The Greek Saga

Over the weekend, European leaders decided to give Greece a rescue package of nearly one trillion dollars to combat their debt crisis. With that gigantic package came austerity measures worth about 48 billion dollars, which include, among other things, public sector pay cuts, higher taxes on alcohol and cigarettes, and tighter retirement rules (NYTimes). The protests in Athens and other cities in Greece are led by angry public sector employees who don't want to pay for their government's mess. The BBC reports, "The unions regard the austerity programme as a declaration of war against the working and middle classes . . . their resolve is strengthened by their belief that this crisis has been engineered by external forces, such as international speculators and European central bankers."

To some extent this is true. "The spark for this financial crisis has been decades of overspending and cooking of the public books" (WSJ). However, as the Wall Street Journal also points out, there are deeper underlying causes. For example, it's hard to do business in Greece -- "The Doing Business survey reveals an economy that's hostile to free enterprise and private property, primed for corruption, lacking in labor and capital mobility, stifled by powerful trade unions and unlikely to grow without deep-rooted changes."

When Greece joined the European Union in 1981, it was far behind the rest of the member countries, but they promised to institute reforms to catch up. They were supposed to grow their economy, increase transparency, and make entrepreneurship facile, but they never did. Low-cost borrowing was so much easier, and the people seemed to be happy with their way of life. They knew their new European partners wouldn't let them down, and as we now see, they were right.

"As a euro member, Greece no longer has the option of debasing its currency, which was one of the main arguments for creating and joining the euro bloc. This means the burden of adjustment for years of borrowing is now falling on the Greek government, which is where it rightly belongs" (WSJ). The Greek citizens marching on the streets have a right to be angry at their criminal government, but to whom else should the burden fall? From the perspective of other Europeans, "the Mediterranean coupling of high living and low productivity" was never sustainable. In other European countries, particularly Germany, the average retirement age is a whole ten years higher than it is in Greece, and understandably, their attitude toward the protesters is tinged with some anger and annoyance.

Plenty of people wanted to let Greece default (one example). On principle, I wanted to let Greece default. I guess we all knew that wasn't going to happen. At this point the only option is to wait and see if Greece will get its act together and keep its promises, and if the PIIGS can wean themselves off the slop. I don't think a bailout will work in the long run, and I'm pretty sure the nauseating show of greed, corruption, and profligacy will continue. Plenty of others are as pessimistic, although some facetiously allow for the possibility of "a miraculous global boom in olives and Greek cruises." Going forward, we should keep in mind that the implications of this Greek tragedy go far beyond economics.