An interesting model of political populism in developing in Greece. Greece will not leave the Euro zone, but will go out of the bailout package. The package is called "suicidal", "ruthless" and "unfair". But is this possible - to reject only the bailout plan and at the same time to stay in Euro zone?

Formally it is possible. There is no obligation in EU-treaties to leave the Euro if you go bankrupt. In fact there is no even a general possibility of going out of Euro zone. When treaties were created it was planned the Euro-membership to be eternal and non-reversible. In fact, at current moment it is forbidden for Euro-area countries to have their own currency and to print any kind of own money. So formally if Greece decides to reject the bailout program and goes bankrupt, this does not mean an exit from the Euro and a rebirth of the Drachma.

So the populist schema "no to bailout - yes to Euro" has no judicial obstacles. But the real life is some different. If to stop reforms and stop using the money of bailout funds, Greece will simply go out of money. The government will have no money to pay salaries, pensions, military, police. At current moment part of bailout funds are going to help the Greece own budget so it can pay its regular expenses during the painful process of reforming the country. Without this money Greece will not be able to balance its budget as its own tax income is much lower than the expenses from the other side. The main purpose of austerity programs is to balance the income with expenses so every country to spend only the money that it has. By rejecting the bailouts and the austerity Greece will keep its current level of expenses, but will have no the additional money flow that comes from EU-funds and IMF. So it will go out of money (Euros).

After some time of money lack and not paying pensions and salaries, the government will have no other choice than to create its own currency and pay with it. That currency will be the Drachma and exactly this is called "exit from Euro". So with no bailout plan and with no austerity, there also will be no Euro-membership.

Anyway the populist propaganda based on "no to bailout - yes to Euro" works very well. More than 3/4 of Greek voters support the Euro-membership. That's why no leading party pleads for Euro-exit. At the same time most of Greeks are against bailout plans and austerity. That's why the most successful parties are the ones that reject the bailouts. So the most successful political message is the absurd combination of "no to bailout - yes to Euro".

The leading in polls party SYRIZA promises just this - it will keep Greece in Euro, but will cancel, or at least - will deeply renegotiate the bailout plan. It promises stopping of the spending cuts and even appointing new government jobs. How this is possible, nobody asks. People just vote for this.

The old parties are some more honest - they promise keeping Euro, but at the cost of more austerity and spending cuts. At current moment EU and IMF are still waiting an answer from where will Greece cut another 11 billion Euros. Re-negotiation is almost impossible because taxpayers in donor-countries are tired with Greece and its endless problems. But even if by any miracle Greece succeeds to re-negotiate part of cuts, it will not succeed to remove them all. So it will still have to lower spending, i.e. to make painful reforms. Even in this case, the overall needed to cut will happen, but just in some more time. Somewhere in time Greece will have to balance its budget sheet. So the best that SYRIZA and other populists will achieve is some more time for austerity implementation.

But this is an unlikely scenario. In fact Greece partners are so angry with it that there will be no negotiations. There will be just everyone saving himself and minimizing the losses. Even now much countries find themselves foolish to waste money for funding bailouts. If they find themselves against Alexis Tsipras talking that more money is needed for less reforms and an increasing probability of never taking back this money, if this is the situation, then the donors will simply go out of the "game". They will stop negotiating and pouring money in funds, and leave Greece to the mercy of fate. And then the thesis "no to bailout - yes to Euro" will break. There will be neither a bailout nor a Euro-membership for Greece.

At the moment the Greek populism is leading Greece to an entire catastrophe. With bailouts and austerity Greece is to lower its living standard 2 or 3 times. Without bailouts the lowering will be 10 times. Inflation and currency devaluation is a powerful weapon that devastates not only the debts, but also the entire economy, people's richness, salaries, pensions and living standard. Greeks want to avoid the small decrease in their wealth, but just to go to the big decrease, happening in uncontrollable and chaotic way...

Dobri
May 26th 2012