The Ultimate Responsibility For Greece Still Lies With Greece

The Ultimate Responsibility For Greece Still Lies With Greece

Add to Reading List
Add to Reading List

It should be quite clear by now what membership of the German-dominated currency union entails, especially for Greeks who have seen their country's unemployment rate and youth unemployment rate balloon in the duration of the euro crisis.

The euro is a tragically badly designed currency. (And that applies not just to Greece and southern Europe, but also to Germany and northern Europe, as we are likely to see should the currency union prevail without the creation of a full fiscal union). The harmonization of borrowing costs that occurred in the wake of the currency's creation — flooding the periphery with cheap money — is a long-shattered illusion. Worse, the European Central Bank only half-heartedly stands behind sovereign debtors, support which as we have seen in Greece can be removed altogether should a national government stray too far from the ordoliberal privatizing orthodoxy demanded by Germany and her allies.

This effectively turns the euro into a bad parody of the gold standard. The euro has become a crisis magnifier and a crisis accelerator, turning what by historical standards were relatively mild Greek fiscal troubles that might have been otherwise ameliorated through a little devaluation, a little inflation, and more efficient tax collection into an almost decade-spanning deflationary saga from which Greece and Europe is yet to emerge.

And yet even now after years of deflation and mass unemployment, above 70 percent of Greeks want to stay in the euro. That means staying under the rule of hard-nosed, hard-faced austerians such as Wolfgang Schaüble, Angela Merkel and Jeroen Dijsselbloem who demand the hated austerity measures that Greeks rejected when they elected Syriza and rejected again when they voted 'no' in the referendum on the bailout, terms which Tsipras has now almost entirely capitulated to.

Of course, nobody is saying that reinstating the drachma would solve Greece's problems entirely. It would likely cause a whole new slew of problems, including bank runs, the collapse of the Greek banking system, and large-scale inflation. Yet it would, at least, set Greece on the path to a solution.

Remaining in the eurozone under the charge of politicians who couldn't seem to care less about Greek unemployment, debt deflation, and who don't recogize the necessity of debt relief in putting Greece onto a more sustainable economic trajectory just kicks the can down the road. It doesn't deal with the problem. It just pretends that maybe, at some point in the future the problem will be solved. Of course, with the Greek debt remaining unsustainable — even in the eyes of the IMF — and the creditors remaining unforgiving, this seems more like a matter of postponing Grexit than fixing Greece. And meanwhile, the battered Greek economy must just eat up huge hikes in taxes, including a ten percent VAT hike, and the battered Greek poor must just eat up more huge rounds of government spending cuts and privatizations to assuage foreign creditors.

Tsipras and his party have completely failed to achieve its objective of an easing of austerity. They have completely failed to achieve a settlement that deals with the immediate troubles low growth and mass unemployment first, and the long-term issues relating to pensions, spending and tax collection over the longer-term. (In medicine, dealing with the heart attack before the blood pressure issues would be obvious. But not so, it seems, in economics). Its strategy seems to have been to brusquely ask its creditors for relief. Its creditors — for reasons, I think, of rigid orthodoxy — thumbed their nose at Greece, portraying the Greeks as a bunch of stupid, rude, lazy buffoons. In the long run, this is counterproductive for the creditors as much as it is for the Greeks, if they want to see repayment of the debt, and economic growth in the continent.

But beyond asking, and making a few references to German debt writedowns in the wake of the Second World War, as well as the Nazi occupation of Greece, Tsipras appears to have had no strategy at all. It seems Tsipras — like the vast majority of his fellow Greeks — doesn't want to jeopardize Greece's euro membership. And, as Paul Krugman argues, this was never going to enough to get Greece a better deal. The choice the Greeks should have offered the creditors was "give us sustainable terms or we leave". If the creditors didn't have the imagination to realize that giving the Greeks sustainable terms would be good for Europe as a whole (including the creditors), then the Greeks should have had the chutzpah to leave. Being in a currency union run by a bunch of ordoliberals who are quite happy to destroy the village with mass unemployment and economic depression in order to "save it" is not safe. It's not hygienic. It is — for Greece, as well as the other eurozone members — dangerous.

And at this point, we must admit that it is self-inflicted. If Greece wants to stay in the German-dominated currency union, this is the cost. They — not the Greeks — are making the rules. Maybe the European project is a form of ordoliberal imperialism. But — to be fair — it is not being imposed at the end of a rifle. If the Greeks don't like living by Merkel and Schaüble's ridiculous rules — heck, if Greece truly wishes to be a sovereign country and not a German vassal — they must move out. The fact that the Greeks are unwilling to do this is prolonging their crisis and compounding their tragedy.


Keep up to date with the latest thinking on some of the day's biggest issues and get instant access to our members-only features, such as the News DashboardReading ListBookshelf & Newsletter. It's completely free.


Twitter Feed

RT @mybuchshelf: Are book collectors real readers, or just cultural snobs? – via @aeonmag

A collection of some of the best econ books of the year, feat - @ryanavent, @BrankoMilan, @g2parker and more...…

RT @mark4harrison: Blogged: Donald Trump and America's Incomplete Contract with Itself @warwicknewsroom @cage_warwi…

RT @NIESRorg: The weak pound in your pocket: @angusarmstrong8 continues to make waves with his blog post, this time in the @FT https://t.c…

RT @LSEReviewBooks: Review Archive: The Sharing Economy: The End of Employment & the Rise of Crowd-Based Capitalism by Arun Sundararajan ht…