Citizens are real victims of Greek crisis

That Greece has been undergoing a slow-motion tragedy, now accelerating, is undoubted by (almost) all commentators. 

A modern, developed, European democratic country is devolving before our eyes into one where malaria and tuberculosis are making an unwelcome return, a laboratory for failed economic experimentation in which the hapless citizens are the denizens of the monetary petri-dish.

It’s hard to know exactly what is going on, and one cannot escape the conclusion that nobody really knows. Having got in an unexpectedly overwhelming result in support of its position, the Greek government then squandered that support by not turning up to meetings with the creditors armed with a coherent, mandated, economic policy.

Meanwhile, the creditors insisted that Greece adhered to the plan and, that the plan would work.

At the time of writing, Greece could still be heading towards the euro door. That nobody knows where the door is, how to open it, what happens if somebody walks, or is pushed through it, and much more importantly what lies on the other side both for the ejectors and the ejectee is not at this stage a surprise. Alarming, but not surprising.

Greece will almost certainly not be better off with an alternative currency, as it is heavily dependent on imports and its export base, such as it is, cannot ramp up rapidly. The eurozone will however run the danger of a much greater, if more diffuse, set of losses.

Estimates for the losses for the official creditors —that would be you and me —are that they are larger by far than any required haircuts that might have to be imposed on the existing holdings. In other words it will cost more for the eurozone to eject Greece than it would cost for the eurozone to keep it inside the bloc.

This in itself tells us that economics, or even mathematics, has flown out the window and we have been driven entirely by pique politics. It appears to be dawning on the eurozone creditors that getting rid of the Greek government would almost certainly result in it being re-elected. Both sides are stuck with each other.

It is of course a presumption that there will be a disorderly, calamitous Grexit and the Greeks will end up eating their own young.

Ireland, we should remember, is not Greece. More particularly, Greece is not Ireland. Ireland was like Greece in the 1970s and 1980s, with endemic tax evasion, an epidemic of graft (mostly concentrated at the top), and an economy which was really not up to the mark.

Unlike Greece we didn’t have the weather, but we were lucky a succession of governments saw the writing on the wall and decided to put in place a series of slow-burning but ultimately successful governance reforms.

The consequence is that by the time Ireland entered the eurozone we had an effective tax-collecting apparatus, an export orientation (even if it is not quite as rosy a picture as we might sometimes think), highly educated and mobile workforce, and was generally indistinguishable, if one didn’t look too closely, from a modern European economy.

Greece on the other hand has not made the strides in governance, tax collection, and overall economic modernisation that it would need to have done in order to be well situated to ride out the storm.

The biggest difference between Ireland and Greece is any potential contagion from Greece is now we hope containable. The ECB under Mario Draghi has seemed willing to use the immense monetary firepower available. Jean-Claude Trichet seemed unwilling or unable to contemplate using such firepower.

The second issue is that, even allowing for the present unpleasantness in China, indicators of stress in the global financial system are not as severe as they were in 2008/2010.

Putting these two together Greece has a weak hand. We had a strong card which we dropped behind the couch and shrugged off.

Nobody knows where this is going to end. What we do know is that regardless of the outcome, the people of Greece will continue to suffer. They are the victims of decades of domestic mismanagement and a decade of international economic insanity.


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