[...] The official EU policy towards Greece is best described as debt forbearance — of recognising a debt problem, and delaying the inevitable. It is also the policy of Antonis Samaras, the Greek prime minister, and his coalition government. It is a version of extend-and-pretend: extend the loans, and pretend that you are solvent. The history of international debt crises tells us that these strategies are always tried, and always fail. Now, add deflation to this mix. From this month onwards, eurozone headline inflation rates could turn negative, due to the most recent fall in the oil price. Deflation raises the real value of debt, and could push Greece over the brink. Unfortunately, the only party that makes a convincing case for a debt restructuring is Syriza, a party of the radical left. While Syriza is right about debt restructuring, it is also disingenuous by ruling out a eurozone exit. If you advocate debt restructuring, you would need to answer the question of what you would do if the negotiations fail. The choices then would be either to revert to the status quo — in which case there would be no point in voting for Syriza — or leave the eurozone, and unilaterally default against foreign creditors. But this is precisely what Syriza has ruled out. Syriza has the right instincts, but may not have the right policies. Such lack of consistency matters because Angela Merkel in particular appears willing to call Syriza’s bluff. Der Spiegel reported over the weekend that the German chancellor is willing to risk a Greek exit if its next prime minister were to abandon the current policies. In other words: the only way for Greece to restructure its debt would be to leave the eurozone. Greece is in this position because its economic depression started earlier than elsewhere. Its depth is similar in scale to the US depression in the 1930s, but without the subsequent recovery. The world is better equipped today than it was 80 years ago to handle a serious depression. But unless the depression is followed by a substantial and sustained recovery, political systems convulse, which is what is happening in Greece right now.
Posted on: Mon, 05 Jan 2015 09:21:00 +0000
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