“In other words, though Greece may be diminished, its catastrophe has offered the rest of the currency bloc a frightening example of what can happen when governments skirt the rules. If sacrificing Greece is the price for preserving the euro, so be it. […]
Ultimately, the debate comes down to one’s definition of ‘solidarity.’
Most Germans, for example, are convinced they showed Greece the utmost solidarity by providing billions in low-interest loans. While forgiving Greece’s debt might put the country on more solid financial footing, it would open the door to ‘moral hazard,’ the rewarding of bad behavior.
What that reasoning ignores is that Germany was the biggest winner of Europe’s bailout policies. No country has benefited more than Germany from the introduction of the euro, which has been a boon to its industry, fueling exports across the region. So if ‘saving’ Greece was really about preserving the euro, Germany was primarily acting in its own interest.
It’s easy to see why: The loans provided to Greece by the European rescue funds have put little German treasure at risk. In fact, so far they’ve generated a tidy profit.
Europe, to quote a Teutonic saying, has left Greece with too much to die and too little to live. […]
Instead of giving Greece that breathing room, Europe, at Berlin’s insistence, only agreed to give Athens more time to pay back its rescue loans, effectively delaying the day of reckoning.”
“Unfortunately, the EU’s projections involve extremely wishful thinking. For one, they assume an impossible level of austerity: Greece must run an average budget surplus (excluding interest payments) of 3.4 percent of GDP for a decade, then 2.2 percent until the year 2060—something that no euro-area country with such a precarious economic history has ever done. Bringing those projections down to a merely improbable 2 percent and 1 percent, and using growth and interest-rate estimates from the International Monetary Fund, yields a very different picture: [Chart] […]
Over the next several decades, even in an optimistic scenario, Greece will have to borrow hundreds of billions of euros from private investors to pay off its official creditors. If those investors think the government’s debts are out of control, they’re bound to pull back—and Europe’s leaders will face yet another Greek crisis.
The obvious solution is for the EU to provide Greece with genuine debt relief. The sooner, the better.”
“In spite of personal appeals from the International Monetary Fund’s euro-supporting managing director Christine Lagarde to forgive Greece its debt burden and allow the country to be given a fresh start, the eurofanatics have been unrelenting in their determination to keep the debt anvil hanging around its neck.
Greece is in an armlock it cannot escape because of a combination of its debt burden and the fact that its membership of the eurozone means it can no longer devalue its currency. And the EU and Germans are determined to keep it that way to save their precious euro.
So despite the joyous news bulletins about the bailout yesterday morning, be in no doubt that this Greek tragedy is very far from over.”
“The Greek people have just lived through a Depression as deep as the Great Depression and considerably longer. It is now the greatest recorded peacetime Depression. […]
Despite all the pain the Greeks have endured to fix their country’s finances, Greece’s fiscal situation remains extremely precarious. The IMF staff predictions show absolutely no room for fiscal expansion, even though it is desperately needed, not least to relieve extremely high poverty levels. One in four people in Greece is living below the poverty line.
Greece’s government is critically hampered by ridiculously tight fiscal targets not of its own making. […]
In a few years’ time, when Greece once again faces debt default and Euro exit, what will the price of debt relief be? Well, unless there is a change of heart among Eurozone governments by then, the price will be yet more harsh spending cuts and tax rises, and perhaps another Depression. Greece does indeed have more pain to come.”
“Though Greece’s economy is growing, it is still only three-quarters of its precrisis size. Gross domestic product has expanded since the middle of last year, buoyed by an apparent renewal in exports. But much of the export growth comes from refining imported oil and exporting the final product — an activity that sustains tens of thousands of jobs, but does not filter through to the broader economy.
Unemployment, which has fallen from a peak of 28 percent, is still stuck above 20 percent, the highest in the eurozone. Over half a million Greeks left during the crisis in a brain drain that has hampered a recovery. Worryingly, poverty has ‘risen dramatically,’ according to the Organization for Economic Cooperation and Development, a group of rich nations. […]
[The IMF] also suggested reducing tax rates that in some cases reach as high as 70 percent of a person’s income. The Greek government jacked rates up so sharply in the last couple of years that the country’s notorious black market has grown again.”
“Arguments for privatization aside, the deadly combination of higher debt and declining GDP had most economists convinced quite early on that austerity was killing Greece’s economy, and that a debt write-off would be at some point absolutely necessary for medium- and long-term recovery. However, Germany and its northern European allies had diametrically opposed this idea, insisting on even stronger doses of austerity, while balking at the prospect of a debt write-off.
At the same time, the idea of Greece exiting the euro was also an anathema to Germany and the eurocrats in Brussels. Keeping Greece in the Eurozone—even while its economy and society were going to bleed to death as a result of harsh austerity measures—was deemed absolutely imperative for the very survival of the euro, and for ensuring that all previous debts to European banks were going to be repaid. […]
In contrast to Tsipras’s outrageous claim that the debt deal represents a ‘historic’ agreement, in that it allows Greece to become a ‘normal country’ once again, the measures agreed on to make Greece’s debt sustainable will doom the country into becoming a permanent semi-peripheral debt colony of the EU. The deal simply pushes the debt into the very distant future, and locks society into a state of perpetual austerity by requiring that the government run exceedingly large primary budget surpluses. The deal is not a cause of celebration for Greece but, rather, a kiss of death. […]
At this point, with full budget surpluses running in the range of 5.3 percent (until 2022) and even 4 percent (from 2023-2060), ‘severe’ is not the right word to describe the level of austerity that will need to be enforced on the Greek population. A more apt term is ‘brutal’ austerity […]”
“To its credit, the Fund [IMF] saw what was happening and gave up on its austerity program. Germany did not. In early 2012, numerous reports surfaced of growing friction between the IMF and the EU countries over the Greek program. The Fund was upset that the EU (Germany in particular) was focused almost completely on getting Greece to reduce its government deficit. The Fund insisted this one dimensional approach had failed. Clearly, the IMF was attempting to distance itself from the austerity measures imposed on the country under the insistence of the EU. […]
But Germany and other countries who foolishly lent Greece monies do not want any defaults. Are they not engaged in wishful thinking?
- Where are the funds to pay off these debts going to come from?
- What happens when the European Central Bank stops buying up Greek bonds?
Consider what Greece would have to be paying in interest on its debt at market rates. 5% of €320 billion works out to €16 billion annually. And when you add to that paying off its maturing debt…. The Fund is right to be concerned. The Europeans are ‘kicking the can down the street.’ And Greece is supposed to run a surplus of 3%+ indefinitely? This ‘crisis’ has just been extended.”