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In the news media (e.g. NPR, BBC, CNN, etc.) there is a dominate consensus that Greece must eventually give in to demands to reduce pensions and make further cuts in government spending in exchange for a new loan to help pay off defaulted loans, even if acknowledging that the Greek people have high unemployment and a failing economy.
However, for those not yet exposed to an alternate perspective which is not generally aired in the news media, you might read this bit of a rant by Prof. William K. Black. William Kurt Black is an American lawyer, academic, author, and a former bank regulator. Black's expertise is in white-collar crime, public finance, regulation, and other topics in law and economics. He developed the concept of "control fraud", in which a business or national executive uses the entity he or she controls as a "weapon" to commit fraud. In this piece, William Black make ssome some interesting points about the Greek crisis, of which I cut and paste a few excerpted points:
1. That economists overwhelmingly believe on the basis of theory and experience that austerity in response to a Great Recession constitutes economic malpractice akin to bleeding a patient until it restores him to health.
2. That austerity has caused, as predicted, a human catastrophe in Greece
3. That austerity and the oxymoronic "labor reforms," by reducing wages and the safety net throughout the eurozone, the bailout of German banks, and the sale of Greek infrastructure and islands to wealthy Germans at fire sale prices are very much in the interests of the elite German corporate and banking CEOs that dominate domestic German politics, the Germany economy, and the troika
4. That when a debtor has unsustainable debts, the normal and desirable response is to negotiate a troubled debt restructuring (TDR) to reduce the debt to a level that can be repaid. Even the IMF, the mother of monstrous austerity, admits that the Greek debt is unsustainable.
5. That a TDR was done for German[y], which was essential to its economic recovery. (after WWII)
6. That the Greek "bailout" was a bailout of foreign EU banks, primarily French and German – not the Greek government or people. That bailout of the eurozone's largest banks is funded by eurozone taxpayers. The muted reaction of the commercial markets to the Greek "No" vote is largely attributable to the fact that the bailout of French and German banks by eurozone taxpayers has been completed. The remaining loss exposure of the large eurozone banks on the loans they made seven or more years ago to Greek banks is tiny. The reason EU elected officials are so apoplectic to the Greek "No" vote is that the eurozone taxpayers are on the hook because they bailed out the (primarily) French and German banks. If the eurozone taxpayers suffer losses in the range of one hundred billion euros those taxpayers might turn on those EU elected officials who represent the interests of elite bankers at the expense of the peoples of the eurozone. The NYT article ignores all this and, without any analysis, treats the bailout as if it were a bailout of the Greek people.
To me it this final point which resonates after witnessing the the U.S. bailout of to-big-to fail banks after making a number of risky (sometimes fraudulent) loans to homeowners.
(Score: 1) by Demena on Friday July 10 2015, @10:07AM
What you are missing here is that they tried austerity and it failed them. Maybe it failed them partly because of the lack of ability to collect taxes but primarily it was that austerity caused the economy to collapse even further. When that happened there was even less taxes to collect. Unemployment increases, welfare spending (necessarily) goes up. It is a vicious circle. But all of this is really beside the point.
In any group of economies there will be winners and losers. But money cannot continue to go one way indefinitely or some will be flush while others bleed dry.
In the US the Fed transfers money from the more profitable states to the less profitable states and it works reasonably well. With nation states with no common currency the rates of exchange fluctuate so that if a state becomes too successful its currency becomes expensive and less successful states can provide a better deal. This also works reasonably well. But when different economies share the same currency there is no means to correct the trade imbalance the weaker economies bleed to death. Spain, Portugal, Greece.
Unless some balance mechanism is put in place there is just going to be a cycle of bailout and bleed, bailout and bleed. It is a fundamental need that is missing from the EU.
(Score: 3, Interesting) by choose another one on Friday July 10 2015, @10:36AM
There is a balance mechanism in place in the eurozone, it is called the stability and growth pact. The problem is it has no enforcement with teeth so everyone ignores it. At worst they can fine a country that spends / borrows too much - like that is going to help.
There needs/needed to be a stronger mechanism such as all borrowing to be through the ECB or if you breach the pact then we remove your ability to borrow from the market and you can only spend what the pact allows (and your local politicians can decide what to spend it on). But that would have meant ceding too much power to Brussels, so the politicians voted to have Germany's low interest rates and stable currency without Germany's financial discipline, and to load the costs onto the next government / generation - quelle surprise.
It isn't Greece's fault that they joined a currency union without meaningful fiscal controls, but it _is_ Greece's fault they repeatedly breached the rules of the currency union that would have prevented them getting into this mess in the first place. Time for them to leave the euro, actually it was time to leave long ago.
(Score: 2) by choose another one on Friday July 10 2015, @10:40AM
Thing is, it worked for Ireland. Also arguably for the UK (except we didn't really do austerity, didn't even reduce public spending) - but that's a bad example because we have own currency. Ireland is in the Euro, was at one point worse than Greece for debt, made really harsh austerity cuts, and is now booming.
(Score: 0) by Anonymous Coward on Friday July 10 2015, @12:05PM
And not bad for an economy whose main industry is eurozone tax haven for multinationals.
(Score: 2) by geb on Friday July 10 2015, @10:55AM
The Greek governments before 2008 borrowed massive quantities of money and poured it into the economy, unsustainably raising GDP in the process. Some of it was spent on infrastructure, but not a lot of it. Most of it just ended up being spent on imported goods or services. It went on for so long that everybody got used to the situation and started believing it was normal.
When the global financial collapse hit, and everybody realised that Greek debt had reached very scary levels. The debt-sustained artificially high economy was going to contract one way or another, simply because nobody was willing to lend any more money. There were only two realistic options available - keep borrowing in the short term to smooth out the transition, until income and outgoing matched (i.e. bailout and austerity) or keep spending and then go bankrupt.
There was never any realistic hope of sustaining the good times of free money, because it had all been built on debt and nothing else. A contraction would have happened one way or another. The only choice was to have it go relatively smoothly, trying to preserve the most essential infrastructure of everyday life, or to have it all crash and burn uncontrollably.
Austerity was painful for the Greek people, yes that is true, but to say that it failed is to live in a fantasy land where there was some other alternative. To say it failed is to pin all your economic hopes on 2+2=6.