As Greece Goes, So Go Debtors All

Don’t mess with the powers that be. That’s the message I got from the Greek crisis currently winding down in Europe. They will wipe you out sooner than look at you if you welch on a bet – or default on a loan.

It was really quite remarkable to behold, this unraveling of Greece. Rumblings of trouble in the financial pages for months, a day of reckoning in June with banks closing country-wide, a stunning public referendum in which 60% of the citizenry voted against more austerity, and the government, just this week, caving all the same, its more idealistic finance minister resigning in, well, resignation.

A week ago, just after his resignation, former Greek finance minister Yanis Varoufakis gave an interview in which he said, point blank, that the EU is not a democracy at all, but rather, a wholly opaque and utterly undemocratic institution led by Germany. They don’t even take minutes and their proceedings are secret, he said, apparently the new norm for quasi governmental authorities whose decisions are likely to be unpopular. Here’s Varoufakis on the last few months of Greece’s negotiations with the EU:

But the inside information one gets… to have your worst fears confirmed … To have “the powers that be” speak to you directly, and it be as you feared – the situation was worse than you imagined!….The complete lack of any democratic scruples, on behalf of the supposed defenders of Europe’s democracy. The quite clear understanding on the other side that we are on the same page analytically – of course it will never come out at present. [And yet] To have very powerful figures look at you in the eye and say “You’re right in what you’re saying, but we’re going to crunch you anyway.”

Yanis Varoufakis, in The New Statesman, July 2015. Interview

The events in Greece may seem very distant and far away, but I think the Greek situation is not so different from that of many economies large and small around the world. Think of Detroit, an American city brought to its knees by bankruptcy. Who’s suffering? Poor people who are having their water shut off. Think about yourself if you’ve ever had trouble with debt (and most Americans are in debt). How much power do you have when you don’t have any money? That’s the problem for Greece, bringing home the bigger message of all this economic turmoil which is: comply or die. But what if there is no choice and instead, it’s really “comply and die”?

The International Monetary Fund’s own report shows that as late as 2030, Greece would still have “unsustainable debt” even if it made all concessions. Nevertheless, Germany’s Finance Minister Wolfgang Schauble has continued to insist on zero tolerance for Greece’s inability to shake off the problem of being a small, mostly tourist-driven country with an economy to match. Moreover, there are internal, institutional problems that seem to be taken for granted in Greece – a widely reported reluctance to pay taxes and a certain aura of corruption. Intolerable, say EU hardliners! They must be punished. But they must not be permitted to bow out of the EU and make their own way because, in the eyes of the EU, that might weaken the EU. Really? A bankrupt nation that needs to be propped up by its neighbors is strengthening the EU?

In their zeal to preserve the Union, the EU has shown a surprising willingness to crush the entire Greek population for a generation or more. This is not likely to foster unity, but it might have a marginal effect on the Euro, which is probably what this is all about. When the proposed solution is truly draconian, you can be sure money is involved, and this one is all about money. Perhaps Europe wants to punish the Greeks for threatening the Euro and perhaps also to deter other debtor nations from going down the same path.

Be that as it may, one crucial detail that seems to get lost is that the only way most people (or governments, for that matter) get significant chunks of cash is by borrowing. If you want to do anything bigger than subsist, you need to real money, and that’s where it gets dicey. From the standpoint of the borrower, you don’t currently have the money or you wouldn’t be borrowing, which means you’re going to have to raise more or do with less to pay back the loan. Take on enough of it, and you stop being able to pay it back at all, and then the creditors send their henchmen to break your kneecaps, as we saw with Greece in the last week or so. Just kidding, it was all very civilized, I’m sure.

Which is of course the problem. It’s all very civilized, this crushing of the little guy, who is always pathetically imperfect and annoying too. But when it comes to people, we have this idea that we’re supposed to help each other, to make some allowances for personal differences, or at least not to try to destroy each other with punitive diplomatic agreements and policy.

We’ll probably never know what might have happened if Greece had rejected the creditors’ spiraling offers and returned to the drachma. There would have been much shouting and wringing of hands around the world but would it have ended Greece? I tend to doubt it. Greece would still be there – it has nice beaches and ancient temples.

As for the other indebted nations, cities, towns, and people, who may not have beaches as nice as those on the islands of Greece, let’s hope our own creditors are more kind. The big boys have little sympathy for players who can’t win by their rules.