A grim future faces the Greeks, including the Jewish community that has lived there since ancient times: Already suffering with at least 25% unemployment, the bailout offered them today puts them to a choice between greater austerity within the euro zone or even greater austerity if they go it alone.
Greece has done the unthinkable, missing a payment on its sovereign debt and facing further missed payments in the near future. Its banks are in lockdown and internal commerce is near a standstill for lack of cash. But less clear is the question, who or what is to blame? Is Greece the victim of its own wastrel ways, or the selfishness of its wealthier euro partners, or an inherent flaw in the euro itself?
Before Greeks voted against the bailout offer from other nations, Greece’s then Foreign Minister Varoufakis accused the euro-zone nations of economic aggression. He said Greece’s creditors wanted to “instill fear” and blamed them for the government having to close the banks:
What they’re doing with Greece has a name — terrorism. What Brussels and the troika want today is for the yes (vote) to win so they could humiliate the Greeks.
The Greeks voted no, as their government urged, decisively rejecting the bailout offer with its requirement of additional austerity. Varoufakis immediately resigned his office to make room for a new finance minister, presumably to take a harder line in renewed bailout negotiations.
On the opposite side, the widely read German newspaper Das Bild headlined the vote “Nein. No more bailouts for the greedy Greeks.”
With more composure, the Chicago Tribune trumpeted, “Greeks vote no, now they must go,” a reference to “Grexit,” the possible departure of Greece from the euro zone nations and reestablishment of the drachma, its own currency.
Europe is clearly divided on this issue, with Germany leading the hard-liners.
The Greeks have received two supposed bailouts from euro zone nations in five years. The funds came primarily from Germany and France, the largest economies running on the euro, and from the International Monetary Fund, which we in the U.S. invented and support heavily. But critics point out that the amounts were sufficient mainly to make payments on the Greek debt, leaving little or nothing to invest in improvements to the Greek economy.
The austerity rejected in the Greek vote included provisions we in the U.S. would consider minimally necessary to run a nation: Unpaid taxes are 89% of Greek tax receipts, versus less than 3% in Germany. Greeks frequently retire at age 50, not 65, or 67 or later, as in the U.S. And since becoming a member of the 19-nation euro zone, Greece has been on a borrowing binge. The bailout included requirements that Greece reform its tax system and lower its pension costs, and calling on it to work down its debt.
Of course, for a government the availability of credit is like candy to a baby. But the euro nations have agreed to limit their borrowing. Greece owes more than 175% of its gross national product (GNP), and its debt service is less than 3% of its GNP, because interest rates are held so low within the euro zone. (A similar argument could be made for the U.S.: The national bank, the Fed, holds down the cost of the national debt by keeping interest rates down.)
The German finance minister, Wolfgang Schauble, preached the economic gospel:
A currency union in which one partner says, ‘I don’t care, I won’t do anything and I won’t stick to anything which has been agreed,’ cannot work… Trust and dependability are a basic condition when it comes to institutions.
Since the current government in Athens took power on Jan. 25, things have worsened “by the day and by the hour,” Schauble said.
The Washington Post has a different opinion:
As the culmination of Europe’s 60-year project toward greater and greater integration, the euro was a political masterstroke. It was also an economic albatross. And it’s one that wasn’t hard to see coming. Plenty of economists, including Nobel Prize winner Milton Friedman, warned that it wouldn’t work for countries with different economic needs to share a single monetary policy but not a fiscal policy.
At any given time, money would be either be too tight or too loose for some members, and there wouldn’t be anything — like unemployment insurance — to balance it out. The euro, in other words, is a paper monument to peace and prosperity that has made the latter impossible for some countries.