Thursday, June 23, 2011


As an antidote to some of the appalling stereotyping of Greeks, which generally omits their long working hours and low pay, and to some of the populist rhetoric being dished out, here is a clear-sighted short piece from Amartya Sen in which he actually praises the Greek government -
It is to the huge credit of the Greek government – George Papandreou, the prime minister, in particular – that it is doing what it can despite political resistance ...
Though he also points out that what they are being told to do is the wrong thing.
... but the pained willingness of Athens to comply does not eliminate the European need to examine the wisdom of the requirements – and the timing – being imposed on Greece.
 In typically elegant style he writes,
The high morals of "sacrifice" do, of course, have an intoxicating effect. This is the philosophy of the "right" corset: "If madam is at all comfortable in it, then madam certainly needs a smaller size." However, if the demands of financial appropriateness are linked too mechanically to immediate cuts, the result could be the killing of the goose that lays the golden egg of economic growth.
As I think back to the debate over European Monetary Union in the 1990s, I had little idea where I stood. This was partly because the anti-Euro campaign featured prominently some unpleasant and obsessive Tory right-wingers, who mixed up their opposition to the Euro with their general hatred of the European Union as a whole, whilst their Euro-scepticism was being disavowed by a newly enthused Labour Party. Yet those who who opposed the Euro were a mixed bunch indeed. It was a broad coalition that included social-democrats and libertarians as well as the Conservative nationalist right.  

Each emphasised different aspects of the argument, which consisted of a range of concerns; the inflexibility of the Euro, the loss of sovereignty and democratic accountability, the built in deflationary biases and the perception that a common currency would not promote convergence, but lead to divergence, between stronger and weaker economies. 

This certainly seems prescient today, though we sometimes forget that the conventional wisdom and liberal opinion was pretty much in favour of the UK joining and it was Gordon Brown who fought to keep Britain out when Labour were elected to power.

The result was that the UK was able to respond to the recession with a 25% devaluation and interest rates of 0.5%, strategies denied to the Greeks. (This also begs the question of why the Coalition government have been so determined to keep up with the new trend for cuts).

With hindsight, it appears that the sceptics got it right and, for those who adopted the Euro, political arguments won out over the economic ones. As Sen points out, that has, paradoxically, allowed political democracy to be undermined by the very economic flaws that were conveniently brushed aside. And it is this threat, and the systemic economic failures that have created it, that needs to be addressed, rather than indulging in stupid ethnic stereotyping of conveniently brown-skinned Mediterranean types and the rain-sodden Irish.


Dipper said...

Greece should default.

The main reasons put forward for Greece not defaulting are that it would impact badly on other countries. So Greece should suffer to benefit others.

Capitalism works by drawing a line under failed enterprises, making the assets available for other enterprises and allowing the owners to start again. This opportunity is being denied the Greeks.

If they don't default there are two possibilities. They limp on with ever growing debts, making meaningful activity impossible. Talented Greeks will have to leave to achieve their aspirations. Greece will eventually become a failed state. The alternative is massive capital influx from other european countries, but this will inevitably be accompanied by policy requirements. The Greeks will have lost control of their country.

The one thing that is simply never ever going to happen, is the Greeks pay off the debts and the country becomes financially sound by virtue of their efforts alone.

Anton Deque said...

All because Germany wanted to feel 'safe'. I rather thought (and Dipper puts it as well as anyone else I have read) that the idea behind the Euro, its subtext I suppose, was European Unity, purchased by a willing transfer of above all capital from the richer north to the poorer south. This actually seems to have worked well. The disasterous policies pursued elsewhere, particularly in over valuing and reckless lending in the U.S.A., have impacted on Greece, a country that did what it was told.

The only hope is the wider realisation that if Greece does default then a great deal of imaginary money will be lost. Someone (a new Keynes?) will have to invent some more.

The Plump said...

Especially now that the Greek Parliament has voted for suicide as a solution, I couldn't agree more with Dipper's comment.

They will default. It just depends when and how well it is managed.

Another un-repayable loan is hardly a solution and nowhere is there any sign of the ECB accepting that the current institutional arrangement in the Eurozone is anything other than perfection.