By DAVID MOON, Moon Capital Management, LLC
May 13, 2012
Last Sunday’s Greek elections threw that country into parliamentary chaos, with the electorate delivering a no-confidence vote to the two traditional ruling parties in the country, Socialist PASOK and New Democracy. If those two powers cannot join forces with the more radical Syriza coalition to form a new government in the next few days, it is likely that the voters will return to the polls to try again in the new few weeks.
And you thought our system was messy.
Politicians in our country are closely monitoring this Greek tragedy. Not so much because of the immediate reaction of world financial markets, but because of the actions of the Greek electorate and their political – not economic – implications in the US.
The PASOK and New Democracy parties agreed to the austerity measures that would allow Greece to remain in the eurozone and avoid a default on its government debt. In exchange for an initial 110 billion euro bailout, the Greek government agreed to restructure its debt and reduce its deficit as a percent of GDP by raising taxes and cutting benefit payments to its citizens.
Greek citizens revolted. When faced with the prospect of a second round of bailouts and required cuts in government spending, Greek Prime Minister George Papandreou first tried to pass the political buck, proposing a nationwide referendum on the benefit reductions.
That sounds eerily familiar to the lack of leadership we sometimes see in our own backyard.
How do you think that Greek referendum would have turned out? “Do you want less free stuff from the government? Do you want to pay more taxes?”
The anti-austerity Syriza party was able to seize power from the establishment by telling people that the government was overreacting. There was no need to reduce benefits or raise taxes. Syriza party head Alexis Tsipras assured voters that the ruling parties were irrational alarmists and that if his party was in power, everything could go back to normal.
Immediately following last week’s election, world financial markets began to fall. Investors began a flight to Germany, a safe haven in Europe. Greek stocks dropped 10 percent in three days.
JP Morgan and Citigroup now place the odds of Greece being kicked out of the euro and returning to its own currency, the drachma, somewhere between 50 and 75 percent.
If you are an investor, don’t worry what happens if Greece defaults on their austerity agreements. Quit wondering about the personal ramifications of the demise of the eurozone. Those are not the lessons to be found in Europe last week.
Your concern should be at home.
None of those financial market reactions are what bothers Washington. Politicians – both incumbents and aspirants – have been provided another lesson in how easy it is to bribe people with their own money, even – or especially – to the people’s detriment. Once a constituency or benefit is created, it is politically difficult to reduce or eliminate. Only a leader willing to risk or sacrifice his position of power is usually capable of doing it.
That’s why we call those very rare people leaders.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).