Much of the EU discussion and attendant solutions to the Greek economic tragedy have centered around debt restructuring in order to preserve banking structure and viability. Much less attention has been paid to the long term solution which of course is fundamental restructuring of the Greek economy. Those proposals have been comparatively anemic compared to the impending disaster that faces Greece.
Greek Parthenon
Even if Greece were to adopt all its austerity measures, which it seems loathe to do, the economy would remain smothered in debt without a clear and practical path to recovery. In this light, the conversations seem more focused on preserving the banks than preserving a nation and its culture in the long run. To illustrate, let us consider the following American scenario.
What if Los Angeles went bankrupt? Like Greece, it has about 10 million people in a wider alliance of more than 350 million. What would such a failure do to the value of the dollar in the long run? How is that comparable to the Euro?
Would we kick LA out of the US dollar as a solution to their problem, so they could devalue their own currency in an effort to preserve the lion’s share of their structurally bankrupt government and their creditors?
Likewise, would the answer to their economic hardships be that Texas taxpayers bail out the folks living in Los Angeles? Who would suggest such an answer and why would they do so? Would Texan and other state taxpayers put up with that solution? We think not.
More pertinent to the solutions being bandied about by the EU, should the US government inform its citizens that it needs even more power to tax in a special treasury operation that would allow it to bail out California, New York and other states who have for years ignored their fiscal inevitabilities for reasons frighteningly similar to the case studies of Greece and Italy?
Some readers may object to the comparisons of the EU to the USA. But the differences arguably underline the reasons why the answers must still be the same. That is, we would never consider such solutions because like the Euro, the dollar is not the problem. Greece’s political structure is the problem.
We could argue about the utility of creating a common currency in the EU while leaving most cross-border trade barriers in place, along with generally corrupt government accounting practices, but that conversation seems only to obscure the central issue. Greece by any cursory calculation needs two things to carry on; aggressive debt haircuts of between 60-80%, and fundamental restructuring of their economy. And the sooner the better. It is ironic that in private turnarounds, timely restructuring would be of utmost priority and gravity, while for governments playing with other people’s money it is delayed beyond all jurisprudence. This strategy only prolongs and deepens the suffering.
So we are back again to the earlier question. Who exactly are we saving; Greece or the banks? The argument that all the EU could tumble rings hollow, just as the arguments for TARP did. In fact it is more likely that preserving the debt will mire us even further in stagnating economies while markets take decades to clear away subsidized prices.
History tells us the consistent story that certain government philosophies inevitably fail. Fortunately, forgiveness and renewal is a part of life. And even corrupt governments like Russia have shown a remarkable aptitude to recover when ill-conceived spending and loans are finally ended.
Image from Flikr commons
