We have a question for Ms. Merkel and Mr. Sarkozy and everyone else in Europe who is still pretending that the problem in Greece is that they aren’t “austere” enough.Have you taken a look at Greece lately?
On the assumption that the answer is, self-evidently, no, here are some bullet points for you (courtesy of Russell Shorto’s deep look at this topic in the NYT and other sources):
- Q4 GDP just fell 7 per cent.
- A quarter of Greek businesses have gone bust since 2009.
- Half of all small businesses say they can’t meet payroll.
- The suicide rate increased 40 per cent in the first half of last year.
- Nearly half of workers under 25 are unemployed.
- Greeks have taken one-third of their cash out of their savings accounts out of fear that the banks will collapse.
In other words, the Greek economy is imploding, in the full sense of the word. And another round of austerity is supposed to fix this?
Ms. Merkel and Mr. Sarkozy, what planet are you on?
The fundamental problem with Greece, as with Portugal and Italy and Spain and some other countries in the Euro-zone that aren’t Germany, is that they’re not as efficient as Germany and yet they’re being forced to use the same currency as Germany.
When each country has its own currency, the less-efficient countries can devalue their currencies to become more competitive and reduce the real burden of their debts.
Greece and other less-efficient Eurozone countries can’t do that.
So, instead, they have to “devalue internally,” which means cutting wages and jobs (a.k.a., “austerity”). And we’re seeing how well that works: The economy is collapsing and the country is plunging toward anarchy.
There are only two actual real answers here:
- Greece withdraws from the Eurozone and goes back to its own currency, or
- Germany, et al, subsidise Greece’s budget deficit and backstop its debts
The first answer, which appears to be where we’re headed, will be devastating for Greece, and it won’t help the Eurozone (in part because it may lead to a contagion in which Portugal, Italy, et al, follow). But it seems more and more inevitable.
The second answer, Germany et al subsidise Greece, sounds outrageous, but it’s actually a perfectly normal state of affairs. As Niall Ferguson recently pointed out, rich Germans (Bavaria) already subsidise poorer Germans (East Germany), and rich states in the United States often subsidise poorer ones. So the concept of regional subsidies for the greater common good actually has plenty of precedent.
But those are your only two real choices, Europe. Partial breakup or greater unification.
So pick one.
And in the meantime, stop pretending that “austerity” will solve the problem. It won’t. And in the meantime, it will just make life in Greece more dangerous, chaotic, and miserable.
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.