The Greek Financial Crisis: Seven Great Reads
Seven Great Reads on Greece, compiled by The Daily Beast.
It’s been a tense, confusing couple days for Greece, Europe, and world markets. Prime Minister George Papandreou shocked the world when he announced he would put the European Union’s bailout to a national vote. Angered by the plan, European leaders told him the move would jeopardize the country’s membership in the EU, prompting members Papandreou’s own party to call for his resignation. He refused, but the next step for Greece remains unclear. The Daily Beast collected some of the best explanations of the Greek crisis and what it means for Europe.
What Was Papandreou Thinking?Papandreou’s proposal to put the European Union’s bailout up to a vote seems to have backfired, prompting calls for his resignation from within his own party. German chancellor Angela Merkel and French President Nicolas Sarkozy summoned Papandreou to Cannes and told him that if he wanted to put the bailout up to a vote, he would have to ask his people whether they wanted to stay in the Eurozone. They do, and the referendum seems to have died. “It is out of the question to ask the Greek people to make a choice when one of the options is suicide,” says George Kapopoulos, a political columnist in Athens. But that reaction may have been exactly what Papandreou wanted. “We can’t be sure, but it is possible that in a daring game of brinkmanship, Papandreou used the referendum to push the opposition party New Democracy but also critics within his own camp into a position of open support,” says Sappho Xenakis, fellow at St. Anthony’s College in Oxford. “Today in parliament, everyone came out saying, ‘Of course we want to stay in the Eurozone.’”Read it at The Christian Science Monitor
What if Greece Dumps the Euro?Delaying the implementation of the bailout is tremendously risky, says Andrew Sullivan. But it’s also dangerous, in the long run, to push for deeper European integration without the support of the Greek people. If the EU continues to accelerate Greece’s loss of sovereignty against the nation’s will, the result will be a self-defeating rise in nationalism and division. “I’d prefer temporary chaos that can cede to a democratic reality,” says Sullivan, “than a papered-over deal, hated by the Southern European population, that could lead to a populist explosion down the line, especially if another recession hits.”
Pay Up, Germany
Is it true that Germany is paying for Greece’s and Italy’s debts? Yes, in a way, argues David Frum in The Week. But it should. “By folding all of Europe’s currencies into the euro, Germany prevented its neighbors from reducing their costs—thus enhancing German exports and preserving German jobs,” Frum writes. “In the decade from 2000 to 2010, Germany’s share of world trade rose by almost 9 percent (most of that being exports to other European countries).” By creating the euro currency, Germany saved itself from racking up a large trade surplus. It enabled Germany to sell more goods and debt, and allowed Greece to borrow more. Germany was the Eurozone’s biggest winner, and so what if it’s now asked to pay up? It is “being asked to help pay for the cleanup after a party at which they had most of the fun.”
Report from the Ground
Maria Margaronis describes the scene in Greece right now, and it’s bleak. “The air is full of threats and rumors that change every day: plans for new cuts and taxes, shifting deadlines to register for this or that exemption, warnings of punitive measures for those who don’t comply,” she writes in The Nation. With plans and rumors of plans constantly shifting, it’s almost impossible for people in Greece to make sense of what is happening and plan for the future. The economic crisis no longer affects only the poor. Clerks, lecturers, doctors, and other public-sector workers have taken a 30 percent pay cut, the educated young are fleeing the country, and the only business thriving is exporting gold.
The Bailout Was Never Enough
Even if Greece does approve the rescue package, there’s no guarantee it will work. In a prescient piece published just after the October 27 plan was agreed to by European leaders, The Economist wrote that further turmoil of the Eurozone was already apparent. “You can understand the self-congratulation,” the editorial said. “Yet in the light of day, the holes in the rescue plan are plain to see.” There was not enough protection to withstand a run on Italy and Spain. The rescue fund’s value was only extended through too-clever-by-half financial engineering. Even credit default swaps make an appearance. “As the shortcomings of each component become clear, investors’ fears will surely return,” the magazine wrote. “Yet again, disaster will loom. … There will be more crises.”
The End of the EU
Felix Salmon agrees with the grim diagnosis. It’s beginning to feel like 2008, he writes at Reuters. Greece is the new Bear Stearns—if we’re lucky. Its current financial and political straights may seem like an isolated event, but they bode ill for the rest of Europe. Greece might muddle through the current crisis, writes Salmon, but its eventual collapse is inevitable, and Italy is just as politically dysfunctional. The EU’s current infighting shows it lacks the unity to survive such a crisis. “Greece is going to default and leave the euro; the only question is when. And when it does, the EU will find that its protections against contagion are about as effective as that $1.6 billion tsunami breakwater in Kamaishi.”
The Man Who Saw Through the Euro
The New Yorker’s John Cassidy goes back further in his search for the problems now facing the Eurozone, pointing to the Cambridge economist Wynne Godley, who predicted the euro fallout a quarter of a century ago. “His problem with the plan for a common currency was that it didn’t provide for enough government. The failure of the Maastricht Treaty to set up a proper fiscal policy for the entire Eurozone alongside a common currency meant the entire scheme was half-baked and ultimately unworkable,” Cassidy wrote. Godley was prophetic: “If a country or region has no power to devalue, and if it is not the beneficiary of a system of fiscal equalisation, then there is nothing to stop it suffering a process of cumulative and terminal decline.”