The Greek crisis seems to me something like the mortgage crisis, in which all kinds of people were encouraged to saddle themselves with junk mortgages. Then they lost everything when the economy took a dive and they fell behind on payments. Greece, I understand, has a humongous debt that even the International Monetary Fund has concluded can never be repaid. And this is partly because the Greek government of awhile back borrowed irresponsibly, but it has to be said the lenders were being irresponsible as well. That may not be what happened, but that’s how I understand it.
The Greeks have suffered terrible deprivation doing what the Eurozone nations told them to do, which was to reduce government spending and pay down the debt. But the austerity cuts, cuts, cuts had the effect of killing their economy, so the debt couldn’t be paid down. And then the Greeks voted in a government that said, bleep austerity. And yesterday they voted to reject Eurozone austerity demands. Without more money coming from the Eurozone partners, Greek banks may collapse.
There’s a lot of clucking about What It All Means, and What Should Greece Do, and What Should Europe Do. I think it’s all just wrong. There’s something basically wrong when people are impoverished not because of anything they did or because of natural calamity, but because of the way economies work.
I’ve never been to Greece, but everything I’ve heard about it says it is very beautiful, the climate is lovely, and there’s a large agricultural area. And of course it has a rich and ancient civilization. There’s no reason I can see that people in Greece can’t have everything they need to live perfectly satisfying lives. If they can’t, it’s not because there’s something wrong with the geological entity of Greece and its people. It’s the System that got them into this mess.
Professor Krugman has been largely sympathetic to the Greeks and thinks the only way out of the mess is for them to bail on the Euro and set up their own monetary system. He wrote,
And let’s be clear: if Greece ends up leaving the euro, it won’t mean that the Greeks are bad Europeans. Greece’s debt problem reflected irresponsible lending as well as irresponsible borrowing, and in any case the Greeks have paid for their government’s sins many times over. If they can’t make a go of Europe’s common currency, it’s because that common currency offers no respite for countries in trouble. The important thing now is to do whatever it takes to end the bleeding.
Professor Krugman also said,
Jared Bernstein weighs in on the big No, hopes that it leads to a change in Europe’s approach, but acknowledges the political difficulties:
To be fair, it’s not that simple. There are structural political factors in play, endemic to the fact that the currency union is not a political union, nor a fiscal union, nor a banking union. As one German economist put it to me, “How do you think the people of Manhattan would like bailing out Texas?” Fair point, and a non-trivial challenge, for sure.
Ahem. As it happens, the people of Manhattan did bail out Texas, big time. I wrote about it here. The savings and loan crisis, which was very costly to taxpayers, was mainly a Texas affair:
The cleanup from that crisis cost taxpayers about $125 billion (pdf), back when that was real money. As best I can tell, around 60 percent of the losses were in Texas (pdf). So that’s around $75 billion in aid — not loans, outright transfer.
Texas GDP was about $300 billion in 1987. So this was equivalent to giving — not lending, not even taking an equity stake — Spain 25 percent of its GDP to bail out its banks.
But of course Manhattan was never asked to bail out Texas; we had a national system of deposit insurance, and the big Lone Star bailout was automatic.
… and the people who brought on the crisis because they were recklessly playing the system to enrich themselves were given slaps on the wrist and told to never be naughty again. Neil Bush, for example, was fined $50,000; Republican supporters chipped in to pay it. Meanwhile, taxpayers shelled out $1.3 billion to clean up Bush’s Silverado mess..
In short, I don’t blame the Greeks for telling the Eurozone to go bleep itself.