Political unrest is always and everywhere a monetary phenomenon – also in Greece

This is Sara Sjolin at MarketWatch.com:

Greece’s Athex Composite tanked almost 13% Tuesday — the biggest drop for the index on record, according to FactSet. The renewed jitters came after the government, in a surprise move late Monday, said it would bring forward presidential elections to Dec. 17, potentially, setting the scene for snap elections in early 2015.

Here’s why that’s important: Far-left party Syriza currently is leading the early polls and it seems likely they would win a snap election. This is how to think about Syriza:

  • The party has been calling for an end to austerity in Greece
  • Has been campaigning for market-unfriendly measures
  • Is firmly against the international bailout program that helped the country avoid a default during the depths of its financial crisis.

How bad is Greece’s Tuesday collapse? It’s worse than the 9.7% drop the market saw Oct. 24, 2010, at the peak of Greek debt worries. The drop also eclipses the 10% fall Greek markets saw in 1989 during a bout of political turmoil.

…With Greece’s problems once again in the limelight, investors all across Europe. the Stoxx Europe 600 index slumped 2.3%, while Germany’s DAX 30 index fell 2.2% and France’s CAC 40 index  gave up 2.5%.

Greek government bond yields  jumped 75 basis point to 7.90%, according to electronic trading platform Tradeweb.

So once again political news slips in to the financial section of the news. As Scott Sumner once expressed it about his studies of the Great Depression:

“And the worst part was the way political news kept slipping into the financial section. Nazis make ominous gains in the 1932 German elections, Spanish Civil War, etc, etc. In the 1930s the readers didn’t know what came next—but I did.”

I must admit that the similarities between the continued euro crisis and the situation during the 1930s worries me a great deal and my regular readers well-know that I to a large extent blame the deepening political troubles in Europe on the deep economic crisis caused mainly by extremely tight monetary conditions in the euro zone.

Just to remind everybody how bad it is in Greece. Take a look graph below comparing the real GDP lose in Austria during Great Depression and Greece during the present crisis (Year 0 is 1929 for Austria and 2008 for Greece.)

I used Austria as a comparison because the country had massive banking crisis (in 1931), had one of the deepest depressions of all of the European economies during the Great Depression and maintained the Gold Standard the longest.

Greece Austria

Given the scale of the crisis in Greece it is hardly surprising that extremist parties like Syriza and Golden Dawn are very popular parties. After all Austria disintegrated politically during the 1930s and eventually ceased to exist as an independent nation in 1938.

Leave a comment


  1. Even a society with a more legitimate regime would have instability given numbers like these (see below). It is ironic that the antimonetarists say that M policy is “no panacea” and “not a God Button” when it comes to growth. Well, it certainly is a God Button when it comes to economic ruin and social devastation.

    • Chris, I complete agree. The labour market situation is horrible and it cannot be a surprise to anybody that there is a political reaction.

  2. It has that extra bit that entrenched crises tend to have — reasons to blame the victim. Greece lied to get into the Euro, its revenue collection is shambolic and it employs lots of public servants to get in the way of folk engaging in consenting commercial acts. All painfully obvious factors to help folk give the ECB a free pass.

  3. Benjamin Cole

     /  December 10, 2014

    The ECB is fomenting political extremism. But they have beaten inflation. Ain’t it grand?

  4. Sebilo@gmx.de

     /  December 10, 2014

    interesting, … especially from minute 42

  5. The situation is not comparable to Austria which was laboring under heavy protectionist measures.
    After WWI the Empire disintegrated with massive tariffs, clearly a heavy shock which Greece did not suffer. Further, in Austria you even had tariffs between the counties, which even led to hunger in Vienna, as the countyside refused to supply the 2 mln. city. Help came from Sweden and Switzerland (therefore there is Schwedenplatz in the first district).
    Greeks are free to trade with most of their neighbours – big difference!
    The introduction of tariffs is a huge negative, dont you think?

    Greece also did not suffer from hyperinflation, which Austrians did. Surely had a huge impact…

    Further, Austria also suffered from a major change in the political setup: a monarchy became a democracy (forced by the Allies) with resulting unstability (vote for privileges by majority at the expense of minorities). People had to get used to this, i.e. there was a substantial change in the institutional setup.
    No such thing in Greece.

    Last but not least, you forget to mention the Russian revolution which was haunting all of Europe at the time. As you well know, many intellectuals in the West sympathized with the bolsheviks. and there was real uncertainty among businessmen as to whether property rights would be honoured in the future.
    This introduced huge regime uncertainty into all of Europe and resulted in capital flight from Europe to the US…
    I wrote a book review about one of the famed speculators of the interwar period. just to give a flavor that many more factors played a role here…


  1. Greece’s continued suffering | The Market Monetarist

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