I am no economist, but from my purely layman’s perch it seems to me that the nub of the Greece issue comes down to one empirically demonstrated fact: austerity doesn’t work. Chasing a budget surplus, the kind of thing you need to really start paying creditors, by cutting government spending and raising taxes on the most vulnerable only shrinks the economy and makes actually achieving that surplus impossible. The whole thing becomes a vicious cycle, as further economic decline creates bigger deficits that then spur even bigger cuts and higher taxes, that is hard to get out of even if the austerity was imposed from within, by a government that eventually has to be accountable to the people who are suffering the most from austerity’s effects. How much harder is it to get out of the cycle when that austerity is being imposed from without, by German bankers and IMF bureaucrats who don’t really give a damn how their demands affect the Greek public or how that public reacts?
While I’m not an economist, Thomas Piketty, Jeffrey Sachs, Heiner Flassbeck, Dani Rodrik, and Simon Wren-Lewis are, and they seem to feel the same way:
As most of the world knew it would, the financial demands made by Europe have crushed the Greek economy, led to mass unemployment, a collapse of the banking system, made the external debt crisis far worse, with the debt problem escalating to an unpayable 175 percent of GDP. The economy now lies broken with tax receipts nose-diving, output and employment depressed, and businesses starved of capital.
The humanitarian impact has been colossal—40 percent of children now live in poverty, infant mortality is sky-rocketing and youth unemployment is close to 50 percent. Corruption, tax evasion and bad accounting by previous Greek governments helped create the debt problem. The Greeks have complied with much of German Chancellor Angela Merkel’s call for austerity—cut salaries, cut government spending, slashed pensions, privatized and deregulated, and raised taxes. But in recent years the series of so-called adjustment programs inflicted on the likes of Greece has served only to make a Great Depression the likes of which have been unseen in Europe since 1929-1933. The medicine prescribed by the German Finance Ministry and Brussels has bled the patient, not cured the disease.
The Greek public has now voted “no” to this imposed austerity twice: first when it elected Syriza to a parliamentary plurality in January on the promise that new PM Alexis Tsipras would resist further Troika (EU, IMF, and ECB) demands for more Greek blood, and again on Sunday. The Troika didn’t like that January vote, and so it’s been on a “beatings will continue until morale improves” campaign to punish Greeks and try to force Syriza from power ever since. “Alien Rule” is the apparent political science term for this process, and whatever its merits may be in theory it has completely failed in this instance. The Troika have been claiming that they’re not about dictating Greek policy or forcing particular political outcomes within Greece, but their actions say otherwise:
Until recently, Greece’s creditors could have claimed that the problem was too much indirect rule: Bad decisions were still being made by Greek politicians. But the veil was lifted during the last Eurogroup meetings, when the Greek government appeared ready to accept a compromise agreement in exchange for additional funding that would allow it to meet immediate debt obligations to the IMF and ECB. The government put forward a set of measures that could have achieved the fiscal target set by its creditors. The proposed policy mix was sensitive to the underlying preferences of the Greek population. But Greece’s creditors rejected that offer, pushing instead an offer that affirmed the Greeks’ widespread suspicions that European trusteeship was intentionally unfair.
It’s hard to see what the Troika’s point is if it’s not, as Krugman has been arguing, to directly overturn the results of a democratic election in a Eurozone member state. Whatever your feelings on Greece or the need for debtors to make good on their debts, the actions of the ECB, EU, and IMF in this process ought to scare you a little bit, because under the guise of “bailing out” Greece, they’ve been funneling money to Greece’s creditor banks while pushing disastrously flawed economic policy on Greece itself that hasn’t done anything but make its situation worse. Now the Greek people have said “enough is enough,” and refused to do the Troika’s bidding by pulling the rug out from under Syriza, so the question is whether the Troika can accept that result or if it needs to make ordinary Greeks pay some more just because it can.
What happens next shouldn’t be about measuring everybody’s moral standing or re-litigating World War II’s aftermath. It shouldn’t be about past Greek accounting fraud or the Eurozone’s poor decision-making in offering membership to countries that clearly weren’t ready for it. It shouldn’t be about whether or not the Euro can survive a Grexit, though it seems like some other Euro countries are starting to question their own forced austerity diet. It shouldn’t even be about whether or not the Euro should exist at all, even though that’s a very relevant question. It should be about one question: why is the Troika so dead set on forcing Greece to adopt painful economic policies that we know will never result in the repayment of its debt and a return to a healthy, or at least basically functioning, economy? Are they trying to rebuild Greece, or just looking to punish a bunch of Greek pensioners for shits and giggles?
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