Tuesday, July 7, 2015

My somewhat complicated thought about Greece

So Greece voted "no" last Sunday.  It's not really clear what this means other than that Greece will not be agreeing to the terms of its creditors.  Terms' whose deadline had actually expire before the vote was held.

It's easy to understand the Greek position.  Syriza didn't do anything, as far as I can tell, to cause the huge debt that Greece had racked up - that was all the fault of previous governments.  There's also the issue of aggregate demand.  When the government stops demanding as many goods and services then a smaller number of goods and services get made, at least in the short term.  In other works the Greek economy would shrink.  And of course a shrinking economy would make it even harder for the Greeks to repay their debts.  If Greece had its own currency then they could offset this as most countries outside the Eurozone which have engaged in austerity have done but sadly Greece is not in that position.

Way back when the Euro was first proposed a lot of economists including Milton Friedman and Paul Krugman were saying that it was a bad idea and would just lead to trouble of the sort we're seeing now.  I entirely agree and I was sort of expecting a number of the Eurozone countries to leave early in the financial crisis (shows what I know).  There's a part of me that thinks that it would be best if Greece were to just "hoist the black flag," leave the Euro, and hope the whole thing falls apart.  But of course while that might be a good idea in the sufficiently long run it would probably cause all sorts of problems in the present.  And long run benefits become uncertain by their very nature.

So I think that the best thing would be if Greece were bailed out and stayed within the Euro but that seems politically impossible.  Greece isn't exactly rich but it's certainly wealthier than many of the countries in the EU that would be contributing to supporting Greece which seems unfair and which I couldn't really expect or desire those countries to support.  

You could ask that only the those EU countries that are richer than Greece to help Greece out but the problem is that those richer countries are democracies.  I've got a good deal of faith in democracy but that's mostly about people's retrospective rather than prospective voting.  I'd like to say that any Greek bailout is one of those complex questions where public opinion doesn't really exist per se but it's been covered a lot in the news recently so it looks like the the citizens of the wealthier European countries have formed definite opinions and it doesn't look like they'll continence a more generous offer even if it would ultimately be to their benefit in the long run.

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