FacebookTwitterGoogle+RedditEmail

Why the Greek Economic Crisis Won’t be Ending Anytime Soon

Optimists hope that Greece will soon be able to put its crisis behind it following the latest meeting of eurozone finance ministers. The optimism is not unfounded. Key lenders like the IMF and the European Commission have stopped pretending that Greek debt is sustainable. More importantly, the obvious is at last recognised – that Greece cannot exit its debt crisis until the very problem of its debt is addressed.

Yet economic sense has been largely irrelevant in the unfolding of the Greek drama. Following a typical pattern in the history of debt crises, it is a tale that has been predominantly framed and managed in terms of morality.

For example, Wolfgang Schäuble, Germany’s finance minister, insists that he cannot support Greece’s claim for relief because he lacks “a proper argument for the German lawmaker and the German public”. The truth is that there are overwhelming economic arguments for debt relief, including the fact that the current plan is self-defeating. The requirement that Greece generates massive budget surpluses will only accelerate the death spiral of the Greek economy, inevitably deteriorating its debt-servicing capacity.

But it is vain to fight with economic reason, when the problem is, among other things, profoundly governed by moral sentiments. An important issue when it comes to resolving the crisis is whether the Greek population – which has been systematically morally downgraded – deserves debt relief.

The underlying moral struggle and associated political impasse was recently captured in a New York Times editorial:

The problem is Germany, Greece’s main national creditor: German federal elections will take place next year, and many German citizens feel that their hard work and thrift should not be squandered on rescuing the Greeks from the pain of their fiscal sins.

According to the dominant narrative that has shaped public imagination, Greeks have been repeatedly rescued in order to maintain a profligate lifestyle. Against this backdrop, it is understandable that the prospect of debt relief is resisted on moral grounds.

But the underpinning story is flawed.

False logic

The root cause of Greece’s fiscal problem was public expenditure on a bloated and dysfunctional public sector, structurally designed to service political clientelism – not the Greek citizen. Greek cronyism was in turn heavily fed by profit-seeking institutions. They recklessly bought debt from the eurozone periphery that was back then treated as risk-free.

But investors had underestimated how the waves triggered by the 2008 global financial crisis would affect the poorly designed European monetary union. It was an accident waiting to happen and was first felt in Greece in 2010 when it became increasingly evident that Greek bonds could not be paid in full.

Shockingly enough, the solution was neither to have investors shoulder the consequences of their bad bets, nor to drastically fight the budgetary cause of the Greek deficit. Defying even the IMF rulebook, Europe’s political elites decided to keep both a dysfunctional state and an unsustainable sovereign debt in place. This was possible by financing Greek clientelism; but more importantly (and disproportionately), by bailing out private investors – especially French and German banks.

Of course, what was essentially a reimbursement of imprudent buyers of public debt has been deceptively depicted as a lofty act of European solidarity towards the Greek population. Greeks supposedly received money that could be fully repaid in due course. Likewise, Greek politicians equally misleadingly portrayed bailouts as “success stories” helping Greece from going bankrupt.

By not dealing with the essence of the debt crisis, the 2012 and 2015 bailouts were unavoidable in order to refinance an unpayable debt and recapitalise Greek banks (that were since suffering the side-effects of disastrous crisis management). And while the early bailout of debt was described as a bailout of Greeks, the subsequent rolling over of the debt is even more misleadingly portrayed as an endless influx of desperately-needed injections of cash.

Moreover, the conditions imposed on Greece in return for supposedly generous help had little to do with economics. Greece undoubtedly stands in needs of structural reforms (necessary for the modernisation of the Greek state – not the resolution of the debt crisis). But the “reforms” demanded from Greece are mostly a mix of destructive austerity and punitive policies. They might be best understood as moral reforms of the sort commanded by a Calvinist ethic.

Predictably enough, not allowing Greece to sustainably restructure its debts on the one hand, while imposing unreasonable “bailout conditions” on the other, marked the greatest economic collapse in modern times. All the while Greece is again blamed for failing to recover.

Reshaping our moral imagination

In moving beyond a false morality tale, it is high time we start appreciating that recovery is not possible precisely because of the bailout programmes – not in spite of them. In so doing, we must restructure the way the crisis is framed, since the very words we use nurture an irresistible inclination to blame Greece for not achieving what successive “rescue aids” and “reforms” actually render impossible.

The associated fallacy that Greece is paying for its own fiscal sins must also be put to bed. This was mostly true until 2010. But if punitive economics could be somehow justifiable in the offset of the crisis, they have since become root causes of the current state of the Greek economy. German leadership cannot for much longer afford to claim a higher moral ground and put the blame squarely on Greece – let alone pretend to be the saviour of an ungrateful and defiant population.

I do not even go so far as to contend that Greece deserves debt relief on moral grounds. What I more moderately maintain is that the debt problem is unlikely to be resolved soon due to a moral imagination that has been misguided by the toxic belief that Greece has repeatedly received generous help, and is still suffering for its original fiscal sins. As an antidote, we need to disarm the vindictive morality tale that has been deceptively constructed and allow economic sense to take center stage.

This article originally ran on The Conversation.

More articles by:

Dr. Stratos Ramoglou is an Associate Professor at the University of Southampton.

June 18, 2018
Paul Street
Denuclearize the United States? An Unthinkable Thought
John Pilger
Bring Julian Assange Home
Conn Hallinan
The Spanish Labyrinth
Patrick Cockburn
Attacking Hodeidah is a Deliberate Act of Cruelty by the Trump Administration
Gary Leupp
Trump Gives Bibi Whatever He Wants
Thomas Knapp
Child Abductions: A Conversation It’s Hard to Believe We’re Even Having
Robert Fisk
I Spoke to Palestinians Who Still Hold the Keys to Homes They Fled Decades Ago – Many are Still Determined to Return
Steve Early
Requiem for a Steelworker: Mon Valley Memories of Oil Can Eddie
Jim Scheff
Protect Our National Forests From an Increase in Logging
Adam Parsons
Reclaiming the UN’s Radical Vision of Global Economic Justice
Dean Baker
Manufacturing Production Falls in May and No One Notices
Laura Flanders
Bottom-Up Wins in Virginia’s Primaries
Binoy Kampmark
The Anguish for Lost Buildings: Embers and Death at the Victoria Park Hotel
Weekend Edition
June 15, 2018
Friday - Sunday
Dan Kovalik
The US & Nicaragua: a Case Study in Historical Amnesia & Blindness
Jeremy Kuzmarov
Yellow Journalism and the New Cold War
Charles Pierson
The Day the US Became an Empire
Jonathan Cook
How the Corporate Media Enslave Us to a World of Illusions
Ajamu Baraka
North Korea Issue is Not De-nuclearization But De-Colonization
Andrew Levine
Midterms Coming: Antinomy Ahead
Louisa Willcox
New Information on 2017 Yellowstone Grizzly Bear Deaths Should Nix Trophy Hunting in Core Habitat
Jeffrey St. Clair
Roaming Charges: Singapore Fling
Ron Jacobs
What’s So Bad About Peace, Man?
Robert Hunziker
State of the Climate – It’s Alarming!
L. Michael Hager
Acts and Omissions: The NYT’s Flawed Coverage of the Gaza Protest
Dave Lindorff
However Tenuous and Whatever His Motives, Trump’s Summit Agreement with Kim is Praiseworthy
Robert Fantina
Palestine, the United Nations and the Right of Return
Brian Cloughley
Sabre-Rattling With Russia
Chris Wright
To Be or Not to Be? That’s the Question
David Rosen
Why Do Establishment Feminists Hate Sex Workers?
Victor Grossman
A Key Congress in Leipzig
John Eskow
“It’s All Kinderspiel!” Trump, MSNBC, and the 24/7 Horseshit Roundelay
Paul Buhle
The Russians are Coming!
Joyce Nelson
The NED’s Useful Idiots
Lindsay Koshgarian
Trump’s Giving Diplomacy a Chance. His Critics Should, Too
Louis Proyect
American Nativism: From the Chinese Exclusion Act to Trump
Stan Malinowitz
On the Elections in Colombia
Camilo Mejia
Open Letter to Amnesty International on Nicaragua From a Former Amnesty International Prisoner of Conscience
David Krieger
An Assessment of the Trump-Kim Singapore Summit
Jonah Raskin
Cannabis in California: a Report From Sacramento
Josh Hoxie
Just How Rich Are the Ultra Rich?
CJ Hopkins
Awaiting the Putin-Nazi Apocalypse
Mona Younis
We’re the Wealthiest Country on Earth, But Over 40 Percent of Us Live in or Near Poverty
Dean Baker
Not Everything Trump Says on Trade is Wrong
James Munson
Trading Places: the Other 1% and the .001% Who Won’t Save Them
Rivera Sun
Stop Crony Capitalism: Protect the Net!
FacebookTwitterGoogle+RedditEmail