I think of myself as an optimist. Over the years, I have seen a lot of crises resolved, as often as not by what can only be described as muddling through.
It is hard to see how the world will muddle through the Greek debt crisis. "New Bailout is a Reprieve for Greece, but Doubts Persist," was the February 21 headline in the New York Times. Count me among the doubters.
As complicated as the debt crisis is, the resolution of the problem is in the hands of two governments -- Germany and Greece -- and, more importantly, the electorates in each of those democracies.
Before I explain that, let's look at how grim the situation is. The Greek national debt stands at 160 percent of GDP. In order to get relief from the rest of the eurozone (read: Germany), the government had to agree to get that down to 120.5 percent by 2020. In order to do that, Greece has introduced severe austerity measures that will slash 150,000 government jobs, cut private sector wages by 22 percent, reduce or eliminate pensions, sell off public enterprises, and raise taxes. All this in a country where unemployment among those under 25 is just under 50 percent.
Here's the catch-22: if the government were able to do all of this (a big if), the immediate effects on the Greek economy would be crushing. The austerity measures are bound to shrink the economy, thus making the debt to GDP ratio even worse.
Meanwhile bondholders have agreed to a 50 percent cut in value, and the second round of bailouts just announced allows Greece temporarily to avoid a default. But what happens now?
Within Greece, the people have to agree with what their leaders have promised to its eurozone benefactors. Will they accept the extreme hardships that will be imposed on them? Greece is a democracy. Ultimately, the government will either respond to what the people want or it will fall. The riots and the burning of buildings in Athens aren't hopeful signs for the current government.
Germany, which essentially controls the eurozone, is a democracy as well. Just how many billions of their money will the German people sacrifice to prop up a country they consider irresponsible? Contrary to many press reports, Germany has demonstrated more than most countries a willingness to take on the burdens of others. West Germany shouldered a herculean economic load when the wall came down and it merged with East Germany. But a strong majority of Germans do not believe they should finance a country like Greece, particularly when the social benefits offered there have been greater than their own.
Put yourself in a German's place. You pick up your newspaper last October and read that Diomidis Spinellis, Secretary General of the special task force to stop tax evasion in the Greek Finance Ministry, has thrown up his hands in disgust and quit because of what he describes as a "deficit of management" will to stop the corruption that permeates the tax system. Obviously the systematic tax evasion that has long been part of Greek culture is proving difficult to change. Spinellis charged that tax collectors continue to skim off the top of taxes they do collect, and many publicly identified tax avoiders have still not paid their taxes. Am I, as a German, going to support my government if it wants to send more of my money to this place?
Add this: if you are a law-abiding Greek taxpayer, given what austerity is doing to your job or your business, paying greatly increased taxes may prove to be impossible.
There are lots of catch-22s in this terrible crisis, and they should have been taken into account when the eurozone was first established. The countries that joined gave up control of their individual monetary policies when they lost the ability to control their money supply. It was clear from the beginning that Germany would end up in effective control of eurozone monetary policy because of its size, economic power and culture. It should also have been clear that part of that culture was a deeply ingrained fear of inflation, a legacy of the collapse of the Weimar Republic.
We are watching a tragedy unfold, one that could ultimately have wide-ranging negative effects on our own economy. I can only wish I were more optimistic about our chances of muddling through.
Ted Kaufman is a former U.S. Senator from Delaware. Please visit www.tedkaufman.com for more information.
This piece first appeared in the Wilmington News Journal.
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Greece is much smaller in land area, and population, and wealth, than a decent sized state like Florida.
I can't help but think most American hand-wringing about Greece is an excuse to divert attention from America's own desperate need for systemic reform.
European Banks want to tax the life out of what is left of Greece, not caring that some of the best doctors like Papanikolao came out of the Greek school system- totally gutted by PASOK for political expedience. They do not care that Greece is the cradle of Democracy, Philosophy, Mathematics, and on. They want money from people struggling to find jobs, pay rent, and live off retirement.
What Venizelos gained for Greece in 1925, the Papandreou's sold! While all the political parties in Greece have a share in the situation, the Papandreou clan did the biggest damage. With the slave trade in Eastern Block women, extreme nepotism, illegal immigration, homelessness, public-school destruction, tax evasion, and drugs, this family has been the caretaker of destroying Greece. This they call progress!
Actually about 2 trillion of it is owed to foreigners. So the problem is that your basic assumption is completely wrong.
But wait, the Germans are bailing the greeks out and are doing awesome. So in Germany, I guess, having lots of unions, high pay, long vacations, and early retirement is good, because they're doing better than we are. And yet those same things that Germany is doing well with are the things you blame for destroying Greece, the country Germany is bailing out.
Sadly, it seems like you simplistic story is also just wrong. But if you keep repeating it, one day you'll believe it.
Right now in the US, we have huge deficits. We have a glimpse as to where we are going, if we don't fix it. Deficits don't help the country, but only those who know how to put their hands on the loot.
I can't take Kaufman seriously. He believes statements such as the above without looking into them.
As always social benefits are to blame. All over the world. Look closely at Greece and you'll see what an outright lie this is.
But unlike the US retirement policy, the Germans tricked most foreign workers' retirement.
Returned to the foreign workers, just the money that was supposed to be invested for retirement, excluding them from monthly retirement.
I demand from the German federal government to reinstate the human dignity immediately, to those "fur immer fremden," people, whose sweat and life turned Germany from war shambled to world economic magnate.
Gotta evict the #OWS so they are not camped out down the street next time the banksters get their trillions in bail outs !