The fun is just starting in Greece

We learned on Sunday night about the big election in Greece:

Greek voters handed power to a radical leftist party in national elections on Sunday, a popular rebellion against the bitter economic medicine Greece has swallowed for five years and a rebuke of the fellow European countries that prescribed it.

With nearly all votes counted, opposition party Syriza was on track to win about half the seats in Parliament. In the wee hours of the morning, it clinched a coalition deal with a small right-wing party also opposed to Europe’s economic policy to give the two a clear majority.

What happens now?  The answer is not clear, as Mr. Tsipras will quickly find out:

Now that he has formed a coalition, Mr. Tsipras must quickly determine which of his populist promises he can carry out quickly, setting up a likely showdown with Greece’s European partners -- most notably Germany.

Mr. Tsipras has said he wants to negotiate directly with Ms. Merkel and other European leaders to reduce Greece’s debt burden.

Some officials, however, have characterized Mr. Tsipras’s demands as unrealistic and rife with the potential to drive Greece toward default or even out of the eurozone, the group that shares the currency.

Officials in Germany reacted swiftly, warning Greeks against abandoning their course of overhauls.

The Greek election will not impact Americans directly.  First, it is a rather small GDP (US$250 billion) – about the size of the state of Washington, according to a 2009 study.  Second, 99% of us do not own bonds or hold accounts in Greek banks.    

Nevertheless, there is "a ghost of Christmas future moment" in this election.  It's like we are watching Mr. Scrooge look into the future.

Greece has one basic problem: a bloated public sector and the weak politicians who keep voting for benefits to pander for votes.  They get re-elected by a public sector capable of swinging elections.    

Back in 2012, John Sfakianakis, a Greek economist, wrote a wonderful appraisal of his homeland:

The expansion of Greece’s huge government sector took decades to create, but its growth in recent years has been particularly striking. 
Public employment grew by fivefold from 1970 through 2009 – at an annual growth rate of 4 percent, according to a recent academic study by Zafiris Tzannatos and Iannis Monogios. 

Over the same four decades, employment in the private sector increased by only 27 percent – an annual rate of less than 1 percent.

What happens when you have a public sector growing and expanding, coupled with a private sector shrinking and driving investors outside the country?  The answer is Greece, a country so mismanaged that it may take a lot more than an election to fix it.

Again, there is a big lesson for us in the events of Greece.  Weak politicians and a bloated public sector will eventually drive a country or state into the ditch.

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