What would you do if you’d lent loadsamoney to someone and they didn’t pay you back as agreed because they were unemployed and didn’t have the necessary? Would you demand they stop eating so they could repay a bit? Would you start taking stuff from them in lieu of interest payments? Would you threaten them with even worse deprivation, if they didn’t repay in full as agreed? Or would you realise you’d been stupid to lend them all that money in the first place without checking their ability to repay, without even checking if they had a job with some regular income?
Greece can’t repay its debts and the more austerity is enforced, the less able will Greece become. Unemployment already stands at 26% with youth unemployment around 55%. More austerity will only increase those figures reducing Greece’s capability. Martin Wolf suggests the loans to Greece were made recklessly, without due diligence, because the purpose of the loans was not to help Greece but to protect the Euro [‘Greek debt and a default of statesmanship’, Financial Times, 28/1/2015]. Greece exiting would be an example others might follow. So, while exit could be damaging for Greece, for the Euro it would be disastrous, reducing it to the category of an exchange rate peg, rather than a solid currency.
In the aftermath of the 2008 crash, there was much debate as to whether stimulus or austerity would be the best way to return economies to health. The 1930s experience, addressed by the application of common sense and common humanity, saw economies revived by the stimulus exampled by Roosevelt’s New Deal. This hard-learned lesson has been highlighted before at https://gordonpearson.co.uk/2014/10/22/a-new-new-deal/#more-1127
Today, common sense and common humanity are both unfashionable. The developed world is driven by a blind adherence to a disreputable economic theory which has demonstrated its inadequacies time and time again. Pursuit of that false theory has orchestrated the dominance of global finance at the expense of real economic activity (manufacturing and non-financial services). Despite the lessons of the 20th century, stimulating economies back to life, rather than squeezing them to death, is no longer on anyone’s agenda, apart from the Greens. There is simply no debate.
The inevitable result has been the explosion of inequality which is causing widespread anger and aggression. The Occupy movement has shown rumblings of dissent, but the new Greek government is the first substantive move with any real power.
But, it is often argued, Greece is corrupt, a black economy where all taxes are avoided. Stimulating the Greek economy would just feed the crooks. It was reported (Penalise the banks but use the money well, Financial Times 13/11/14) that between 2009 and 2013, the twelve global bankers paid out £105.4bn worth of fines to European and US regulators for various criminal offences. Those banks made additional provisions in their accounts for a further £61.23bn of anticipated fines for crimes which presumably they know all about, but which have not yet been uncovered. So a total of £167bn, which the FT described as “eye popping” at the same time pointing out that £167bn was “unlikely to be the final hit.”
Most other banks have been at it too, as have pretty well the whole of the financial sector, and a great many global corporates in other sectors as well. The business and economic world seems to have become mired in a culture of ‘casual dishonesty’, fraud and deceit. If Greece is corrupt it is far from unique. But at least they have chosen a government purged of the old establishment and dedicated to cleaning up their act.
It would be far better for everyone, if the Greek economy was nursed back to life, rather than beaten to death. Whatever happens to Greece, others will surely follow. It could be turned into an example that others might wish to follow.