The country faces a tough dilemma—it needs to strike a balance between appeasing its international creditors like the EU, ECB, and the IMF while pacifying angered citizens as a result of these job cuts. There have been countless strikes protesting the government to rule out more public sector job cuts, and to find another route of cutting back. Some say that Greece needs to accept the domestic costs that come with the debt crisis, especially since creditors have committed more funds to Greece (€240bn) than any other country since 2009. Deciding what is the best way to resolve the debt crisis depends on how willing Greece is in accepting these high unemployment rates and unhappy citizens. While it may be a painful realization, with the country's creditor loans comes some degree of reduced monetary autonomy. The conditions that the IMF has put forth (and that Greece agreed upon) need to be completed, despite the domestic costs that come as a result. These include drastically reducing public spending--something that Greece has done fairly well this past year, but also increasing tax revenue.
Greece is between a rock and a hard place. The government is accountable to its people for providing basic needs, that includes jobs, while the IMF and ECB are not. Public unrest and poverty are not factors considered by these creditor institutions when loaning funds to Greece. That means it is up to the government to consider the trade-offs between domestic interests and international monetary obligations. For someone living outside of the EU, it is easy to say that the country should bear the costs in continuing its climb out of the debt crisis. But for an unemployed citizen of Greece, looking to the government for help seems a last resort worth trying.
Though there are many advantages to being a member of the EU (the Community Agricultural Policy, the Regional Development Fund, free trade between nations, etc...) a crisis such as this one highlights the dangers of joining a monetary union. Since the ECB decides on a common interest rate for 17 nations, Greece has it's hands tied in terms of controlling monetary policy. In an ideal situation for Greece, interest rates would be much lower so that citizens could borrow money cheaply. Germany, however, is weary of implementing such a policy because of inflation fears. As Germany is the EU's economic powerhouse at the moment, it seems like Greece will have to bear through rough austerity measures if it wants to stay in the union.
ReplyDeleteI am so glad this was posted, because it is so applicable to what Mr. Karreth has been talking about in class with the trade off between domestic autonomy and international monetary obligations as well. I do really like your point that the Greek government is in fact held accountable for providing for the needs of its people, but the IMF isnt. However, it seems that the IMF and ECB have the ability to really help. This is an unfortunate situation, and though there is a reduction in Greece's monetary autonomy, it seems this is the best thing to do. Finally, I do find it interesting that Greece has in fact received the most help since 2009 than any other country, and I agree that this is a reason for Greece to just accept domestic costs. Such a tough situation; however, this is indeed a current event perfectly highlighting things we have learned about recently in class!
ReplyDeleteIt makes sense that the eurozone countries would want to harmonize their exchange rates by making a single currency in order to form a stronger, common economy. But at times like this, it doesn't seem like there are many good options for individual countries experiencing problems that could be solved with monetarism. I wonder if mounting pressure from the Greek population and sustained international pressure could combine in such a way that Greece finally leaves the union and reestablishes its own currency. This would certainly be a losing move on the international political side. But the cuts and austerity that Greece will have to undergo in order to regain economics stability would take so long that it seems there is not a good way for politicians to avoid the immense domestic pressures associated with this policy.
ReplyDeleteThis is a very unfortunate situation for the Greek people. In a nut shell, a total lack of leadership. Not now… but years ago, when they started to load on mountains debt. They should have never got them selves into this mess in the first place.
ReplyDeleteSay la vie – that is exactly what happens when people rely on there government to provide everything for them – when they try to get something for nothing – without hard work, sacrifice, taking risks and accepting the responsibility for the results. Not working… well then, let’s just borrow the difference. Piece of cake – free, free money!
Sure thing… the government will take care of all of your needs… “everybody is a winner”. The reality is that everybody in Greece is now a big looser as a result of these fallacies. The fact is… socialism does not work. Never has and never will. Why? …Because of simple human nature.
Sure… go and work hard every day to pay for the other guy’s vacation and fancy car!!!??? We should call it “ludicrous-ism”.
It’s human nature. Survival of the “fittest”. It’s basic logic. It’s the Laffer curve. It’s Prisoner's dilemma. It’s called looking out for number 1.
Take Bretton Woods for example… Nobody wanted to pay the bill for the US balance of payments deficit and everyone wanted a free ride. There is no free ride – nothing is free. We only have tradeoffs in economics.
On the other hand, private ownership, free enterprise and accepting personal responsibility does work! What’s more, failure is a very important part of any economic system because failure cleanses the system of bad ideas and quickly reallocates resources toward good ideas.
It looks like money for nothing policies of Greece are finally on their way out.
However, because their government got in the way, their failure is now much, much bigger.
This site has some interesting graphical depictions of Greek’s debt.
See: http://demonocracy.info/infographics/eu/debt_greek/debt_greek.html
Checkout the US debt here: http://demonocracy.info.
To look deeper into why Greece is experiencing economic problems in the first place I read this article: http://www.policymic.com/articles/8581/5-reasons-why-austerity-failed-in-greece
ReplyDeleteFrom the article above I read that Greece as a nation has a very unsteady income source. With 40% of the GDP generated from the public sector, 15% generated from tourism (at its peak), a general lack of diversity in their economy (mainly:public sector jobs, tourism, and shipping), government that sponsored debt and corruption, and non-ameliorating tax increases.
From what I read the story of Greece’s economic collapse looked very similar to the Latin American countries in the 70’s and 80’s. When Western educated journalists write about the failing economy in Greece, and the way that Greece must work within the framework of the European Union to implement monetary reforms, much mirrors the way that the IMF enforced monetary and fiscal reforms on the Latin American countries during the Latin American debt crisis. In hind sight there have been many illuminations of the injustice, inhumanity, and corruption that was displayed by the American government, military, and CIA during these times. Documentaries show the brutality and harsh conditions the people of Latin America endured during these strict neoliberal reforms. I wonder to what degree does the situation in the EU looks the same.