Mon Apr 4th, 2011 at 09:18:49 PM EST
Some weeks ago Jake posted a comment/LTE draft in my last diary on the Greek crisis, that I promised to translate and circulate in the Greek blogosphere and perhaps try to publish in a newspaper or two. While I failed in my attempt to do the second, the first was more of a success. I posted it in my Greek blog (note the stamp!) and saw the piece circulated around various aggregators and blogs. This led to a discussion and a number of questions, which we thought with Jake could be answered here, as they might be of interest to the ET community, serving also as a vehicle to discuss the issue of what is to be done with and what will become of the EU periphery's (and beyond) debt crisis. Thus I post the final draft of Jake's LTE here, followed by a list of selected questions and comments that were posted or received by email...
Greece should default on all sovereign debt owed to entities that are not individuals, and all sovereign debt in excess of 20.000 owed to individuals.
Then Greece should present the ECB with an ultimatum: Either the ECB carries Greek debt at the Frankfurt overnight rate until the hysteria in the international money markets has died down. Or Greece will leave the , and convert all debt owed by Greek citizens and government agencies to the new currency, without seeking the creditor's consent. Greece could then conduct its domestic economic policy without
consulting the markets that have failed so completely.
As an ardent supporter of the European project, it gives me no pleasure to make a recommendation that may result in breaking the Eurozone. But I can no longer in good conscience watch Greece commit economic suicide for the sake of the failed economic doctrines at the core of current -zone policy. Enough is enough.
None can dispute that Greece has serious economic problems. But those problems are not caused by the public debt; the problems are what is causing the debt. Attempting to solve Greece's problems by paying down the public debt is akin to bathing a fevered man in cold water to lower his temperature: It does not cure the problems, and it causes new damage in the process.
As citizens of Europe, we all have to endure occasional misguided policies from the European Union. Just as we as citizens of our countries have to endure occasional misguided policies from our national governments. But enough is enough. By imposing devastating austerity policies on Greece, the Eurozone governance has signally
failed the first duty of any government: To serve and protect its citizens and the common weal. If these policies made economic sense, the matter would be debatable. But they do not. Austerity represents a triumph of dogma over thought - it has never worked to resolve a crisis like the Greek, and it never will work. Not in Asia, not in Latin America, not in Hoover's America, not in Europe.
It is time to say no to this insanity, in the only language that will get through to the financial parasites who propagate it. Enough is enough.
These are some of the questions/comments that followed:
- The ECB managed to coerce Ireland into not defaulting on a much more obviously unfair debt, even after the newly elected government promised otherwise. Obviously it has some leverage on peripheral EU governments and economies. What is the nature of this blackmail and how can it be overcome?
- Given that the circulation (legal or not) of two currencies: the new currency - let's call it the Drachma - and the Euro is certain, won't this create a "black market" currency rate, as in the former USSR, that will undermine the drachma
- Hyperinflation threats: "Jake is underestimating the degree to which the Greek economy is dependent on imports" - that would include fossil fuels and basic foodstuffs, especially since it would make business sense for producers to export food at international market rates. That would mean that food would still be traded abroad in Euros and barring a government forced requisition, their prices would skyrocket in drachmas... And this wouldn't just affect oil and food, but basic capital goods, especially machinery of all sorts etc. Greece was driven to become a service economy over the past 20 years and that means it doesn't have the (short-term at least) ability to support its basic economic and vital needs.
- Even if feasible in principle: Does Greece (or other EU countries I should add) have a political personnel capable to organize the subtle and difficult political maneuvers required to fight off ECB blackmail and find solutions for the host of problems such a bold move would entail?
- Isn't it impossible in practice to default and leave the eurozone while staying in the EU at the same time?
- Wouldn't this sort of blackmail incur the wrath of the powers that be in the EU so that there would be a backlash in terms, say, of EU funds being withheld and general economic sabotage, by the "big" EU countries whose banks would be the main victims of such a default?
- If we switch back to the drachma would the currency devaluation reduce the buying power of wages and salaries even more than austerity is doing now? Why is a devaluation of local currency less painful for the mass of working people than a direct wage reduction? (The price of oil and its prospects should be taken into account in answering this question)
- If local loans are converted to drachmas wouldn't that mean that the Greek banking system will in large part collapse, with all that would entail? And if they are not doesn't that mean that, say, housing loans would become impossible to repay for the vast majority of debtors?
- For a devaluation to foster growth two things are needed: a. A tight fiscal policy: otherwise the inflationary pressures will keep increasing, leading to serial devaluations and hyperinflation. The Greek political system is not able to enforce such a disciplined fiscal policy without external constraints b. Excess potential in export industries: that means factories that are underfunctioning and can hire people as soon as competitiveness increases, or companies that can expand their potential as conditions improve. This sort of productive base doesn't exist in Greece and new businesses and jobs have to be created ab nihilio - something that would be made more difficult in a climate of devaluation and instability. In a society with governance, cohesion and a productive base like Denmark's a devaluation might help. Not in Greece...
- How credible could Greece's "bluff" be? Wouldn't it be called as soon as it was on the table?
- Does a Greek solution to the crisis even exist? Isn't Greece too small a player to be able to pull itself out of the hole it is in without the EU?
- Wouldn't the primary beneficiaries of a return to a (devalued) drachma be the corrupt elites that have already moved their wealth to foreign tax havens? Wouldn't they return and buy off everything for next to nothing?
- Wouldn't this tactic be more successful if it was used not by Greece alone but concertedly by all the IMFed countries?
- How does the population survive the first few months after the currency change? Rationing?