The Buck Stops Here: Greece Is Fighting to Save Europe
by Mark Weisbrot
Co-director, Center for Economic and Policy Research, Washington, D.C.
Huffington Post
Feb. 27, 2015
Greece has been dragged through a lot of mud in the media over the
past few years because previous governments overborrowed, and that
contributed to the initial crisis that -- we should remember -- Spain,
Portugal, Italy and almost everyone else in the eurozone had to go
through. But the initial crisis could have been resolved relatively
quickly. In the United States, which was hit by the explosion of an
$8-trillion housing bubble, our recession lasted just 18 months. In
Greece it has been six years, with a loss of a quarter of its national
income, and more than 25-percent unemployment (and twice that for
youth).
By now it is clear not only to the majority of economists but to most
people who are paying attention that this long depression was not only
unnecessary but caused directly by bad policies. The Greek government
implemented budget tightening that shrank the economy and worsened the
debt burden -- which has gone from 115 percent of GDP before the
Greeks signed their first agreement with the IMF in 2010 to more than
170 percent today. At the same time, the European Central Bank (ECB),
which could have helped Greece by keeping its borrowing costs down,
allowed Greece's interest rates to soar, provoking a prolonged crisis
not only for Greece but for the eurozone. As a result, the
unemployment rate in the 19-country eurozone is still twice that of
the United States today.
All of this was due more to political motives than to economic ones.
It was not financial markets or even the big banks that drove this
disaster but European officials who prolonged the financial crisis in
2011 and 2012 and used it to try to remake the economies of Greece,
Spain, Portugal, Ireland, and Italy more to their liking. After more
than 20 governments in the eurozone had fallen, the Greek people
elected a government -- led by the Syriza party -- that was committed
to saying no to further austerity, economic damage, and mass
unemployment.
European officials, led by extremists in the German government,
offered "my way or the highway" to the new government of Greece after
it was elected on Jan. 25. On Feb. 4 the ECB cut off the most
important line of financing to the Greek banking system, provoking a
stock market crash and more people taking their bank deposits out of
the country. On Feb. 12 European officials were indicating that Greece
could lose access to emergency liquidity assistance from the ECB,
which would provoke a severe financial crisis and possibly collapse
the Greek banking system. But Syriza did not cave. A week later,
fearing an impasse that could force Greece out of the eurozone,
European officials blinked and agreed to renegotiate the terms of the
so-called "bailout" that previous Greek governments had agreed to,
over the next four months.
There will be tense negotiations ahead, but one thing is clear: Greece
is fighting for the future of Europe. Citizens of the eurozone
countries didn't know when they formed the monetary union that they
were not only losing their sovereign and democratic rights to control
their most important macroeconomic policies -- monetary, exchange
rate, and then fiscal (spending and taxing) -- for the most vulnerable
countries in recession, when they needed it most. They had also ceded
this power to people with an anti-social-Europe agenda, people who
wanted to shrink the government and cut health care, pensions and
wages.
Now Greece is trying to get some of that democracy back. It is badly
needed if Europe is to escape from this long nightmare.
<http://www.huffingtonpost.
__.
by Mark Weisbrot
Co-director, Center for Economic and Policy Research, Washington, D.C.
Huffington Post
Feb. 27, 2015
Greece has been dragged through a lot of mud in the media over the
past few years because previous governments overborrowed, and that
contributed to the initial crisis that -- we should remember -- Spain,
Portugal, Italy and almost everyone else in the eurozone had to go
through. But the initial crisis could have been resolved relatively
quickly. In the United States, which was hit by the explosion of an
$8-trillion housing bubble, our recession lasted just 18 months. In
Greece it has been six years, with a loss of a quarter of its national
income, and more than 25-percent unemployment (and twice that for
youth).
By now it is clear not only to the majority of economists but to most
people who are paying attention that this long depression was not only
unnecessary but caused directly by bad policies. The Greek government
implemented budget tightening that shrank the economy and worsened the
debt burden -- which has gone from 115 percent of GDP before the
Greeks signed their first agreement with the IMF in 2010 to more than
170 percent today. At the same time, the European Central Bank (ECB),
which could have helped Greece by keeping its borrowing costs down,
allowed Greece's interest rates to soar, provoking a prolonged crisis
not only for Greece but for the eurozone. As a result, the
unemployment rate in the 19-country eurozone is still twice that of
the United States today.
All of this was due more to political motives than to economic ones.
It was not financial markets or even the big banks that drove this
disaster but European officials who prolonged the financial crisis in
2011 and 2012 and used it to try to remake the economies of Greece,
Spain, Portugal, Ireland, and Italy more to their liking. After more
than 20 governments in the eurozone had fallen, the Greek people
elected a government -- led by the Syriza party -- that was committed
to saying no to further austerity, economic damage, and mass
unemployment.
European officials, led by extremists in the German government,
offered "my way or the highway" to the new government of Greece after
it was elected on Jan. 25. On Feb. 4 the ECB cut off the most
important line of financing to the Greek banking system, provoking a
stock market crash and more people taking their bank deposits out of
the country. On Feb. 12 European officials were indicating that Greece
could lose access to emergency liquidity assistance from the ECB,
which would provoke a severe financial crisis and possibly collapse
the Greek banking system. But Syriza did not cave. A week later,
fearing an impasse that could force Greece out of the eurozone,
European officials blinked and agreed to renegotiate the terms of the
so-called "bailout" that previous Greek governments had agreed to,
over the next four months.
There will be tense negotiations ahead, but one thing is clear: Greece
is fighting for the future of Europe. Citizens of the eurozone
countries didn't know when they formed the monetary union that they
were not only losing their sovereign and democratic rights to control
their most important macroeconomic policies -- monetary, exchange
rate, and then fiscal (spending and taxing) -- for the most vulnerable
countries in recession, when they needed it most. They had also ceded
this power to people with an anti-social-Europe agenda, people who
wanted to shrink the government and cut health care, pensions and
wages.
Now Greece is trying to get some of that democracy back. It is badly
needed if Europe is to escape from this long nightmare.
<http://www.huffingtonpost.
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