Why is Greece in this mess? A stimulus package is five years overdue.
Prime Minister Alexis Tsipras announced Friday that the Greek people will vote in a referendum on a proposed extension of fiscal assistance by its European Union partners on July 5. But on June 28, the European Central Bank announced that it was cutting off Emergency Liquidity Assistance funds that the Greek government depends on to pay back its debts.
As of Sunday, the failure of monetary union and political catastrophe loom over the EU.
But this artificial crisis really comes down to one fundamental disagreement. European finance ministers demand that Greece must implement even greater austerity, mainly through spending cuts on anti-poverty programs and public jobs to create a budget surplus, while populist Syriza leaders say their country cannot endure the brutal conditions of a shrinking economy after five years of austerity without any success to show for it.
In fact, not only has it been discredited, Krugman says that issues in economic policy “rarely get resolved (as) decisively” as the proposal of austerity. Even a surface-level investigation of basic macroeconomics shows that recovery from economic crisis requires stimulating aggregate demand, not cutting it back even further.
Greek has been forced to institute austerity policies by the troika—the ECB, International Monetary Fund, and European Union—in exchange for loans to cover public expenses.
After four years, hundreds of billions of euros in bailout loans, and monthly political debates and crises over the next debt payment, Greece’s economy still has not recovered. In fact, throughout this “bailout” and “recovery” process, the Greek economy has lost over 30 percent of GDP.
So Tsipras’ refusal to bow to what he calls “an ultimatum” from the troika that would place “unbearable new burdens on the Greek people” has statistical and economic proof, unlike the continued austerity demands of the European finance ministers.
In an interview with the BBC, Greek Finance Minister Yanis Varoufakis said Europe is in “a dark hour,” failing to meet its dual commitments to monetary union and democratic decision-making in its member states. He also said that the troika has “not met Greece even a quarter of the way” in negotiations.
Banks will not open for business in Greece on Monday. The BBC reports that long lines formed at ATMs on Sunday. Greek citizens have already withdrawn billions of euros from their accounts. Yet the destruction of the Greek people’s economic future is completely unnecessary. It’s an artificial crisis perpetuated by uncontrolled markets and unreasonable regulators.
The New York Times reported Sunday that hedge fund investors are in a “panic” over the events of the last week, and quoted one investor suggesting that the Greek government is “willing to torch their own country.”
But the Europeans have been torching the Greek economy for the past five years, refusing to allow enough economic stimulus to reboot economic growth, as a foreign investor not engaged in the country’s daily life could easily ignore or misunderstand.
The people of Greece have made deeper sacrifices for much longer than the people of any other Western country after the 2008 recession. Pensions have been cut, government spending is down, and yet the economic growth promised by the priests of austerity is nowhere to be seen.
In fact, the economic forecasts by Greek creditors and EU institutions—the priests—constantly overestimate GDP growth. They’ve predicted a speedy recovery several times, only to see Greece’s economic status crash to new lows year after year.
Lauded development economist Jeffrey Sachs may have the ideal solution.
Greece should just say no to the unacceptable creditor demands. Stop paying. Keep the Euro but without burden of debt service.
— Jeffrey D. Sachs (@JeffDSachs) June 28, 2015
While some in the ECB, IMF, and Eurozone finance ministries would prefer a Grexit, the politics of union in Europe strongly back keeping Greece as an equal partner. European political leaders want to avoid setting a precedent for disunion at almost any cost. Unless the EU is willing to let Greece go, Tsipras and Greek people have a political trump card.
The troika is demanding more austerity in order to release money so Greece can repay its debts to—you guessed it—the troika. This is about the ECB and IMF providing a loan to Greece so Greece can pay back the ECB and IMF. If the EU ministers don’t demand payment, they don’t need to make another loan. Europe has the tools it needs to solve this crisis.
After five years of austerity, it’s time for Europe to stop pushing Greece further into a negative cycle of more debt, a shrinking economy, and a refusal to allow economic stimulus, thus meaning Greece has to take on even more debt just to keep the economy from getting even smaller.
We’ve seen the results of what the priests of austerity offer to the European people—perpetual recession without public support or solidarity. Europe has the opportunity to break that cycle.
Don’t let the troika sacrifice the Greek people on the altar of austerity. We know it won’t work.