The Greek Crisis
Greece is being played in the media as a morality play in which a profligate government is brought to account by theÂ bond market and forced to submit to stern – but justified – austerity measures.Â While Greek economic governance before the socialists recently returned to power was not without huge flaws, this account misses out on some key fronts. For one, shrinking Greek GDP through stern austerity measures including an immediate tightening of the fiscal balance by 4% of GDP means tipping the Greek economy into a major Depression, which would make the fiscal situation even worse.Â For another, so long as it remains in the Euro zone, Greece does not have the option of devaluation andÂ is thus forced to regain real economy competitiveness against Germany via deep wage cuts. Germany lectures the Greeks on their profligacy, but worsens the situation by running big export surpluses with the rest of the EU whileÂ severely repressing consumption and wages at home. This is also creating enormous difficulties for Italy and Spain. Finally, there is growing evidence that financial market speculation and complicity in debt concealment is at least as much to blame for the crisis as Greek “profligacy.”
These and other key points are made in an excellent article by Andrew Watt of the European Trade Union Institute. (His columns on the Social Europe site are well worth following.)Â Â http://www.social-europe.eu/2010/02/a-greek-tragedy-or-a-european-farce-time-to-re-write-the-script/
See also this piece by the European Trade Union Confederation economist Ronald Jannsen.Â http://column.global-labour-university.org/2010/01/greece-bashing-is-hiding-obvious.html
And today’s Globe features Ben Bernanke going after Goldman Sachs for their role in the Greek crisis.