I am watching the Greek crisis as it takes its painful course, and have noted that there are some views which seem to suggest that Germany has an obligation to rush to the rescue. The following Guardian article is typical, though the excerpt below does not really capture the overall sentiment of the article:
After days and days of hesitation and apparent indecision, when speaking to the audience at the rally in Bocholt, Merkel played the populist card. We're right to tell the Greeks: you have to save money, you have to be candid and you have to work on your honesty, otherwise we can't help you, Merkel said.
It's one thing to ask Greece for strict austerity measures in return for a bailout deal. But when Merkel implicitly said that the Greeks weren't honest and had poured money down the drain, she didn't ask for anything. She didn't even try to calm the fear among Germans that contributing billions to the Greek bailout will lead to further wage cuts and tax freezes.
Perhaps, the sentiment is best expressed with the picture of Angela Merkel that accompanied the article. The picture is quite disgraceful:
What we are seeing is a pass the parcel of blame, and Germany looks like it will be left holding the package. However, all of this is to lose sight of the reality of the situation. The Greek debt is the fault of Greece, and nobody else.
There have been suggestions that somehow Greece was enticed into debt, that it really is not their fault. It is the view that Greece is like a consumer persuaded into a dodgy Hire Purchase agreement, without realising the consequences of signing on the dotted line. However, in this case, our consumer has lied about their level of debt on the application form. We might have less sympathy for this consumer...
However, it is not like a consumer signing a deal, as there is a critical difference. Whilst a consumer might plead ignorance, lack of understanding of the consequences of their own actions, not understanding the real cost of the loan and so forth, this is not the case with a government. In the case of governments, they employ experts whose sole job is to examine the economic consequences of the policies of government. There is no excuse of ignorance. Every time that a government metaphorically signs on that dotted line, they do so with expert advice.
What of the Greek people? Greece is a democracy, and therefore the Greek people themselves might be seen as culpable. They elected the governments that racked up the debts, and they might be seen to take a collective responsibility, as part of the contract implicit in democracy. However, I am reluctant to blame the Greek people in some respects. I do not know the role of the press in this debacle, and whether there was a sufficient momentum of criticism of the debt accumulation to give the Greek people an informed view of the eventual consequences. At the very least, the lies of the government not only hid the extent of the problem from the creditors but also from the electorate.
On the other hand, the response to the crisis is not encouraging. The strikes that are being undertaken to prevent the austerity measures are a willful denial of the reality of the situation. Greece is broke, does not have the means to pay the bills, and are asking for credit. If they continue with their current spending, they will not pay back the money, and it is reasonable to ask that they tighten their belts, and start living within their means. It is not wickedness of Germany to ask for this, but reasonable. There is absolutely no moral obligation for Germany to bail out Greece. The government of Greece made their choices, and are responsible for the consequences.
In addition to the implication that Germany should, in all cases, bail out Greece, economic arguments have been put forward, as in this fairly typical example:
But there are other aspects of the crisis which are common to many – most advanced economies have had their finances stretched to breaking point by the recession – and unless some kind of line is soon drawn in the sand, Greece's problems will spread to the next weakest link in the chain, widely thought of as Portugal, and then perhaps to others too.
What's more, German and French banks are big holders of Greek and Portugese debt. Default itself might trigger a second round of banking collapses, with further deflationary consequences for affected nations.
This is a variant of what I will call the chain reaction argument. This is the idea that a line in the sand must be drawn in Greece to prevent further banking crises or further sovereign debt crises. The problem is that, as has been found with Greece, even if the debtor countries massively reduce expenditure, the bailouts will be of massive proportions. The level of bailout money for Greece just keeps on climbing, and the same will apply to the next 'at risk' countries. If the creditor countries open their cheque books, where will it end?
If they start, at what point will they call a halt? At Portugal, at Spain? More to the point, the countries supplying credit are already running their own deficits. They must borrow yet more money to bail out the debtor nations, thereby creating greater risk of having their own debt crises, and borrowing money to lend to countries that appear to be reluctant to face up to the consequences of their previous profligacy; in other words, borrowing money to lend to poor credit risks that insist on continuation of spendthrift ways.
I normally try to take a more objective view of the economic crisis, but there just seems to be so much complexity being overlaid over a simple situation that I am becoming more frustrated. I have just submitted a new article to TFR magazine (it should be published in the print and online version soon) and it points out that we are not looking at 'contagion' to other countries, like a disease is contagious, but rather that the doctors are learning how to diagnose the disease - and the disease is fiscal profligacy. There are a host of countries that have the same problems, including the UK and US. It is time for these countries to act, as there simply aren't going to be any saviours that will ride to the rescue. Even a small country like Greece, with a relatively tiny economy and relatively small absolute debt levels is having trouble raising a rescue package.
Above all, this is not a contagious disease, but is the fault of the profligate countries for living beyond their means. In Greece it is (at least) primarily the fault of the government, and the same can be said of the other countries that are at risk. There are no excuses - they had the resource of 'experts' to draw on, the resource to examine the risks, and the resources to make decisions. There is no risk of contagion, as there is no disease. It is, plain and simple, a self-inflicted problem, and the solution to the problem lies in the hands of the policy makers.
The solution also (to a lesser extent) now lies in the hands of the electorates of each country. The reality of the consequences of profligate debt accumulation are now evident, and even the mainstream media are facing the reality of the tough choices. The electorates no longer have an excuse - the reality of the dire situation is now being placed in front of them. In the case of the UK, it is time they demanded of their politicians real honesty over what they plan to do. If not, they are by default culpable. The UK is lucky in this respect, having an election at the very moment that the light of reality is shining on the consequences of fiscal irresponsibility. They have a moment, brief as it is, to demand a change, and demand reform.
For other countries, there may not be such an opportunity before it is too late. In these countries, it is up to the third estate - the press - to wake up and pressure for reform. They need to shift attitudes, to create a groundswell of opinion that rejects the buy now pay later profligacy, and takes the lesser pain of reform now. It is time to pressure governments to tell the truth, and accept that they can not borrow and spend forever. It is time to accept that there are going to be no saviours, that the resource for the scale of bailouts needed will never be there. It is time to wake up from this complacent slide into ruination.
Notes:
I have watched with sadness as the UK election descends into the farce about the Prime Minister's calling a person a bigot. Whilst this is unpleasant, it seems to just be another distraction from real debate - the question of what is to be done about the economy. Whilst Gordon Brown's character is a legitimate subject for debate, the greater debate is buried.
I am, as you may guess, frustrated. I am still not sure whether the EU will hold off the crisis for a little longer, but in all cases, the ground of the crisis is now clearly in sight. Maybe there will be a last ditch rescue, and the crisis will take another pause....but maybe this is the start of the final phase. Your thoughts, guesses are welcomed in the comments section. My gut reaction is the start of the last phase, but I have called it wrong before.
As a final note, I have taken a different approach in this post, and hope that it is coherent. Let me know what you think.
