Like Socrates, Greece Drinks the Hemlock

Editorial

Greece Drinks the Hemlock

Published: November 8, 2012

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Greece’s Parliament did what it had to do on Thursday. Despite some defections from the ruling centrist coalition, lawmakers narrowly approved a $23 billion package of new austerity measures, including further spending cuts to social services, pensions and public salaries, as well as tax increases demanded by Greece’s European lenders.

Related

• Defections Shake Greek Coalition (November 9, 2012)

• Fragile Coalition in Greece Narrowly Backs Austerity (November 8, 2012)

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In return, the troika of official creditors — the European Commission, the European Central Bank and the International Monetary Fund — promise to consider, but not guarantee, reducing the punitive interest rates they charge Greece for bailout loans and unlocking a $40 billion aid payment Athens needs to avoid a default on its debts.

No responsible Greek lawmaker could have ignored the terrible consequences of voting no. But no one can dismiss the threat to social stability from these cuts. Even Prime Minister Antonis Samaras, who fought hard to push the package through Parliament, characterized the cuts it imposed as “unfair.”

The fact is, just about everything in this austerity package has been tried before and failed disastrously. These unpalatable steps will do nothing to make Greece’s debts more payable, bring its budgets closer to balance or help make the structural reforms Greece needs to revive its economy. Instead they will almost certainly further shrink an economy that has already shrunk by an astounding 25 percent over the past few years, making fiscal improvement nearly impossible.

The austerity approach was supposed to reduce Greece’s ratio of debt to gross domestic product. But that ratio has grown, despite debt write-offs and bailouts, because the economy has contracted so much. The new package is expected to shrink it an additional 9 percent.

Greece cannot pay off its debts when it is shutting down its economy. It has to put people back to work. The only way forward is through more debt write-offs and more low-interest European loans, as well as by opening up restricted job markets.

But measures that extend and deepen Greece’s severe recession are certain to intensify public opposition to labor market reforms that could increase an unemployment rate already over 25 percent. And imposing new fuel taxes and health care charges will hurt ordinary people and make a tax system that is scandalously unfair even more so.

Ordinary Greeks are losing confidence in a political system they feel has failed to protect them from economic ruin. Greek lawmakers know this but feel compelled to do as their European creditors ask. And, we suspect, many of those creditors also know that more austerity is not the answer. But so far, they have been unwilling to challenge the leader of Europe’s biggest economy, Chancellor Angela Merkel of Germany, who continues to believe that only economic punishment will push Greeks to reform.

It may be a winning political formula in Germany, where Ms. Merkel stands for re-election next year. But it is a profound, and profoundly unnecessary, tragedy for Greece. 

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Greece Drinks the Hemlock

In real time we see the real problem of the European Union the way it is presently structured regarding the poorer members like Greece and Spain and Portugal. IN bad times this structure kills their economies. But, in good times it might also be the salvation of their economies. The question then becomes: "Can they survive the bad times without a violent revolution being sparked by 25% or more unemployment?" And the next question becomes, "Can the rest of the European Union live with themselves if they destroy the poorer nations in order to keep the union intact?"

It reminds me a little of what caused our civil war. Many say it was slavery but at that time without cheap labor to run the farms and plantations it destroyed the wealth of the south. So, because there were not enough machines yet to work for everyone, the south went down economically during the civil war because of all the changes. I agree that ending slavery was a very good thing. But there also is no doubt that the civil war changes destroyed the south economically for at least 50 years. I see the changes in the European Union being the same kind of problem only in regard to currency.

Because unless Greece and Spain can issue their own currencies soon, it is quite likely that neither economy will ever be able to recover given today's real problems worldwide.

And the U.S. might not be able to recover either if it takes the wrong path over the fiscal cliff for it's own survival. It is not about politics it is about the survival of whole cultures the rest of this century. Unlimited natural resources are less a positive than before because of worldwide overpopulation. The likelihood of full employment or even unemployment under 7 percent ongoing is less likely now with this many people in the world. If it costs 34 dollars to make anything in the U.S. compared to 2 dollars in China the western world is NOT competitive at least in manufacturing worldwide anymore. So, how is the money to be made to pull the western world out of these difficulties? You don't pull money out of thin air unless you are in the upper classes on Wall Street. But where does the real money come from to finance western countries in their present tastes? I don't have an answer to this question.  

So, financing countries like a bankrupt man who hasn't had his last credit card taken away is sort of how I see all this at present. It hasn't gotten realistic yet. But it will.