Ronan L Tynan
What is really shocking about the brutal austerity imposed on Greece is that it was mostly unnecessary as Philip Legrain points out so convincingly in the Financial Times. Describing the Eurozone as a debtors prison created by Germany’s Merkel he asserts, as many of us know all too well, that the aim of the Greek bail out was not to help Greece but to save German and French banks that had so recklessly lent to her.
However, the scale of the austerity imposed on Greece beggars belief in that it led to a loss of output between the third quarters of 2009 and 2014 of €191 Billion – more than 100% of GDP! Unemployment even with record emigration is extremely high, with youth unemployment at more than 50%. However, the key point now is Greece’s loans are unrepayable and more “extend and pretend” will only impose further unconscionable suffering on the Greek people, and potentially damage the Eurozone still teetering on the brink of catastrophic deflation. Indeed, it is silly and dangerous for Chancellor Merkel to even imply we can afford to see Greece leave the Eurozone without disastrous consequences for the Euro.
But just to underline how impossible it is for Greece to pay back its debts under current Eurozone rules: from next year the Greeks must run a huge primary surplus of 4.5% of GDP. Worse still that must be accomplished under the structures of the EU Fiscal Compact which means that governments with debts of more that 60% of GDP must reduce them by 1/20th every year – and with Greece’s debts 175% of GDP surely that is mission impossible?
The Financial Times was unequivocal in a recent editorial pointing out such brutal conditions could only be met by turning Greece into a ‘slave economy’! German and French banks lent irresponsibly to Greece, and Greek governments were obviously irresponsible to engage in such borrowing. But it is morally indefensible to force the people of Greece to bear 100% of responsibility? Of course by now the banks have escaped all responsibility because after 2012 European governments and taxpayers are now on the hook for her unrepayable debts. At the same time, the Eurozone seems trapped in a deflationary spiral because Germany has taken full control of the leavers of economic power, and will only end if Chancellor Merkel’s morality play economics are replaced by common sense (i.e. ending policy of cutting government expenditure in pro cyclical way with a view to producing growth!).
I can only conclude by echoing Legrain: “The eurozone has become a glorified debtors’ prison. If its German jailers aren’t wise enough to give Greece some relief, Greeks are quite right to try to smash the locks.”