Tuesday, July 07, 2015

The Greek Debacle

I have hardly blogged on the catastrophe in Greece this year, despite following it closely. I won't write a lengthy post now, but will link to a few pieces I think especially perceptive. The nutshell of my opinion: Greece "qualified" to enter the Eurozone only by accounting fraud (every entrant had to show that national government was fiscally sound). Greek fiscal behavior subsequently worsened, and Greece now lives by borrowing. It borrows not for temporary shortfalls, but because Greeks as a whole consistently, systematically consume more than they produce. The first EU/ECB interventions "imposed" "austerity." The quotation marks around "imposed" refer to the fact that the EU and ECB forced nothing on Greece... they simply required that they would not provide bailout money (ultimately taken from German and other EU taxpayers) unless Greece agreed to their terms. "Austerity" is in quotation marks because it ought to be called "fiscal responsibility." Greece was told it could not continue to consume so much more than it produces. In particular, government spending had to stop growing and Greeks had to start paying for a bigger share of their government's spending, instead of expecting Germans and others to do it.

Initially, austerity worked. The Greek economy began to grow. But being self-supporting was, apparently, unacceptable to too many Greeks, and the radical left Syriza party was brought to power. Prime Minister Tsipras, former Finance Minister Varoufakis, and current Finance Minister Euclid Tsakalotos seem to be a pack of madmen. They appear never to have serious proposals to offer to fix anything, and have nearly destroyed the Greek economy which, since Syriza came to power, has been declining. All are Marxists, an utterly silly and bankrupt philosophy... so what did we expect?

In Sunday's referendum, nearly two thirds of Greek voters rejected curbs on spending. They also rejected paying for it themselves. That is, this was a vote not to leave the euro, but to have the rest of Europe continue to finance, indefinitely, Greek over-consumption. (You're over-consuming if you systematically consume more than you produce.)

Most rational observers think this vote is a tragedy. I tend to think this. However, not all agree. Radical socialists (they hardly qualify as rational observers, I admit) are quite happy with the result -- the revolution against the neoliberal hegemony has begun, I guess. Keynesians (e.g. Paul Krugman) also seem to be supportive. After all, in Keynesian theory what is needed is demand side stimulus -- pour money into Greece, let Greeks spend like crazy, and the place will explode with productivity!...only Greece's problems aren't from a business cycle but are from systematic, long term fiscal irresponsibility.  While Keynesianism is nonsense on stilts, even on Keynesian terms the Keynesians are wrong, Greece isn't suffering from a business cycle downturn.  And there's one other nutty band that seems gleeful over the "no" result -- these are clueless libertarians who imagine that somehow the Greeks have rejected the EU, ECB, IMF, and all the rest of that "new world order" stuff.  I've read a fair amount of commentary, mostly in blog comments, by these confused people.  They don't seem to realize Greeks generally remain insistent that ECB and IMF bailouts keep coming in.  Yes, the Greeks rejected raising taxes in Greece, but this simply means they want German, French, UK, and American taxes raised.  Marxists, Keynesians, and clueless libertarians... what strange comrades-in-arms!

There's one other group that likes the "No" vote, and this is those who believe this will help destroy the euro and EU.  I have some sympathy with this position as well.  But I hasten to add it is quite a different one from any of those in the previous paragraph, since it readily admits the contemptible irresponsibility of Greeks as a whole.  But anything that helps break the grip of EU bureaucrats on power can't be all bad.  Tim Black's piece in sp!ked makes this case rather nicely.

My own official Unforeseen Contingencies position has already been made public: kick Greece out of the Eurozone.  Greece will be in economic hell for a period (no economy can survive without a medium of exchange).  And unless Greece becomes more, rather than less, free market, it will be there a very, very long time.  While I am not a fan of fiat currencies, I am not anti-euro, but euro-ambivalent.  Having a single currency across many trading partners greatly lowers transaction costs and facilitates trade.  True, it also makes it nearly impossible to use monetary policy for macroeconomic stabilization, but that may well be another benefit.  (Friedman says so, and Mises and I concur.)  Would the world really be better off with a return to lira and drachma and such?  And even though I hate the bureaucratization of Europe via the EU, I don't want to see a "hard unwinding" that would strengthen the hand of Putin, Islamists, and other threats.  So may the European leaders kick Greece out of the eurozone, hope they get on with fixing their country by themselves, and start fixing Europe.

And because there seems so little clarity in so much of the public discussion, let me emphasize something else: Greece's debacle is a tragedy, and many innocent people are being hurt in it.  Some are Greeks, who are watching their economy go to pieces and have no control over anything, and many more are taxpayers in Europe and elsewhere who will ultimately be stuck with the burden when Greece defaults or gets further debt forgiveness.  When I condemn Greece and Greeks in general, the reader should understand that responsibility is always an individual matter, never a collective one.

Well, OK, maybe this is a lengthy post.  Links will appear in a separate post.

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