Greece: How could the following situations affect the average American? Barred banks, capital controls, the first IMF default by a developed country, EVER, the collapse of a multi-billion-euro bail-out, plans for a referendum that may hasten Greece’s ejection from the single currency, and the impoverishment and desperation of the 99%. Were the stakes not so high, all those emergency summits and last-minute demands would be almost comical.
Instead it is a tragedy. I’ve been writing about the Greece—and all of southern Europe’s shabby treatment by Northern Europe for that matter—since the Bush Great Recession-led demise of the global economy since 8-11-2011, where an outcome that all sides say they do not want—Greece’s exit from the euro—seems increasingly likely.
The vote from the people was Sunday. The chaos was evident by the throngs of protests, real protests, (like the ones we used to see in the U.S. Vietnam-torn 1960s and ‘70s) that leaving the euro would be disastrous for Greece because modest gains from default and devaluation would be overwhelmed by political and economic instability. “Grexit” (Greece Exit) has well known risks; not the least of which would be a failing state on the continent’s south-eastern flank.
But as the likelihood of the exit has become more likely and the drama has become more desperate, the rest of Europe seem less astoundingly worry free. They appear to take comfort from the fact that Greece is perpetually dysfunctional. Without Greece, many now conclude, the euro zone might actually be more stable.
Sadly, they could not be more wrong. Look beyond Greece, and the threat of further conflict within the euro is all but inevitable. Greece’s economy is relatively tiny compared to other southern Eurozone. Spain’s economy, (the world’s 12th largest economy) has been in a Depression-like stasis since the Great Recession began, Italy is not far behind, and Portugal is struggling as well.
These countries also have a bit of a debt problem, and the euro is not doing any favors for their economic competitiveness. They are much bigger than Greece. While a Greek default and exit from the euro probably won’t do much damage to the euro zone’s financial stability, a similar move from other PIIGS would present a considerably larger problem. And if Greece gets a fantastic deal from its creditors, then the Troika is quite reasonably afraid that those countries are going to start asking why they’re the suckers.
Although Greece’s departure would prove the euro is not irrevocable, nobody would know what rule-breaking would lead to expulsion. Nor would it resolve the inevitable schism between debtor and creditor governments in bail-outs. If the single currency does not face up to the need for reform, then this crisis or the next will witness more upheaval, more blunders and more dismal weeks. In time, that will wreck the euro and the EU itself.
Right now this argument is masked by Greece’s hard-left Syriza government and its ridiculous referendum. Sunday’s vote asked Greeks to assess the creditors’ restructuring plan (which is no longer on offer) and their debt-sustainability analysis (which requires a degree in economics). The prime minister, Alexis Tsipras, wanted the “No” vote and got it, saying it will strengthen his hand with creditors and so help keep Greece in the euro.
Back in the real world, Greece is running out of money. The European Central Bank (ECB) refuses to give the banks more liquidity and they are tottering. If Greece defaults on €3.5 billion-worth ($3.9 billion) of bond payments to the ECB on July 20th, pressure will build to withdraw even today’s backing.
Brinkmanship and crisis are inevitable in such a system. And they are aggravated by the euro zone’s reliance on ad hoc bail-outs, which politicize every decision. They set one side against another, breeding contempt among the creditors and resentment among the debtors. They turn wise policies into concessions that should not be given up to the other side until the last minute.
No wonder the process has failed: at crunch time more than 20 negotiating parties, all with vetoes, were working to different agendas and haggling under pressure. The same downward spiral is all too plausible in a future crisis: the ruination of politics and the economy as demands for forgiveness from debtor nations like Italy or Portugal, say, founder on demands for austerity from Germany and Finland.
Besieged by a prolonged recession, high unemployment and banks dangerously low on capital, Greece defaulted on an IMF loan repayment last week, becoming the first developed nation to do so.
Now some analysts wonder if Greece is so starved of cash that it could be forced to start issuing its own currency and become the first country to leave the 19-member eurozone, established in 1999.
The attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office — was a shameful moment in a Europe that claims to believe in democratic principles. It would have set a terrible precedent if that campaign had succeeded, even if the creditors were making sense.
What’s more, they weren’t. The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients in order to cure what ails them— and when their treatment made the patients sicker, demanded even more bleeding. Northern Europe crushed southern Europe’s ability to compete for exports and imports and when Southern Europe’s economy foundered they charged them not only usurious rates to fund their deficits, but forced austerity measures on them that made it impossible for their economies to grow.
Northern Europe’s treatment of Southern Europe since the Bush crash of 2007 has been nothing short of a loan shark sucking in a hapless wage-earner when the poor schlub needed money to save his mother who needed an emergency appendectomy and couldn’t afford it.
A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the mathematics, can’t work: austerity, during economic downturns, shrinks the economy faster than it reduces debt, so all the suffering serves no purpose.
This same argument has been the foundation of the GOP’s propaganda ever since George Bush’s administration. His insanely expensive, personal war against Saddam Hussein combined with investment banks being sold a whole freight containers worth of snake oil by AIG, (who told them that no matter how many bad-risk mortgage loans they made, they had them covered with credit default swaps) led to the worst American economic crash since fellow Republican Hebert Hoover’s same austerity policies led to the Great Depression.
The only thing that saved the U.S. from a similar fate was the Federal Reserve system’s coordination of monetary policy with fiscal policy…which under the Eurozone’s “one-monetary policy with seventeen different fiscal policies” was never believed feasible by a host of the world’s economists.
If additional revenue isn’t realized soon, the U.S. physical infrastructure will crumble as quickly as we’re about to see Greece’s credit worthiness crumble.