Sunday, June 28, 2015
Just do it, Greece!
For months and years the drama, or more likely, tragedy that is the Greek debt negotiations have been ongoing. We have been told how the potential collapse of the Greek economy threatens the world economy and how Greece must impose tough reforms in exchange for debt relief and further support from the IMF, ECB and fellow European Union members.
However, the math behind this supposedly complex drama is incredibly simple.
Greece does not generate enough revenue to be able to pay off its debtors. There may be a thousand and one causes of this and the Greek economy may have been very inefficient, but this is the one major problem.
So in essence, the debtors want Greece to pay them money, and in order to do that, Greece need to make more money than it currently does, or even did back when this "crisis" started.
Tragically, since the ECB and IMF got involved trying to help Greece, the Greek economy has contracted 25%. This means that Greece is actually dramatically worse off than they were before the "help" arrived.
The main cause of this dramatic worsening of the Greek ability to repay its debtors, has to do with amazingly misguided directives from the IMF and ECB. The IMF and ECB directives did not take into account the devastating effect they would have in a recession versus if they were employed in a boom economy (in which case they wouldn't be needed in the first place). The austerity measures focused mainly on the cost side of the Greek economy while paying too little attention to the revenue side.
While reforms of the Greek economy are badly needed, even most Greeks know this and have known it for decades, the question is when and how they should be introduced. Should they be introduced when the economy is already in the tank and forced on the country by external, non-elected, financial entities? Or should it happen later, when the economy is recovering and introduced after a thorough debate among the people of Greece?
When an economy is in the tank like the Greek economy was, and is now, the focus should be on returning the economy to growth as quickly as possible, not trying to dismantle it like a corporation facing liquidation. Greece is a country, not a corporate entity where the resources can be redistributed in the economy.
Any debt relief plan that doesn't primarily focus on returning the Greek economy to growth is useless. Not only from a moral standpoint but as we have clearly seen evidence of here, lack of focus on growth will not meet the debtors demands and interests either.
I say, Greece, drop it like it's hot. Default, exit the Euro and return to growth in three to five years. It is just sad that more than five years have been wasted in getting to this point.
It also begs the question of how much damage the IMF has caused elsewhere in the world if they have been so disastrously ineffective in Greece?
Posted by Niklas Munck at 3:55 PM
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