Greece is now on the brink. It cannot pay its creditors, starting with the missed payment to the International Monetary Fund. Its banks are closed, unable to deal with a panicked dash for cash. The European Bank has refused to offer more cash to sustain their liquidity.
The Troika – the European Commission, the European Bank, and the IMF – that holds the purse strings has demanded that the Greek government accept its conditions or be cut off. The Greek government has accepted more austerity, but asked for more humane cuts in pensions, less exacting assaults on the vulnerable. Their offer has been scorned.
On July 5, barring a last-minute deal, the Greeks will face an impossible choice in a national referendum: Vote yes to accept the terms of the Troika’s demands that promise only unending economic depression or vote no, which the Troika says is a vote against Europe and the way out the door.
This fateful choice is widely seen as the result of Greece’s many sins – corruption, dishonesty, dissolute financing, greed, laziness and more. But in fact, what we see is the fundamental failure of Europe, and of the countries – Germany and France particularly – that define its direction. Since the crisis began, they have sentenced the Greeks to a painful and bloody economic flogging to shape them up. Their own analysts agree that they got it wrong and the floggings have weakened, not strengthened the Greek economy.
A new Greek government – committed to Europe – called for a different course that might benefit the entire community. The Troika rejected this out of hand, and prescribed only more flogging.
The common narrative about the Greek crisis is wrapped in myths:
● The Greeks Sinned
The widely accepted narrative is that the Greeks dug themselves into this hole. Greek governments lied about their finances to gain entry into the Euro. Greek governments cooked their books to hide the reality that they were violating the core European agreements on debt and deficits. Greeks borrowed money cheap and lived high on the hog, with lavish pensions, pervasive corruptions, widespread tax avoidance. When the crisis hit, Europe stepped in to save the Greek banks, and bail out the Greeks. But corrupt and ineffective governments failed to clean up their acts. Now the Greeks want more debt forgiveness and more credit, but their creditors – particularly the electorates in the creditor countries like Germany and the Netherlands – have had enough.
But this is a burlesque. Yes, the Greeks sinned, but Europe was complicit from the start. Europe looked the other way when Greece lied to join the Euro. The European Union winked at “creative” Greek accounting, as other governments also violated the debt and deficit ceilings. European banks – particularly German banks – happily extended credit to Greek businesses and agencies, certain that Europe would never allow a default. And they were right. When the crisis hit, it wasn’t the Greeks that got bailed out. It was the creditors, the German banks and others. Essentially, the Troika loaned Greece enough money to pay off its private creditors, taking on its debts while imposing harsh conditions – deep austerity – as a price for the bank bailout.
● Greeks Must be Punished
The Greeks, the official narrative goes, must be taught a lesson. They must learn to live within their means. That requires slashing the minimum wage, slashing pensions, privatizations, cutting spending on health, education and more. Austerity – forcing the Greeks to run a surplus to repay their creditors – will wring the excesses out of the Greek economy, allowing growth to return. Moreover, it will provide an object lesson to all other countries to obey the rules, and avoid the fate of the Greeks.
But the Greeks have already suffered staggering losses. Unemployment is at 25 percent; half of all young people are unemployed. The economy is in brutal depression, with GDP down a quarter from before the crisis. Homelessness is rising. Hundreds of thousands have fled the country. The minimum wage and pensions have been cut.
The researchers at the IMF now admit that they got it wrong. The austerity savaged the economy more than expected. As the economy dropped, the debt load rose, not because Greece was borrowing more but because its economy was far smaller. But despite this admission of failure, the policy of austerity continues to be inflicted, even though the IMF’s own figures show it will leave the Greeks, in the most optimistic of scenarios, with levels of debt that will never be repaid.
● The Upstart Syriza Government is Immature, Unmannerly, and Irresponsible
The official narrative scorns the upstart Syriza government as immature romantics with no idea how to run a government or negotiate a deal. European leaders have shunned the flamboyant finance minister. They’ve openly mocked proposals offered by the government. And they’ve let it be known that they hope a Greek vote to accept the Troika’s conditions will lead to a fall in the government, so that traditional parties – the “adults” – can get down to business.
In reality, Syriza came to power committed to keeping Greece in the Euro. It offered Europe the chance to move from failed austerity policies to growth policies that would lift Europe generally, and make it more possible to repay debts and rebalance economies. It made a common sense, not a romantic argument: Austerity in a recession leads only to economic decline. It was mistaken only in its innocent belief that Europe might be ready to change course.
The Impossible Dilemma
Now Greeks face a referendum that offers them only a choice of calamities.
They can vote yes to accept the Troika’s conditions which inflict more austerity, and continued depression with no way out. Or they can vote no, which the Troika says is a vote against Europe and puts them on the road out of the Euro. This is a step into the unknown: banking crisis, brutal inflation, deeper recession – with the possibility that once the desert is created, things might begin to grow again.
Sensible economists like Joseph Stiglitz and Paul Krugman call for a rejection of the Troika’s conditions, arguing that moving to an independent currency may be the only hope that the Greeks have. But the human costs of that will be horrific.
Greece’s Failure; Europe’s Shame
The Greeks have been badly served by their oligarchs who avoid responsibility and taxes and by their governments that have been corrupt and incompetent. But this catastrophe is Europe’s failure. It is a failure, as economists from Paul Krugman to Milton Friedman argue, of design: a monetary union without a political union to provide unified fiscal policies. And it is a failure of ideology: a rigid insistence on austerity policies even after their failure has been acknowledged.
It is hard to avoid the sense that at work here is a plantation mentality. The overseers are dismayed that the serfs are not producing enough to repay their investments. Beatings are ordered; rations are cut. But the beatings and shortages lead only to less productivity, and less return on investment. So the overseers order more of the same. The beatings have failed. The beatings will continue. Greece’s agonies are Europe’s shame.
