Monday, May 30, 2011

If at first you don't succeed ...

...make the same mistake again and again and again. There were those who said that the austerity programme imposed on Greece would induce a deeper recession, reduce government tax receipts (despite tax increases) and therefore increase debt rather than reduce it. Guess what has happened. So the next tranche of debt to pay off the increasing debt comes with ever more stringent austerity measures that some say will induce a much deeper recession etc, etc.

So what will happen? Political agreement is not forthcoming and Syntagma Square in Athens is being occupied in Greece's own Facebook protest. There is no sign of a challenge to the elite consensus, which, with supreme self-confidence, has lapsed back into economic orthodoxy despite its near catastrophic failure in the banking crisis. Politics and protest are confronting the powerful and there is no meeting point. So are we heading for a default in Greece? Who knows, though in a thoughtful article Aditya Chakrabortty argues that it would be no bad thing. I can't fault his conclusion:
So why doesn't Athens just give up? Surely not because its economy would do any worse, but because the banks, in Germany (which holds $26bn of Greek debt) and France (which owns $20bn) and in Greece, would then have another brush with insolvency. But the answer would be to deal with the banks – by giving them more money or just taking them over – rather than crucify an economy.

For Costas Lapavitsas, an economist at the School of Oriental and African Studies just back from Athens, the situation represents only one thing. "It's the triumph of the banks," he tells me. "The lenders in Greece and abroad are being given preferential treatment over the Greek people."
 I have a feeling that if the next tranche of austerity is enforced then both will be losers, though the ones that will feel the pain will, unsurprisingly, be the Greek people.

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