Why Greeks Will Be Voting Their Birthdates

The Greek polling agency Public Issue has published the results of a poll that breaks down Greeks’ voting intentions by age group, and the results are sobering.

Whichever side of the debate you’re on, you’d probably like to believe that this is a vote about policy and ideology. A “no” majority would throw off the strictures of euro membership and give a mandate to the leftist prime minister, Alexis Tsipras, to steer economic policy independently. A “yes” vote would sack Tsipras, submit to European policy oversight and probably move policy back towards centrism.

In a country and continent where leftism is conservative and reforms are driven by free market ideology, one might expect to see young Greeks leaning right and older Greeks clinging to leftist tradition. After all, the “red-line” issue over which Tsipras walked out of talks with the Troika last week was their demand to cut pension spending.

But it’s the other way round. The younger you are, the more likely you want to defy Europe and support Tsipras. The older you are, the more likely you want to sack Tsipras and cling to Europe.

Obviously, ideology is not the crux of this vote. This is between hanging on to what you have, and risking it all in hopes of finding a better way.

Taking the Argentina comparison too far into the future

Lars Christensen has a post that has received a lot of attention predicting a robust recovery if Greece votes  “no” and introduces a new floating currency. In it, he compares Greece today to Argentina in 2001, as I have done, and shows that Argentina bounced back strongly in the following years.

The biggest problem with that argument, as Lorcan Roche Kelly points out to Christensen here, is that Argentina’s economy is driven by commodities exports. Argentina’s crash in 2001 and boom over the next several years were obviously driven by the commodities cycle.

What then could we expect in Greece after a “no” vote? Initially, a big mess. Tsipras would have a strong mandate, but on the basis of the false claims he is making that he will still be able to secure the support from Europe he needs to preserve the euro value of Greek bank deposits. After a “no” vote, that support would not come, and those deposits would be devalued.

Tsipras’ policy-making is also likely to turn very bad. I think he would most likely introduce some kind of pseudo-euro with a dual exchange rate, with one-to-one convertibility for the government and select importers and a value far less than that for everybody else. I think his distribution of pseudo-euros would be very politicized, aimed mainly at defending himself from the mass protests that would inevitably come against him.

On the positive side, I don’t think Tsipras would last long. But I suspect that after him would follow a long period of political and economic turmoil, and policy could turn even worse before it turned better.

So the scenario that Christensen is touting, of Greece with a new floating currency and, by implication, no sharp deterioration of other economic policies, isn’t likely to happen anytime soon. It’s one of many possible places Greece might eventually get to after the turmoil that would follow a “no” vote.

Devaluation’s Winners and Losers

Even after all the decline in incomes and asset prices of the past several years, Greek assets and labor are still somewhat overvalued relative to where they would need to be to spur enough investment to re-employ all of Greece’s recently unemployed.

No doubt a currency devaluation would be the easiest way to solve that problem. A floating currency would indeed be better for Greece’s GDP, over the long run, than euro membership.

But a devaluation is what it says it is. Your income shrinks and you lose wealth, at least in terms of foreign goods and assets. The hope is that national income and wealth will grow back, over time. But that rebuilding of incomes and wealth is not symmetrical.

Real GDP tends to bounce back quickly after a devaluation, since real GDP counts only domestic products. Real wealth takes longer to recover, especially for countries like Greece that import a large portion of what they consume.

And there are all kinds of other asymmetries. There are winners and losers.

I personally don’t see anything to gain from endorsing Tsipras, even for young people. I think the result would be not at all what his supporters are imagining. But I can understand a young patriot wanting to throw off European strictures, believing that in the long run Greece will find a better way. For young people there’s a good enough chance that policy will turn out okay and their long-term income-earning prospects will be better outside the euro than they would have been inside it.

For older people that possibility isn’t there. They have far more savings to devalue, and usually the kind of savings that don’t rebuild, such as pensions. And they will be far more dependent on those savings for their livelihood.