To no one's surprise, the anti-austerity party Syriza has won the Greek election. The news stories I read annoyingly refer to Syriza as an anti-bailout party, suggesting that it ran on letting banks fail. In fact, the "bailouts" being referred to are the European Central Bank lending Greece money to prevent it from defaulting on its debts in exchange for austerity and "structural reforms."
Of course, when VSP's (Krugman's term for Very Serious People) talk about austerity, they mean shredding the safety net. When they talk about "structural reforms," they mean ending all job security, firing everyone with a good paying job with benefits, and replacing them with a bunch of bad paying jobs without benefits. These measures are seen by all VSP's as necessary to be internationally competitive. Their logic on "structural reforms" is at least arguable. What they tend to miss is that if you want to replace all the good-paying jobs with benefits with a bunch of bad paying jobs without benefits, it would help if your economy was actually growing fast enough to be generating all those bad-paying jobs that are so desirable. If you fire everyone who has a good-paying job with benefits while your economy is shrinking, you will get not globally competitive, i.e., bad paying jobs to replace them, but mass unemployment. To judge from the way they have treated Greece (and the rest of Southern Europe today, and Eastern Europe and Asia in the 1990's and Latin America in the 1980's), VSP's don't regard that as a serious problem. For one thing, they regard the vile scourge of good-paying jobs with benefits to be a sufficiently serious evil that even mass unemployment is preferable. And besides, if unemployment is high enough for long enough, people will settle for even lower paying jobs, so it really is for the best.
This has been going in in the debtor countries of Southern Europe since about 2010, so almost five years. And now Greece, the one that has suffered most, that has seen its economy shrink by a quarter, has gotten fed up and is saying no more. So the obvious question is, what took so long?
Part of what is ailing not just Greece but all of Europe goes back to my earlier comment that democracy is bad at handling economic crises, but oligarchy is worse. Democracy's problem is not that people are unwilling to make material sacrifices, but that people are unwilling to violate their intuitions. And when crisis hits, popular and elite intuition alike is that hard times call for sacrifices and cutting back, so painful measures are accepted. But elite and popular intuition is wrong. When everyone cuts back at once, the whole economy suffers, and sooner or later popular opinion turns against making sacrifices, but elite opinion does not. My previous opinion was that public opinion changes when the public gets tired of suffering and is willing to do anything, even violate their intuitions to make it stop. But I have changed my mind on that. I now believe that what happens is that at some point elite and popular intuition begin to diverge. At some point popular opinion concludes that we have now made our sacrifices and it is time to reap our reward. Elite opinion expects the sacrifices (for instance, of good paying jobs with benefits, or of the social safety net) to be permanent. It is at this point that serious strife begins. Europe reached that point some time ago. But all Europe's "respectable" political parties clung to elite wisdom and refused to give the public a break. This offers a rather painful lesson that Europe is not a democracy, but an oligarchy. It also means that "extremist" parties were the only ones left to advocate for common sense. This is the first time one such party has won.
Another part of the answer is that core Europe (read, Germany) really did have the periphery over a barrel for a long time. A country spending more than its revenue has to borrow. The lenders had great power to impose conditions on the borrower by the threat to cut off all lending. So the essential choice was, make the spending cuts we demand now, or we will cut off your credit and you will have to make even deeper ones. Not much of a choice! But in that sense, all those cuts really have paid off. By now Greece's debt payments exceed its deficit. If it were to default and all lending were cut off, Greece would still have much greater resources at its disposal. But even then, Europe/Germany has a few tricks up its sleeve. It can cut off credit to Greek banks and force an artificial banking and economic crisis. Or it can expel Greece from the Euro. No one knows what will happen in that case. So those threats have held Southern Europe back for some time. But the tension is building.