Winnipeg Free Press - PRINT EDITION
Greek extravagance puts pressure on Europe and the euro
Eleven years after the euro's birth, as Greece skids towards disaster, those vague fears have become an urgent question of policy. The first attempt to deal with profligacy, the comically misnamed stability and growth pact, was never going to work. Neither the threat of fines on miscreants unable to afford them nor the euro area's ban on bailouts was credible.
Yet in the past few months, Greek bond yields have widened spectacularly against German ones, as lenders have rightly begun to ask what plans there are for euro-area countries in trouble -- and, in the silence that followed, to fear a sovereign default.
The aversion of most euro-area countries to a bailout is understandable, even laudable -- nothing would encourage reckless spending like the knowledge other countries were ready to step in. Greece is especially undeserving. Although some of its problems have been brought on by global recession and by speculators, almost all the blame lies at home. Blatant Greek fiddling with the national accounts to disguise government borrowing has shot to pieces the country's credibility, both in the markets and with other euro-area members. Deep structural weaknesses in the Greek economy have been left to fester.
For a decade or more, Greece has lived far beyond its means. Savage austerity is now inevitable.
There is plenty of money around. The EU can advance structural-fund aid that is due to be paid in future years. The European Investment Bank can lend more. There may even be scope for a direct EU loan (but not one from the European Central Bank, which under the Maastricht treaty should not bail out euro-area governments).
The harder question is how to ensure any help does not undermine reform -- that it comes with conditions that promote sound policies, including deep budget cuts and structural reforms.
What Greece needs is an outside agency to urge the government on and stiffen its resolve to face down protests, if necessary. The answer is to turn to the IMF.
Many in Greece (and the rest of Europe) see calling in the IMF as a humiliation, for the euro as much as for Greece. They also fear stringent IMF conditionality. Yet stringency is just what is needed.
In principle, the European Commission could monitor performance and impose conditions (or a new European Monetary Fund might do so). But because Greece is a full member of the EU and the euro, any European lender would find it hard to convince markets it could hang tough against political pressure and social protests.
In contrast, the IMF is independent, can afford to be unpopular and has experience of bailing out indebted governments. It is true the fund's role in a single-currency zone would be to help avert a sovereign-debt crisis, not to offer classical balance-of-payments support. But its expertise in drawing up austerity measures and reform programs would be just as valuable.
It may be embarrassing for a euro member to need the fund's assistance, but the Greeks should be ready to turn to the IMF before they lumber themselves with an even worse fate.
Republished from the Winnipeg Free Press print edition February 8, 2010 A12
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5 Comments
Posted by: Andrew Bonner
February 10, 2010 at 6:14 AM
Chris Buors - "Peace, Welfare and Good Government" are Canada's founding principles dating back to the Quebec Act, and although "order" later substituted "welfare", the idea of the "common good" runs strong through Canadian history.
Canada didn't just happen in some sort of free market miracle. The creation of Canada involved the coming together of two reformist movements to defeat the vested interests of the day. It was created by men of vision and conviction who strove against powerful economic, political, and geographic forces. Without the intervention of the government there would have been no railway linking the two coasts, no purchase of the HBC lands, and the settling of the prairies would have been more similar to that of the American west - where cattle barons grabbed large parcels of land.
How many of the wealthiest Canadians have earned their money, and how many have inherited it? Does inheriting wealth naturally make you productive? Conversely how much more productive would the bottom thirty percent be if they received more for their labours? If wealthy people are so good for a country, why did our "founding fathers" encourage poor people to emigrate here? And why did they give them land rather than sell it to them? The answer, of course, is that Canada has always been a solidly left-of-centre country.
Posted by: Chris Buors
February 9, 2010 at 12:03 PM
Andrew Bonner
Canada was founded by classic liberals. They didn't even permit an income tax and they had no wealth re-distribution schemes. I doubt they would appprove of the conscription of wealth since the idea of being a free man is to be able to keep the fruits of your own labor.
Conscription creates slave armies. Money conscription would simple create slaves. Isn't that the classic definition of a slave? The government does not own the citizens, nor does the government have any right to our incomes. The twenty percent who own all that wealth are the most productive Canadians and that is why they have that wealth. Conscript that wealth and all Canadians would be poor just like all Russians, except those favored by government, were all poor an most preferd to get drunk rather than work. Who would go to work if all their wealth could one day be conscripted?
Posted by: Andrew Bonner
February 9, 2010 at 6:15 AM
As usual, the Economist limits itself to a narrow (and unCanadian) way of considering a solution to this.
During the First and Second World Wars, the world's democracies - faced by national crises - conscripted men and asked them to put their lives on the line for their countries. If the "debt crisis" in many western countries is so bad, should we not consider conscripting wealth in order to pay down debts while avoiding savage cuts, which will only end up worsening the situation? In Canada the wealthiest twenty percent of the population own over seventy percent of the wealth, with the top ten percent owning over fifty percent. If we put aside the ethical disgrace of allowing this while half a million Canadians live in poverty; this imbalance also makes for an inefficient economy, and goes against the founding philosophies of the country. Taxes on net wealth will reduce this inequality, and pay off public debts.
Posted by: RootsAlive
February 8, 2010 at 11:14 AM
I wonder to what degree the Greek economic situation was exascerbated by the Olympic games Athens hosted...As I understand it those Games lost Greece tens or hundreds of millions of dollars and actually devalued their economy. but I am not certain if that's part of this story or not...something to think about as Vancouver 2010 is about to start - how much does that party cost the taxpayers...?
Posted by: Chris Buors
February 8, 2010 at 9:57 AM
Just one more thing to back up my previous post that I needed a couple of more lines on.
To understand just how wrong the Keynesians are putting their faith in government fiat paper money we need a little Misesian (Austrian school) insight.
Money is always and has always been the most marketable commodity. Tobacco was money in colonial America. Just about every commodity served the purpose in barter economies that turned to Gold as the most marketable commodity without any guidance from politicians.
Politicians love paper money because fiat cash can be sold as solving all humanity's problems which has never been a shortage of work to do and has always been a shortage of capital to get that work done.
We are witnessing the small problem that arises when politicians can print money from thin air. Sooner rather than later so much paper is printed that it becomes as debased as was adulterating gold with cheaper metals in days gone by.
What the world is witnessing is a cash crises as America, who held the paper of "esteem" for the last 40 years spends its way into bankruptcy. The day the people quit having faith in that paper will be the day of reckoning and it is closer than Keynesians are willing to let on.
Nobody would accept the paper today if it were not for the historic fact that metals once backed the paper. The name of all our money once represented weight in metal which is the only reason politicians could get away with running the printing press