I’m feeling quite despondent today over news that the Greek parliament is likely to approve the latest loan package from the troika – accepting all of its vicious austerity. This is a harsh blow on two fronts. Obviously, it’s an economic blow, but it’s an even worse political blow. The Greek people are now set to face many more years of a brutal depression. Unemployment is currently at 25%, and youth unemployment is at 50%. 50%! The youth unemployment rate in the United States is 12%, and it’s hard enough to find a job.
And yet, the troika, despite all of its years of experience in economics, has imposed conditions that will prolong the suffering and make it impossible for Greece to emerge from its slump. The simplest equation in macroeconomics states that GDP (Y) is equal to consumption (C) plus investment (I) plus government spending (G). Y = C + I + G. If you drastically cut government spending, GDP is going to decrease. If you increase taxes on the greater portion of the populace, you’ll lower consumption, and in turn, lower GDP. If you decrease C and G, you decrease Y. Those aren’t magic plus signs there.
Consult any basic macroeconomics textbook and you’ll see the above chart. A decrease in spending results in a decrease in GDP. Period.
Even more bizarre, the troika has imposed conditions that appear directly contrary to their own interests. It is presumable that at some point, the creditors would like their money back, and yet their conditions have made it all but certain they will never get it. Crippling the Greek economy lowers tax receipts and makes it impossible for the country to pay its bills. It’s like a bank gave a man a mortgage and then tied him up in his new basement so he couldn’t earn any income to pay it off. So what are they thinking?
And with that question, we see what this is all about – the supremacy of the creditors. The troika knows all too well what this loan package will do to Greece, and yet it is determined to impose it anyway to remain the master of the European periphery. Indeed, the loan conditions require Greece to privatize some of its public property, crippling the government further. This privatization is somehow supposed to raise 50 billion Euros from private investors when only four years ago, a similar sell-off yielded only 3.5 billion. It’s missing the mark by just a little, but apparently no one cares. The creditors won’t spend their money to help Greece get back on its feet, but they will spend to keep it in its place as a debtor nation.
As if that’s not depressing enough, the political aspect is even more so. The nations of Europe are supposedly democratic, so if the Greeks don’t like the loan terms being offered, they can vote for something else, right? Well they’ve done that. Twice. They elected Syriza on the promise of ending austerity. Then, in an incredible show of bravery, or perhaps desperation, the Greek people rejected austerity independently with a resounding NO that garnered 61% in a national referendum. With no alternative economic plan being offered by the troika, the Greek people decided they’d rather take their chances with the unknown. And their elected leader, supposedly the voice of his people, took his mandate to Brussels where he … promptly conscripted his populace to years of crippling austerity. It’s a baffling betrayal, angering and depressing in the worst way.
What can the people do now? There is no party in their country that wants to represent their interests. And here we see again the perverse need to reaffirm the power of the creditors. Even the Greek leaders feel that they must forfeit their nation’s sovereignty. They have somehow failed to realize the basic fact that their economy is self-sufficient. The Euro is killing Greece, but its sacrosanct status is so ingrained in the minds of its leaders that they cannot fathom it as the source of their poison. So instead of standing up to the blackmail from Brussels, they attack their own democracy, and the people of Greece lose control over their own destiny. It’s scary to think about how the populace could react. They’ve tried the center and the left, and Golden Dawn is already the third party. God forbid it gain any credibility from this mess.