Liberating Greece from a cycle of austerity and depression
Greece has made a decision in its 2015 Parliamentary Elections. Syriza, a radical left party, whose candidate, Alexis Tsipras, has been made Prime Minister, has vowed to put an end to the crippling austerity measures enacted to combat serious budgetary problems. The EU backed measures have served only to worsen a grim economic situation.
Economic turmoil began in Greece over a decade ago, when Greek debt began to take a nose dive. By 2000, the country had sought the aid of international organizations to stem the bleeding and acquiesced to loans, accompanied by austerity measures, which were supposed to solve problems, not inflict punishment. However it soon appeared as if those same measures were exacting a harsh toll on those subject to them.
Large American financial institutions, like JP Morgan Chase and Goldman Sachs, were and still are heavily involved in the world of Greek bonds. Some actually engaged in the most curious practice of selling interest rate swaps to foreign governments on Greek debt. These two corporations worked, in concert with others, to furnish their investors with iTraxx, a means by which they were able to bet against that Greek debt and profit off of its decline in relative value. These forces, coupled with many others like them served to create a market environment wherein Greek debt was better off a failure.
It became clear by 2009 that Greece would not be able to meet many of its debt obligations. In 2010, Greece became insolvent. In simple terms it seemed as if a weakened Greece saddled with the weight of loan obligations was unable to cope. Punitive austerity measures in the private sector imposed by Greek creditors did not help the matter either, driving unemployment rates up and wages down.
Today, Greek unemployment hovers around 28%. Among Greek youths, this statistic is most pronounced. Staggeringly, some 60% of young Greeks are currently unemployed. As history has shown time and again, it is unwise to have too many out-of-work, educated, and bored twenty-somethings roaming the streets as these conditions often lead to their becoming irritated and vocal.
Greece is a case study in the benefits and drawbacks of modern, neoliberal economic policy. In proportion to its population, Greece’s public debt is, at present, nearly impossible to pay off without outside aid or relief of some sort. The form which that aid takes must be chosen carefully, and in a manner oriented toward establishing a foundation from which Greece will be able to stand by itself. In assuring this, members of the Eurozone would show their commitment to future economic prosperity and stability.
A loss of budget control due to the imbalances caused by debt and loans means that Greece can’t even manage its current situation until its debt is under control. This power lies with Greek creditors, the IMF and EU member nations.
As it stands now Greece has an unsustainable public debt. With that being said it is no great leap of thought to see that the EU and the IMF must have seen this coming. In fact it is almost inconceivable that they did not forsee what harsh austerity measures have done to the Greek economy.
German Chancellor Angela Merkel is generally a strong proponent of austerity measures, but fails to recall an essential part of her country’s reconstruction after the Second World War. In 1953 the Agreement on German External Debts radically altered the payments delegated to Germany as reparations for the war.
As part of the agreement a huge portion of Germany’s debt was waived and another significant potion became delayed and/or reduced so as to render payment easily possible. This agreement allowed the German economy to rebuild itself without the brutal yoke of austerity. In the same way Greece must be allowed some means of relief from its debt, which in relation to its size is extraordinary.
A complete end to austerity with absolutely no consequences is a solution which unfortunately exists in fantasy. If Greece wishes to strike a lasting deal with other major European powers it must be willing to make structural concessions. In other words, budget realities are difficult to wave away with a righteous gesture of the hand. These, coupled with delayed, re-structured and/or forgiven debt, may, indeed, be the route to stability.
The validity of the Euro, and, by extension, the Eurozone, is threatened, in a very real way, by potential Greek volatility. If a crisis of confidence in Greek sovereign debt were to once again emerge, it could drag the Euro down with it.
This is something which countries like France and Germany would like to avoid at all costs. To that end it will be prudent to enact positive sensible reforms which seek to provide economic strength and cohesion through stability and expansion.
There is great opportunity for the implementation of positive, progressive reform with respect to internal Greek affairs, however, unpredictability on the international scale may inevitably be the defining variable in crafting a lasting solution.
The new Prime Minister has made it a point to, going forward, address these concerns through strong but competent negotiation at the international stage. In the end, dialogue will win the day as neither group can function independently of the other.