Posted July 01, 2015 07:35:17
If Greece auspiciously resists acerbity measures imposed by the Troika, it will accompany about a crisis that charge end either in a aitionist restructuring of the institutions of the European Union, or in the end of the Abutment itself, writes John Quiggin.
It now appears awful acceptable the long-running Greek debt crisis will be bound in the way that all parties acquire sought, at atomic until actual recently, to avoid: with Greece abandoning the accustomed European bill and to abandon its debt.
This aftereffect presents Greece with both dangers and opportunities. For the European Union, and the abstraction of Europe that emerged in the additional bisected of the 20th century, it represents an arrant failure, with the abeyant of worse to come.
The crisis was, in a sense, unexpected. As afresh as two weeks ago, both parties appeared to be giving ground, paving the way for the affectionate of blowzy accommodation that has continued embodied the backroom of the European Union. The Greek government had appear a amalgamation of measures, heavily codicillary on tax increases, that promised a growing primary surplus (the aberration amid acquirement and expenditure, excluding absorption on debt). For their part, the “Troika” institutions (the European Axial Bank, International Monetary Fund and the European Commission) seemed to acquire accustomed that the behavior of acerbity pursued over the aftermost bristles years acquire been a adverse failure.
Quite suddenly, however, the Troika position hardened. Rather than alone ambitious behavior to restore annual balance, they accustomed that these behavior should focus on amount cuts rather than tax increases. Amusingly, accepting apparent Greek GDP abatement by 25 per cent as a aftereffect of their acerbity policies, their annual for the address was that college taxes ability arrest bread-and-er growth.
The Greek prime minister, Alexis Tsipras, requested a adjournment of a few canicule to acquiesce a acclamation to be captivated on July 5 to adjudge whether the creditor demands should be accepted. This address was rejected, arch to a run on Greek banks that has affected their cease for a week.
It is important to beam that the cyberbanking crisis is absolutely the aftereffect of the actuality that Greece is angry to a bill over which it has no control. Under accustomed circumstances, the accustomed crisis would acquire been bound continued ago by a abasement and unilateral restructuring or aishment of debt. The Greek axial coffer could acquire provided the all-important clamminess to accumulate banks open.
But, because Greece is in the eurozone, it is accountable to the ascendancy of the European Axial Coffer controlled by its creditors. Any activity they banned of risked a run on banks, acute coffer closures and basic controls. That is, of course, absolutely what the Troika has aloof imposed. So, Greece now bears all the costs of an avenue from the euro, with none of the benefits.
At this point, there is no accessible acumen for Greek voters to acquire any added affliction from the Troika. As Paul Krugman has argued, they should vote to adios the Troika agreement and advance their government’s aboriginal offer. When that action is rejected, as it apparently will be, Greece should leave the euro and abandon its debt.
The adverse behavior of acerbity imposed by the ECB and European Commission acquire apparent the European idea, already alone by a ample anatomy of “Eurosceptic” assessment on the right, lose abundant of its address on the left.
What would be the aftereffect of such a policy? The aing affinity is that of Argentina … Although not allotment of a bill union, Argentina had alien a “currency board” with a authorization of attached the Argentine peso to the US dollar. As with Greece and the euro, this action produced an unsustainable advance in debt.
When the autonomous government of Nestor Kirchner alone the dollar-peso articulation and adjourned its debt, there was a cyberbanking crisis agnate to that apparent in Greece today. However, the abridgement recovered strongly, and the abundant majority of creditors accustomed a renegotiation. Argentina is still disturbing with “vulture” investors who bought up some of this debt for a few cents in the dollar and are still ambitious repayment. Overall, however, it is bright that its acknowledgment has been a success.
With unemployment at about 27 per cent, Greece has affluence of accommodation to abound afterward a abrasion and debt restructuring. Since the alone another is to accompany the bootless behavior of acerbity indefinitely into the future, the case for continuing up to the Troika is strong.
What about the European institutions? Their adamantine band reflects a adding that the broader European banking arrangement can survive the aishment of Greek debt. But this prudential adding does not booty any annual of politics.
If Greece rejects the Troika and does not ache bread-and-er collapse, the governments (in Ireland, Spain and Portugal for example) that acquire gone forth with demands for acerbity will be discredited. The best anon accessible is the Spanish government, which has already absent arena to the anti-austerity movement Podemos, and faces a accepted acclamation in December.
More generally, the adverse behavior of acerbity imposed by the ECB and European Commission acquire apparent the European idea, already alone by a ample anatomy of “Eurosceptic” assessment on the right, lose abundant of its address on the left. It is captivation on abundantly because of the activity that, in Margaret Thatcher’s words, “there is no alternative”.
Successful attrition by Greece will accompany about a crisis that charge end either in a aitionist restructuring of the institutions of the EU, or in the end of the Abutment itself.
Professor John Quiggin is an ARC Laureate Fellow in economics at the University of Queensland.
Topics: government-and-politics, business-economics-and-finance, international-financial-crisis
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