The tragic Greek sideshow
But if Greece is now a sideshow, it is a tragic one. Under the burden of debt and austerity policies, the Greek economy won’t recover for years. Some of the reforms imposed on Athens by the rest of Europe will force spending cuts that were inevitable and will be beneficial in the long term, such as the job cuts in Greece’s bloated government. But what Greece really needs are supply-side reforms that will make it easier to form new businesses, attract new investment, and keep Greek young people from fleeing the country.
Most striking in this deal is the damage to Greek self-government. The EU’s price for this bailout were assurances from Greece’s two biggest parties—Pasok on the center-left and New Democracy on the center-right—that they maintain current policies after elections this spring. Party leaders swallowed that pill to get the bailout, but Greek voters are understandably dismayed.
This tension—between democracy and sovereignty on the one hand and technocracy and “solidarity” on the other—has long been at the heart of Europe’s unity project. Europe’s solution for Greece has been to lurch even further in the direction of central control at the expense of local democracy. As so often is true in Europe, what goes by the name solidarity is really the self-interest of the strongest countries.
Blowback
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There was a reason that Greek debt was considered completely unsecured before the Euro. Greece was a rural backwater.
Instant transformation of a backwater into full-faith borrower has predictable consequences. They’re exactly the same as the consequences we saw for underemployed families who were offered enormous loans at attractive initial payment rates for homes they desired, but would never be able to repay. There’s an inflection point here as well. For all time before this point, people without collateral and employment were turned down for loans, period. Then:
* Government decides that getting low-income people into home ownership is a Good. And it is, because this means that their life has turned around to the point that they have better income and good collateral
* Goals are set to increase home ownership as a good metric. Implementation then begins to make sure that poor -> houses as fast as possible. Government backs this move.
In a moment, what was a high-risk segment is backed by the largest co-signer of all — the entire American public. At that point, the gold rush is on as an untapped income segment is created at the stroke of a pen.
Similar thing with Greece and Ireland and Italy. Germany and France were on the hook for Euro debt. It is almost a physical law that where loans and interest can be made, they will be made. There’s always someone willing to play the risk/reward when there’s that much money on the table.
Well, why not regulate things? Keep this gold rush from happening?
Regulation stems the flow. There is no gold rush — and therefore the FHA and Fannie Mae/Freddie Mac can’t claim increases year over year in low-income housing numbers. And the execs don’t get bonuses without performance. The goals aren’t being met. So regulations are repealed or bypassed systematically to hit the goals. Worse with EU countries — they all have local banking laws. Greece wants lots of loans? Germany has no clout to tell Dubai to cut it out. PIMCO is an American concern… how is France going to shut them down? Since there’s no framework for regulation, Greece bellies up to the bar and does what comes naturally.
Really, this problem was inherent to the creation of the Euro, and without a real pan-EU government, it was inevitable.
Prufrock on February 22, 2012 at 7:07 PM
I don’t see how these plans are any better than default. Just do it and get it over with. They’d have short-term pain, but be free to choose their own destiny and be out from under the EU regulatory burden. Right now Greece is essentially a third world country being forced to live under first world regulation. It’s just not possible.
ReaganWasRight on February 22, 2012 at 7:10 PM
They’re just trying to prevent free fall. That’s all they can do.
Prufrock on February 22, 2012 at 7:15 PM
If member states are irresponsible, boot them. The problem with a common currency is that it must centralize too much authority in order to work.
John the Libertarian on February 22, 2012 at 7:16 PM