The Wall Street Journal lays the blame wholly on the Greeks and their failure to reform. I agree that reforms are important, but wholly disagree with the spirit and tone of the article.
The WSJ never met a social benefit or regulation it didn’t want to eliminate, from school lunches for impoverished kids to clean air regulations so we don’t all live in conditions like those of Beijing. So it comes as no surprise that they lay the blame for everything on Greece’s social welfare system. The conservative Journal makes a number of claims which are wholly unsubstatiated – as usual – makes no effort to provide any evidence. We are required to take their word for it:
“Over decades, Greek governments of left and right built an egregiously generous welfare state and lavished protections on a wide range of interest groups, funding their largess via reckless borrowing and by levying ever-higher taxes on an ever-narrower base of taxpayers”
1. Which benefits were so fantastically unsustainable? Did they have a fully free educational system like Germany or Finland? Perhaps they had a 38-hour work week like the French? No? Their health care system was rampantly more generous than that of the UK or Spain? In fact, the Greeks did have an overly generous retirement system, but That was neither principal cause nor a significant contributing factor to the crisis.
The real drag on the Greek economy was not overly “generous” welfare programs, but rather rampant cronyism and corruption. The WSJ mentions these, but strangely ignores them completely to immediately focus on its favorite whipping boy, social benefits. Neither did the EU make specific demands to clean this cesspool up, perhaps because it is such good business for private banking and wealth management funds in places like Luxembourg; or perhaps it is because the people running the Union all feed at the same trough and don’t want to set a “bad example” that their own governments might emulate.
“Greece has always had full sovereignty to choose how to hit those targets—and much of the calamity that has since unfolded stems from how successive governments exercised that sovereignty.”
2. How is it that Greece had “full sovereignty” to meet targets or even negotiate bail-out terms, when they were imposed by foreigners who had ousted the democratically elected government, imposed an ECB stoolie, and then threatened to force the country to monetary and economic collapse when the second democratically elected government attempted a reasonable renegotiation of targets even the IMF declared ludicrous?
When the democratically elected George Papandreou was told of the terms of the first bailout, he was so appalled that he declared it impossible to approve them without a specific mandate from the Greek people. The EU and ECB flatly refused, with the ECB going so far as to threaten to call in all of its Greek deposits and cutting off lending, forcing a collapse of the already illiquid Greek banking system. Papandreou was not only forced to give up on the idea of a referendum, he was forced to resign – in other words, he was ousted in an financial coup. In his place came Lukas Papademus, a Vice Chairman of -that’s right – the same ECB that had ousted his predecessor. This “technocrat”, who no Greek had voted for, then imposed the harshest financial terms since Versailles on his own people.
Exactly at what point did the Greeks exercise their sovereign rights? When they elected Syriza and voted “oxi” to the second bailout terms, but by then it was too late. In any case, the ECB paid no more attention to the referendum results than they did to Papandreou’s or Tsipras’s democratic mandate: the proceeded to impose capital controls and prepared to eject Greece from the euro as an example “pour encourager les autres”.
“It is true the program’s fiscal targets have been demanding, as they always are when a country is obliged to rely on other countries’ taxpayers to service their debts and fund their state. “
3. This not only bald hypocrisy, it is bad economics. You don’t give a person a loan and the tie there hands so they can’t pay you back; that is the old policy of devtor’s prison. And this is precisely what the Troika did; they imposed a series of conditions that made economic recovery impossible in Greece, so where was the Greek government supposed to get the money to make the interest payments on its debt? From the firesale of every public asset including – especially – the most profitable ones. I don’t say this was he purpose of the bailout, but it was a nice perq for investors in the rest of Europe.
If a higher standard of fiscal discipline is to be required and expected of a nation that “accepted” a bailout from other countries’ taxpayers, why isn’t the same standard applied to Portugal (-4.5% deficit) or Spain (-5.2% deficit)? In fact, Spain has NEVER met the deficit reduction targets set for it in its bailout package, much less generated a fiscal surplus, like Greece has. And it is lucky they did not; Spain’s recovery is largely based on the fall in oil, the depreciation of the euro, and government deficits to the tune of 6% of GDP. If Spain had implemented a Greek-style austerity, Podemos would be in charge today.
But the WSJ makes no effort to explain its hypocritical double standard. Why should they? It is common knowledge that the Greeks are all lazy and wicked, so no further explanation need be sought or proffered.
Yes, Greece has some serious reforms to make – just like every other country in Europe. Yes – their labor market is inflexible, their regulations for new business are extremely onerous, the state is excessively large for the size of the country, and their revenue model is as efficient as a sieve. But to say that this is all the fault of the Greeks is to ignore the role of the European Union and the ECB in the imposition of their infamous diktat.
It was not Greece that was bailed out, it was the German and French banks. They made many large, bad bets in Greek debt with little concern and less scrutiny on the assumption that every country in the eurozone was risk-free. Bad idea. In a well-operating efficient market, the Greek government would have imposed a haircut and these banks would have suffered the losses of their bad judgment. National governments would have bailed them out or restructured them; but this was politically unpalatable. Better and easier to blame the Greeks, ignoring the inescapabale fact that for every profligate borrower there is a profligate lender.
Greece should never have been allowed in to the eurozone, not with such rampant corruption and opaque politics. But once in, the time for reform was not when the crisis loomed. European partners need not have turned a blind eye to the vast financial flows going to Greece from their banks, but they too suffered from an excess of “animal spirits”. And once the crunch came, George Papandreou should never have given in to ECB pressure and allowed Lukas Papademus to replace him undemocratically. He should have gone ahead with the referendum on the bailout and prepared those drachma plates in case the ECB carried through its odious threat to bring the Greek state to insolvency. If that had led to the collapse of the Euro, too bad.
The British people seem increasingly likely to take the lessons of the Greeks to heart and not trust their sovereignty or their finances to the “men in black” in Brussels and Frankfurt. It would be a shame if Brexit precipitated a collapse of the European Union – that would be disastrous for US foreign policy and for Europeans as well. But while I am a true supporter of the European Union, its current incarnation – unaccountable and unelected – is not what any friend of Europe would wish for.
Europe needs a new beginning, a constitutional convention and a democratic federal system. Perhaps Brexit and Grexodus could provide the shock this ailing and failing system needs.
