The whole sad issue of Greece’s fiscal problems seems to be coming, slowly and painfully, to a denouement. I won’t bother linking to any of the many articles on the subject. I’m afraid that what many of the American commentators, both in old media and in the blogosphere, are failing to take into account in their complaints about austerity is that the Greeks don’t have a lot of options. The Greek people are no happier about austerity than American economists with newspaper columns. Less so if anything.
Essentially, the Greeks can:
- Raise taxes which they won’t be able to collect and cut spending which will speed the fall of the present political coalition enough to please the German, French, and Luxembourger banks they owe so that they’ll roll over their current debt and, maybe, lend them more.
- Accept Greece’s status as a sort of permanent theme park, in Europe but not of it, somewhat resembling American Indian reservations or the now-defunct South African “Bantustans”, in perpetuity. The Greeks want a “European” lifestyle that their own economic resources won’t support and they don’t have the social or economic resources to make the changes that would be needed to grow into the lifestyle they aspire to.
- Leave the euro.
The prevailing wisdom is that the current government will fall soon and the new one will exit the euro. The biggest losers in this process are likely to be the Germans who currently have an enormous trade deficit in their favor with Greece which would be all but certain to decline and Italy, whose trade deficit with Greece is only slightly less than the Germans’. If Greece’s exiting the euro causes severe economic problems in Italy which may well be the case, it’s unclear to me how the monetary union can survive.
Germany and Italy aren’t the only countries at risk. There’s a sort of trickle-down in the Balkans. Greece has substantial direct foreign investment in Macedonia, Serbia, and Bulgaria which would unquestionably decline, at least in purchasing power, with the return of the drachma. The whole apple cart is likely to be upset.
Good points. I’m not an economist [though maybe if I continually make doomsday predictions, I’d be considered one?], but how will Greece cope with a euro exit? I doubt they can get their economy back on track through the tourism industry, so it’ll likely have to come via exports, meaning they will need some investment. Who in their right mind will invest in Greece, though?
They’ve haven’t been able to abide by their agreements (drawing it out over a two year process to boot), and due to the loathing of the politicians there (warranted), populism will likely be the platform in the short-term (introducing policies that will throw the baby out with the bath water). So if investment isn’t forthcoming, or not at the pace needed, how will Greece survive? I’m guessing that’s why muddling through was seen as the best of the bad options.