To escape from economic hell, Greece needs Tsipras to call Germany’s bluff


Lovers of Greek myths know the story of Sisyphus, the king of Corinth who as a punishment from the gods was condemned to spend his time in Hades pushing a boulder to the top of a hill. Every time Sisyphus neared the summit, the boulder slipped from his hands and rolled to the bottom of the slope, and he had to start all over again.

The parallels between the sad story of Sisyphus and the equally sad story of Greece are too obvious to require comment. Burdened with debts that are worth 175% of its national output and rising, Greece faces a vain struggle to escape from the economic Hades in which it has been struggling these past five years.

So when Alexis Tsipras, head of Greece’s new Syriza coalition government, says his country not only needs debt relief but demands it, he is right. Under the austerity conditions of the past half-decade, the Greek economy has shrunk by 25%. Living standards were 85% of the European average before the financial crisis; they are now down to 60%. The surprising thing about Greece is not that the people have voted for a radical alternative to the status quo, but that they were stoical for so long.

Tsipras’s challenge to the economic orthodoxy also makes sense. What Greece – and the indeed the entire eurozone – needs is not more austerity but stronger demand. Two numbers illustrate the abject failure of economic policy in the 19-nation single currency area: -0.6% and 11.4%. The first is the current inflation rate; the second the current jobless rate.

The new government in Athens has made its intentions clear. It has shelved privatisation plans. It has raised the minimum wage and announced moves to hire more civil servants. The message from Tsipras is that we want debt relief and an end to the economic squeeze, and we want them now.

There is, though, a complication. Greek voters also want to stay in the eurozone and the European Union, which means that Tsipras can get what he wants only through negotiations with his country’s creditors. That means doing a deal with the European Central Bank, the other members of the EU and the International Monetary Fund. Ultimately, it means doing a deal with Angela Merkel.


David Marsh of the Official Monetary and Financial Institutions Forum wonders how Syriza is going to reconcile these three aims. Merkel and the other EU hardliners can see the inconsistency in Tsipras’s negotiating position. They are relatively relaxed about Greece because they know the tough talking has yet to start. Then they will say that if Greece wants to stay in the euro and wants ECB support for its shaky banks, it has to accept the terms set by its creditors, perhaps with some minor modifications.

Tsipras’s best chance of avoiding a humiliating climbdown is to toughen his stance and threaten to leave the euro unless he gets Greece’s official debt reduced by, say, 50%. Indeed, unless he is prepared to do this, it’s hard to see why this leftwing prime minister chose a rightwing anti-German party as his coalition partner.

The negotiating line should be as follows. Greece should never have been allowed to join the euro. The rest of the eurozone was complicit in this disastrous decision. The rest of the eurozone, including Germany, allowed Greece to live beyond its means. Life outside the euro would not be a bed of roses but would allow Greece to devalue and default. There would be big contagion risks. Does an already enfeebled eurozone really want that? If not, provide some serious relief.

To which Merkel and co might reply: leave then. But they almost certainly would not say that. For Tsipras, hanging tough is a risk worth taking.

Now there’s a north-south divide over Morrisons

Who needs Morrisons? Not the UK, according to Bruno Monteyne, highly regarded supermarket analyst at Bernstein. “I struggle to see how the Morrisonsoffer is a value offer that is sufficiently different from Asda and hard discounters to warrant its proper space in the UK retail landscape,” he wrote in a blistering research note last week.

One can understand the argument, of course. Aldi and Lidl have parked themselves on the patch that Morrisons used to occupy, which Monteyne characterises as “amazingly good quality of fresh food for the price you pay”. Despite attempting to get back to its roots for the past year, Morrisons’ sales are still falling. The group has a cost-cutting plan but it is more ambitious than any attempted in the industry. And shareholders know what a new chairman (Andrew Higginson) and a new chief executive (to be recruited) usually bring in these circumstances: a cut in the dividend and a warning that profit margins will have to fall even further.

But this diagnosis sounds far too gloomy. Morrisons, under departing boss Dalton Philips, made many mistakes, like initially trying to take the firm upmarket and then squandering time and energy on a kids’ clothing chain. But the business is not suffering a fatal illness.

Morrisons has the great benefit that its stores tend to be smaller than those of its rivals. This was a disadvantage five years ago, but now is definitely a plus – hypermarkets are history. Nor is the Morrisons brand broken – certainly not in its northern heartland. If Morrisons can more or less match Aldi and Lidl on prices on key items, the strength of the brand ought to tell over time. The turnaround was always meant to be a three-year affair.

Higginson, and whichever chief executive he chooses, face a stiff challenge, no question. Another profits warning is plainly possible. But borrowings are low and the business generates cash. That’s a decent base from which to attempt to run things better. The idea that the UK doesn’t need Morrisons looks to be a view from the south. It’s not what shoppers say in the north.

Little joy for Big Oil

The collapse in oil prices over the past six months will show up most acutely in corporate profits on Tuesday, when BP is expected to report a 40% slump in final-quarter earnings. And BP should have been in a better position than this, because it had been forced to radically prune its business to pay for the multibillion-dollar costs of Deepwater Horizon.

Shell announced last week that it, too, is pruning costs, while Chevron of the US has already reported a 28% profit fall.

A long period of low oil prices, with no uplift in sight, leaves Big Oil under the cosh as it tries to cut spending – while maintaining drilling rates so as to keep wells open and fund dividends. And all at a time when worries over global warming are challenging the industry’s legitimacy as never before. Oil executives will have to work for their bonuses this year.


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