Europe is dealing with Syriza by the calamity suffered by the Greek economy, but also for its refusal to further reduce debt in 2010.
The outbreak World War II was, we are told, received with confidence and joy for the people of Europe. Something similar seems to be happening after years of economic crisis and political turmoil in Greece. A growing number of people feel that enough is enough. The strident views expressed in these pages by the Italian economist Francesco Giavazzi, are shared by many officials. Meanwhile, Greek Prime Minister Alexis Tsipras, accuses Greece’s creditors of “plunder” their country.
Olivier Blanchard, chief economist sober IMF indicates that it could still get a I agree. But many are beginning to yearn to see that the knot is cut. Whatever the game that the Greeks think they are playing, their government probably now only want to see an end to the humiliations. Similarly, any game that the Eurogroup think he’s been playing, surely now thinks only end in frustration. If so, the default of Greece, the exit and devaluation could be pretty close.
Could then the euphoria last? I’m afraid not. The assumption of some in the euro area is not only that the Greek case is not unique, but also the disaster that those sinners deserve both improve the behavior of everyone else. But the monetary union would be irrevocable. New crises arrive. When they arrive, confidence in the union would be less than total output after Greece. Monetary Transactions program nonrefundable, announced by the European Central Bank in 2012, it may have to be implemented to calm nerves. But could fail. The self-fulfilling speculation could still force more divorces.
Some argue that Greece could at least improve after falling into default and leave the euro. In fact, it is theoretically possible that the failure to its public creditors, combined with the introduction of a new currency, a large devaluation (accompanied by sound monetary and fiscal policies), maintaining an open economy, structural reforms and institutional improvements, they can make a turn for the better. But more likely a period of chaos and at worst a failed state. A Greece that could manage well the output also have avoided the situation today.
Neither party should underestimate the risks. It is also crucial to avoid the so characteristic contempt for nervous breakdowns caused by the failed negotiations.
The irresponsibility can be a serious offense, but unfortunately the Greeks have responded well. As highlighted by the Irish economist Karl Whelan, in response to a burning Giavazzi, the Greek economy has suffered a stunning collapse.
Since its peak to the lowest point, the aggregate gross domestic product fell 27%, while the actual expenditure of the economy lost one third. The cyclically adjusted financial balance improved in 20% of GDP between 2009 and 2014 and the current account balance improved in 16% of GDP between 2008 and 2014. The unemployment rate reached 28% in 2013, while government employment fell 30% between 2009 and 2014. Such an adjustment would have destroyed brutal policy of any country.
The Europeans are now dealing with this calamity due to Syriza. But they are also dealing with Syriza’s refusal to further reduce debt in 2010. This was a big mistake, made worse by the subsequent collapse of the Greek economy.
In fact, the vast majority of loans Greece officials were not made for their benefit at all, but of irresponsible private creditors. Creditors also have a duty to be careful. If they are careless, they run the risk of large losses. If governments want to save them, taxpayers must pay their own.
Greece has already made significant reforms, including pension plans and the business environment. But to reverse such reforms would be a big mistake, as argued by the Eurogroup and the IMF.
Given all this, it is tragic that the break happened now after that has already suffered so much pain . It is not too late to reach agreements to promote reforms, minimizing the additional austerity and making the debt more manageable. That would be good for everyone in the long term. The parameters of a deal like that are also clear: a small primary surplus in the short term, the decision to pay the euro area the IMF and the ECB, accompanied by an easing of long-term debt, and a strong commitment to reform bold by the Greek government structural.
Like it or not (understandably not) the ECB is a central player. You will have to decide when to stop trying lending to the Greek government as collateral against a emergency liquidity assistance to banks Hellenes. If Greece can not reach agreement on the disbursement of funds, it seems likely to remove assistance to banks. That would then trigger controls on withdrawals. This could be accompanied by an outline for the circulation of depository receipts, or finally by the chaotic introduction of a new currency.
For now, however, the goal must remain cool things and ensure I agree. But with the current mood of anger and recrimination achieve it seems even more improbable.
That would not be the end of the story, however. Europeans will be unable to get away. . If Greece stays in the euro or leaves, the same challenges will remain
The Europeans still have to admit I did not recover much of their money; and still they have to help prevent a Greek collapse. It might be a relief divorce a difficult partner. But the partner will still exist even if the monetary marriage has ended. Greece will continue to strategically located and even within the European Union.
Neither the Greek nor its partners should imagine a clean break. The relationship will continue. Only it will become toxic. If, tragically, that fate can not be avoided, it must be managed by a very long time
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