Greece: no rescue

The eurozone finance ministers’ €130 billion bailout package for Greece announced on Tuesday, the second in two years, will not “rescue” Greece. It makes the economic situation worse, and represents a further tightening of the European Union’s stranglehold on national sovereignty and democracy in Greece.

Euro bureaucrats claimed the deal was a success. “The new program provides a comprehensive blueprint for putting the public finances and the economy of Greece back on a sustainable footing,” said Jean-Claude Juncker, chairman of the eurogroup of finance ministers.

But immediately there were serious doubts raised. Many pointed to a report produced by the “troika” (International Monetary Fund, European Central Bank and European Commission) that presented a scenario whereby debt reaches 160 percent of economic output in 2020, well above the stated goal of 120.5 percent (and an outcome that would require almost double Tuesday’s bailout amount). 

Investors and economists said that the deal would, at best, delay the day of reckoning. “It is all an exercise in make-believe. Does anybody really believe any of the Greek debt sustainability numbers?” asked Andrew Balls from Pimco. “We will see Greece leaving the eurozone before the year is out,” predicted Jennifer McKeown of Capital Economics.

The objective is to avoid default in Greece, which is thought would have severely negative consequences for the continent’s economies. Typically every reference is about avoiding a “disorderly default” or a “chaotic default”. And yet the way the eurozone leaders are proceeding today is leading Greece exactly in that direction. A conscious Greek default and exit from the single currency would be much preferable, but the insular and self-preserving clique of euro leaders has kept that off the table.

The mainstream discussion focuses on Greece’s public finances, and yet that is much too narrow. Even if Greece’s public debt could be reduced, the bailout does nothing to improve economic conditions. Indeed, debt is a symptom of a weak economy, and the deficit reduction becomes harder (if not impossible) because of the on-going economic turmoil.

By devoting resources towards repayment of debt, the Euro “solution” throws good money after bad. It delays a restructuring of the economy and investment in the future. Moreover, the Euro elites gloss over the fact that a reduction in debt levels to 120.5 percent – which is bland and technical-sounding – will mean the Greek people will face a painful decade of depression and massive cuts in living standards. They are paying the price.

It is hard to think of another example of when so much money was spent, and so many people immediately recognized that it would be ineffective. Pouring tons of money to go towards repaying interest is a waste, and is a delusional act of avoidance of the underlying problems facing Greece and the eurozone economies generally.

But even with all of the downsides for Greece’s economy, the most problematic aspect of the bailout is how it represents a further blow to democracy in Greece, its birthplace. Nothing that demolishes democracy can be called a benefit or progress.

The additional terms imposed on Greece via the latest bailout include a permanent team of monitors in Greece to ensure the country does not renege on the deal, and an escrow account which requires that Greece holds three months’ of debt payments. Perhaps most remarkably of all, Athens must change its constitution to make debt repayment the top priority in government spending.

Prior to the bailout, the leaders of the main Greek political parties had to agree to abide by the reform measures. But the Euro bureaucrats are still worried about the upcoming Greek elections in April. Before the deal there were calls by German finance minister Wolfgang Schauble and others to cancel the elections; expect such calls to continue. Cancelling elections – what could be clearer evidence of the EU’s opposition to democracy?

While sympathetic to Greece’s plight, the Wall Street Journal wrote that the “good news” about the bailout was that “it is much less consequential to Europe or the global economy than the first bailout two years ago”. It called Greece a "sideshow", and indicated that the rest of Europe (and the world) is now insulated from its effects. But, as mentioned, the most likely scenario is eventual Greece exit in an uncontrolled and unpredictable way, with wider repercussions for the eurozone. Further, the situation in other weaker economies - like Italy, Spain, Portugal and Ireland – is not fundamentally different than the situation in Greece, and could easily deteriorate. And finally, would be foolish for American policy-makers to assume that, in a global economy awash in credit and bound by multiple financial linkages, that the US economy would be immune from any worsening of the crisis in Europe.

To me, the only “good news” that might come out of the bailout is that it would seem to increase the chances that the people of Greece won’t put up with this bullshit, and that more of us will join them in opposition.