STAFF NEWS & ANALYSIS
Greece Must Swallow Its Medicine
By Staff News & Analysis - March 04, 2010

Crisis management has to leave citizens with the right lessons. The ultimate blame for the Greek crisis rests squarely on the shoulders of Greek citizens themselves: in a democracy, the buck stops with voters. They are the ones who repeatedly failed to understand the appalling economic errors being committed by their governments. Indeed, Greek governments probably behaved as they did because they suspected that more prudent behavior would be electorally unpopular. Experience is a hard school, but it is likely to be the only one that will prove effective. … The European Central Bank and the Council of Ministers now seem intent on playing the role of the World Bank, telling an increasingly defiant Greek government to raise taxes and cut spending. The current tone of the Greek press is one of blame-the-foreigner. In this case, the policies that have ruined Greece will become more, not less, popular. The surest way for the Greek crisis to be resolved is for the European Central Bank to reiterate without ambiguity the 'no bailout' clause: as Greek bonds become progressively harder to sell, the Greek government will have to tell the Greek people the truth. Learning from mistakes is a painful way to learn, but it is a form of investment. The Germans are still reaping the benefits from their collective learning about the costs of inflation 80 years ago, just as the British now understand the costs of trade union power. – UK Telegraph

Dominant Social Theme: No more time for games. Greece must buckle down.

Free-Market Analysis: This article was written for the Telegraph by Paul Collier, Professor of Economics at Oxford University and author of "Democracy in Dangerous Places." On the surface it would seem quite reasonable, though in this analysis we will argue that likely it is not.

First, more on Collier. The Greeks, having enjoyed the benefits of lower interest rates and a more stable currency than they would have acquired on their own in the past decade, ought now to pay for their deception, he believes. And what is the deception? Well, it is increasingly clear that the Greek government, through various financial strategies, printed more money than it was entitled to print (none) and covered up much more debt than it should have. This allowed Greece a far looser monetary policy than some others in the EU were enjoying – which in turn allowed Greece to "inflate away" some of its profligacy. The result was a social order that could tolerate the demands of Greece's hyper-active public unions and put up with Greek citizens' determination not to pay a graduated income tax.

From our point of view, such behavior is to be expected. The European Union dangled a carrot and the Greeks chomped down. Why shouldn't a Greek hare do so? The immediate gratification was substantial. Greek politicos could buy off their constituencies, the average Greek derived job security and considerable leisure time from an artificially booming economy, union leaders could deliver handsome packages to the rank and file and the tippy-top Greek elite probably pocketed millions if not billions of euros during the past decade of unbridled fiat-money driven prosperity.

Would the bill eventually come due? Perhaps. But tomorrow was a long time from the present and each Greek was sure, no doubt, that he or she was not going to be held personally responsible for whatever debacle might take place years away. Of course now that "then" has arrived, should the European community – and the world for that matter – demand that each Greek suffer for the previous bacchanal?

There are plenty of problems with this line of thinking from our point of view. First of all, it may not work. Each individual Greek probably does not feel responsible for the profligacy of the nation itself. The "other fellow" may be at fault. Pounding on Greece as a whole is probably a good way to incite a level of civil violence that hitherto the smallish nation has avoided. It is more likely, if the EU goes this route, that Greece will defect from the EU (if it can) and possibly avail itself of the tender mercies of the IMF – no picnic there either. Perhaps, Greece will simply defect from the euro.

The problem is complicated because it is not really Greece that is being debated but half of the EU. Whatever Greece ends up doing, many other similarly profligate countries may follow. Of course it is possible that the EU stages a miraculous economic recovery and the current disastrous budgetary numbers are reversed. But we doubt that will happen. This economic crisis is going to be a long, hard one. The Greeks, the Portuguese, the Spanish – these are tribal countries as we have pointed out in the past. The EU had considerable success bribing the tribes. Tribes in fact are happy to accept tribute. But tribes are less happy to pay it.

Will Greeks, who are inordinately conscious of the eons of their cultural history, easily be convinced to pay requisite income taxes? Will they be induced to work long hours for low pay in order to compensate for the party that was much of the first decade of the 2000s? Will the Greeks, in other words, be wiling to suffer for the euro and for the EU itself? Does their first loyalty lie with the EU, then with Greece and finally with friends and family? We would suggest not.

The Greeks are not culpable as a "nation" for what has happened to them. A system has been foisted on the Greeks that first lavished money on them and now threatens to bankrupt or ruin many. Any human being would accept 'free" money. And any human being would likely find fault with the idea that having accepted the free money he or she would now be subject to an entirely different and punitive lifestyle for an indeterminate period of time.

Gold and silver are money – honest money. Left alone and to their own devices, Greeks used to use gold and silver and pioneered its use in some areas as a matter of fact. They had no trouble with larger political environments such as the EU at the time. If one was profligate, not all were responsible. Yet "Greece," according to this article and others, is a bad and spendthrift entity. No, no. Greece is a region made up of people who took reasonable human action based on the alternatives available to them.

After Thoughts

The idea that Greeks themselves are going to feel it is incumbent on them to make recompense to the EU – and the world at large – for "a nation's profligacy" flies in the face of human nature as we understand it. Greeks will likely not internalize their nation's shame. Why should they? They will merely resent that they are being individually held responsible for the logical outcome of a larger EU system of bribes and calculated kickbacks. The article we have excerpted above points out this is already occurring. "The current tone of the Greek press is one of blame-the-foreigner," it reports. Do observers really expect that Greeks in aggregate will have a change of heart? We can't imagine the attitude of the other "Pigs" being too much different. This is a most tricky crisis for the EU and the resolution will not be an easy one.

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