The dangerous economic thinking that’s killing Greece and threatening the European Union

„Among the puzzling aspects of the MoU [Memorandum of Understanding] are demands for reforms on things as seemingly trivial as milk. While pensioners are eating out of garbage cans, the troika has been haggling over how old a carton of milk can be if it is to be labeled ‚fresh.‘ [Joseph] Stiglitz observes that if you look closely you see that special interests—in this case the big dairy companies of Holland—appear to be behind the reforms. Dutch milk sellers would prefer that their milk, which travels long distances to reach Greece, be labeled fresh, a move that will only hurt local dairies. By discouraging local production, the MoU paves the way for even more Greek unemployment and less demand for goods and services — hardly a recipe for economic health. (The chairman of the Eurogroup, it may be worth noting, is Jeroen Dijsselbloem, the Dutch finance minister.) […]

Instead of remembering the terrible consequences of mass unemployment following WWI, many Germans insist that it was hyperinflation that led to Hitler, and so they tend to support central bank policies that guard against that problem rather than the far more worrisome specter of joblessness.

As Stiglitz describes, the result of all this historical amnesia and economic blindness is a ‚Dickensian‘ nightmare that recalls 19th-century debtors prisons where people were punished for the inability to pay debts and locked (literally) into a situation in which paying them was, of course, impossible. Only now, the prisoner is an entire country.“


Joseph Stiglitz: Greece, the sacrificial lamb

None of this makes sense even from the perspective of the creditors. It’s like a 19th-century debtors’ prison. Just as imprisoned debtors could not make the income to repay, the deepening depression in Greece will make it less and less able to repay. […]

I believe strongly that the policies being imposed will not work, that they will result in depression without end, unacceptable levels of unemployment and ever growing inequality. But I also believe strongly in democratic processes—that the way to achieve whatever framework one thinks is good for the economy is through persuasion, not compulsion. The force of ideas is so much against what is being inflicted on and demanded of Greece. Austerity is contractionary; inclusive capitalism—the antithesis of what the troika is creating—is the only way to create shared and sustainable prosperity.

For now, the Greek government has capitulated. Perhaps, as the lost half decade becomes the lost decade, as the politics get uglier, as the evidence mounts that these policies have failed, the troika will come to its senses. Greece needs debt restructuring, better structural reforms and more reasonable primary budget surplus targets. More likely than not, though, the troika will do what it has done for the last five years: Blame the victim.

Joseph Stiglitz: How I would vote in the Greek referendum

“And, sure enough, what we are seeing now, 16 years after the eurozone institutionalised those relationships, is the antithesis of democracy: many European leaders want to see the end of prime minister Alexis Tsipras’ leftist government. After all, it is extremely inconvenient to have in Greece a government that is so opposed to the types of policies that have done so much to increase inequality in so many advanced countries, and that is so committed to curbing the unbridled power of wealth. They seem to believe that they can eventually bring down the Greek government by bullying it into accepting an agreement that contravenes its mandate.”

Economists’ joint letter in the Financial Times

Syriza is the only hope for legitimacy in Greece. Failure to reach a compromise would undermine democracy in and result in much more radical and dysfunctional challenges, fundamentally hostile to the EU.”

Joseph Stiglitz: Greece’s creditors need a dose of reality

“The troika’s forecasts have been wrong, and repeatedly so. And not by a little, but by an enormous amount. Greece’s voters were right to demand a change in course, and their government is right to refuse to sign on to a deeply flawed programme.”