THE BLOG
19/03/2015 06:21 GMT | Updated 19/05/2015 06:59 BST

Give Greece a Chance

Greece's Alexis Tsipras has embarked on a European tour to win support for his economic agenda. European leaders should engage constructively with his proposals. There are many good economic arguments for Tsipras plans but the main reason to make concessions to Greece is a lesson from the politics of the Great Depression. When the Great Depression hit the industrialised world in the late 1920s a series of dramatic economic policy misjudgments made the crisis worse. However, the fact that economic troubles let to political collapse in Germany but not in other countries was more to do with politics than with economics.

In the early 30s German government responded to the crisis with a programme of belt-tightening that had all the trimmings of today's austerity programmes. Chancellor Heinrich Brüning cut government expenditure and froze wages of government employees. At the same time, additional taxes were introduced that hit mainly wage earners while taxation on capital was reduced in order to promoted investments. The policies worked as well then as they do today. Unemployment did not fall and with limited welfare provisions social misery spread quickly.

The political consequences are well known. The millions of unemployed and the even larger parts of the populations that feared job loss and social decline provided the rising Nazi party with massive electoral support. However, the bungled economic response to the crisis on its own is not sufficient to explain the political collapse of German democracy in this period.

Germany was not alone in reacting to the crisis ineffective economic policies. In the US the Treasury Secretary Andrew Mellon advised President Hoover to let the crisis run its course. His radical views bear an eerie resemblance to the kind of counsel that comes out of the German and other European ministries of finance today: "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate... it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people". Hoover did not follow Mellon's radical views but he also failed to adopt welfare and investment programmes on the scale necessary to end the crisis. The result was a worsening of economic and social conditions not dissimilar to the German development.

The crucial difference between Weimar Germany and the US was that American voters could vote Hoover out of office when it became clear that his economic policies did not deliver results. Meanwhile in Germany chancellor Brüning governed without a parliamentary majority by presidential decree. The lack of democratic accountability of his government and others in the final phase of the Weimar Republic meant among other things that economic policy was insulated from crucial mechanisms of democratic scrutiny. When Americans found in the 1932 that their government was insisting on economic policies that did not work they decided to change it. Germans could not do the same and mistaken economic policies continued until the political pressure had built up to a point when it broke the whole system.

Greek voters have just done what Americans did in the 1930s. They got rid of a political leadership that six years into the crisis still has not delivered any positive results and voted for a party that is represents an alternative economic approach. The danger is now that the lack of democratic accountability and the complex structure of the EU create a Weimar style political trap. The ECB and other institutions that decide whether Greece's voters will be allowed to exercise their democratic rights have themselves no democratic accountability. Other crucial decision makers such as the other European governments are democratically accountable but not to the Greek people. Instead, they are elected by their national constituencies, many of which do not feel the consequences of the economic policies sanctioned by their governments.

If European governments fail to take this seriously and do not engage with the new government in a constructive way it places Greeks in a political condition that proved fatal in Weimar Germany. If Greeks are not given the possibility to change economic policy through democratic participation within the existing political framework they are forced into a situation in which they can only choose between continuing with economic policies that they know not to work and exiting the Euro system. Given this alternative they will eventually choose exit. Greece's voters will then be responsible for the choice they made. But responsibility for putting them into an impossible political situation will lie with the rest of Europe.