It’s not clear, at this stage, whether Greece’s government is going to default on its loans in the short term, or, alternatively, another short-term bailout will succeed. The Prime Minister is trying to form a unity government with the Opposition to push through a combination of privatization, tax rises, and spending cuts. Meanwhile, mass protests continue in the streets of Athens.
Some context for Greece’s problems is provided in this Vanity Fair article from November 2010. If accurate, the place appears to be a perfect storm of the pathological tendencies of both left-wing and right-wing governments; a hugely bloated and inefficient public sector, exceptionally generous and expensive aged pensions, combined with an unproductive, protected private sector, a national allergy of the wealthy and business to paying tax, and governments that ran off-balance-sheet debts on a scale that Enron would be proud of.
Or, even more simply, the people of Greece collectively misdirected their efforts such that they weren’t producing much, while consuming quite a lot.
As such, it’s a reminder that boring things like productivity, efficiency, and competition do actually matter, if you want to be able to pay for things like generous pensions.
As such, and admittedly relying on second-hand information, I’m rather less impressed than Costas Douzinias (in The Guardian) by the supposed “democracy in action” on the streets of Athens aimed at rejecting the austerity measures in the bailout. What are the protestors seeking? Sure, it’s great that the “ordinary person” is finally taking an interest in these issues, but one might ask what the hell they were doing for the last 30 years, when in democratic elections they continued to vote in parties that enacted policies leading to the current mess. And what do they propose as an alternative course of action? For Greece to immediately and completely default on its debt – and thus immediately enforcing austerity measures just as severe and far more chaotic? To leave the Euro – and watch the national fire sale as everybody attempts to move what savings they have to the safety of the Eurozone, or Swiss banks? Or do they simply expect France and Germany to hand over the cash to keep their country going indefinitely?
That said, Greece’s debts are huge, and it is doubtful that they will ever be able to repay them. As such, continually enforcing austerity measures (and thus further squishing economic growth) as a condition for yet more loans that add to the debt pile doesn’t exactly seem like a great solution either.