It should not have come as a surprise that the majority of Greek voters opted not to accept more externally-imposed austerity by voting “no” in the Sunday, July 5th referendum. The election pollsters once again were proven wrong. It was not a close race with Greeks who wanted to remain in the Eurozone and add more to the country’s obviously untenable debt burden.
The majority of Greeks have said they would rather leave the Eurozone and repudiate their external debt rather than endure possibly decades more of painful austerity. Every country has a threshold of pain — and Greece may have reached it.
Greece has often lagged behind its European brethren in a host of indicators, but none serve to signify the depth of its pain since 2008 better than its gross domestic product (GDP) growth rates vis-à-vis Portugal, Ireland, Italy, Greece, Spain, France, and Germany. While the economy of many European countries rebounded since 2009, the Greek economy continued to plummet until 2011, and has struggled to catch up ever since.
If Greece’s GDP is compared to the performance of the United States following the Great Depression, it has fared worse for far longer. Greek GDP per capita fell nearly 20 percent from $26,900 in 2010 to $21,700 in 2014 in current U.S. dollars. That’s 20 percent in just four years.
Some 45 percent of Greek pensioners are now living below the poverty line. Their pensions, which amount to no more than €665 per month (approximately $738), have been cut 44 to 48 percent since 2010.
The Greek suicide rate jumped 35 percent during the peak of the crisis in 2011 and 2012 (Greece’s suicide rate previously was the lowest in Europe). Adult unemployment exceeds 25 percent, and youth unemployment has reached more than 60 percent. Approximately 55 percent of those unemployed are under 35 years old.
There is an argument to be made that the lending and austerity path should never have been taken at the outset.As Greek Prime Minister Alexis Tsipras recently said in an interview with Italian newspaper Corriere della Sera, “In five years in Greece, we have cut pensions by 44 percent, reduced private sector pay by 32 percent, destroyed the job market, smashed the welfare state, bled employees and the middle class dry with taxes, and reached one and a half million unemployed in a country with an active population of six million.” By any measure, this is simply unsustainable.
Apart from war time, no developed country in the world has endured, nor continues to endure this kind of sustained pain. Faced with similar conditions, voters in many other developed countries would undoubtedly vote similarly.
Responsibility for Greece's and now the European Union’s (EU) dilemma rests with all parties — Greece, the ECB, the IMF, and the banks. Greece certainly bears a large share of the blame, with its bloated bureaucracy and fiscal negligence, which persisted for decades.
Each party is now so busy pointing fingers at each other that they appear to have lost any sense of introspection — if they ever had it. It took all of their actions to get into this mess, and it will take all of their cooperation to get out of it. All parties must be willing bear their fair share of blame and pain if there is to be a solution to Greece’s and Europe's debt problems.
European governments wanted so badly to create the EU and Eurozone that they looked the other way when new countries clearly were not eligible to become and remain members under the budget deficit guidelines. Today they are paying the price.
The EU and Euro “experiments” are textbook cases of market failures because “the market” did not work.
Some member countries simply lied to get in. Adequate regulatory mechanisms were not in place to ensure that the EU's own debt guidelines were followed. And there were no immediate consequences for failure to follow the guidelines.
European, as well as the world's banking system, are crumbling under the weight of their own hubris, largesse and irresponsible lending. Given that Greece's debt can never be repaid, lenders should get their heads around the reality that it must be largely written off — and the sooner the better.
The same likely will prove to be true for other highly indebted European countries. By now it should be abundantly clear to everyone that throwing more money into a black hole hasn't worked. And it won’t work in the future.
What happens now?
An orderly unwinding of Greece's and Europe's debt is possible. If it could be done in the United States in the 1880s and 1990s when a third of all savings and loans associations failed, something similar can be done in Europe.
Doing so will be painful, and European tax payers will undoubtedly be left holding much of the bag. But they are doing so now with no end in sight.
It is time to stare reality in the face and admit that the EU economic and financial experiments have failed and that the debt burden created by the EU is unsustainable. There is little point in delaying the inevitable.
Greece, no doubt, needs to figure out how to grow its economy. But this may not occur before the Greek people endure substantially more pain. At least from their perspective, it will be on their own terms.
Given the new landscape, the troika must now consider how to keep Greece at the negotiating table while giving the country the ability to say it is negotiating on its own terms. The troika also must think about how to keep the anti-austerity movement from prompting another referendum, with the possibility that another heavily indebted European country spins out of the EU’s orbit.
What is crystal clear is this: piling up more debt so lenders can loan more money to pay themselves interest is not going to work. There certainly is an argument to be made that the lending and austerity path should never have been taken at the outset of the Great Recession. That realization has finally arrived at Europe’s doorstep. This house of cards may be about to fall.
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