydney, Australia and the University of Texas.

Varoufakis is well-versed in economic theory but lacks the skill-set to navigate the political landscape. I was not surprised when he resigned as finance minister after only five months in office.

I was told that, on his watch, meetings of the Euro group finance ministers turned into graduate seminars. Varoufakis spoke continuously for two hours on the adverse economic consequences of austerity policies, irritating his political savvy European counterparts so much that even legitimate requests from Greece were denied. It is common knowledge that an implicit condition of a third bailout for Greece was the removal of Varoufakis from the finance portfolio.

Without Varoufakis around the negotiating table, Greece agreed to very harsh austerity measures for a third bailout of 86 billion Euros. This was done out of desperation; Greece was facing the advent of the economic apocalypse in the form of the near collapse of its banking and financial system.

However, the adoption of the foreign imposed austerity measures fomented a rebellion in the Tsipras government. More than 40 of his own members of parliament voted against him and the bailout agreement. He only managed to push it through with the help of members of the opposition.

Sensing that he would not survive a non-confidence vote in the Greek parliament, Tsipras resigned last week, only six months after he was called upon to form an anti-austerity government. New elections will be held towards the end of September.

The moral of this story is that contemporary economists should be well versed in economic theory and the fundamentals of policy making but they should also be able to navigate the political landscape of the 21st century. Without the political dimension, economics lacks potency in a global political context.


Dr. Constantine Passaris is in Greece as a visiting professor at the International Writers Center of Rhodes, Greece.

© 2015 Distributed by Troy Media

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