What to do with Greece? - Greg Vaughan

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What to do with Greece?

The Greek crisis rumbles on, with no agreement on a long term solution. Greece has suspended its latest payment to the IMF to the end of this month, which is technically possible but highly unusual. The sort of countries to do that in the recent past include the likes of Zimbabwe and Afghanistan. Not the kind of company a country in the EU should be keeping (in economic terms at any rate).

The Greek crisis is classic case of everyone knowing what needs to be done, but nobody wanting to propose doing it. Quite simply, Greece cannot repay the debts it has. National debt now runs at over 170% of GDP. There is no way Greece can repay this. It stays afloat with bailout monies from the Eurozone and other bodies. But in return, these bodies insist Greece makes repayments of its debts. The only way it can afford to make any kind of debt repayment is to take an axe to spending. This forced austerity has plunged the Greek economy into depression. And because it has done that, tax revenues keep falling, meaning Greece has even less money to service its debt and so needs more bailout monies. But to get the money, it has to cut spending further….

It is a cycle without end, except eventual default. Meanwhile, the Greek people suffer. Yes, they benefited from the corruption that past Government engaged in, building up massive debts to bribe voters. But that is not a reason to keep punishing them. There is no future for Greece, its people or the Eurozone if the present austerity politics is continued.

The solution is obvious. If Greece cannot repay the debt (and everyone knows this) a line should be drawn under it. It should effectively be written off. In return, a whole new package of measures for the Eurozone must be implemented to stop this happening again. The Eurozone itself has to share a lot of the blame for this situation. It allowed Greece in when it shouldn’t have done. And the Euro was created without a lot of the institutions being in place to run a currency properly. Many said back in 1999, at the first sign of crisis, the whole project would be in trouble. And so it proved when the financial crisis hit in 2008.

The time has come to start again. Draw up proper rules for the currency, backed by the kind of institutions that should have been in place to start with. Everyone then starts with a clean slate. There is after all precedent for this. One country in the Eurozone has been forgiven its debts twice in the past century in order to get it back on its feet. Which one? Yes, the one keeping Greece in the straightjacket. Germany. It should read its own history and show Greece the generosity it was shown by the victors of the first and second world wars.

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