Yesterday I wrote a rant diary about how the E.U., IMF, World Bank(known as the troika) and other Neoliberal institutes are destroying Greece. If you don't know anything about the Greek debt crisis, you can check it out for some more background.
My argument is that Greece needs to drop the Euro and adopt the Drachma. Any more deals from the E.U., IMF, or World Bank that attempt austerity in exchange for debt restructuring will further exacerbate the issue - just like every deal before has. I already said as much in yesterday's diary. But as I wrote it I got more and more angry thinking about all the needless suffering going on in Greece that it turned into quite a bit of a rant. A recommended rant(thanks Kos community!)
The comments section turned into some great debates about Greece, currency, and national debts. There were three criticisms that popped up over and over that I want to address. They were well meaning and reasoned objections. The first objection is essentially that Greece is so messed up that moving off the Euro and onto the Drachma won't solve anything. Don't blame the troika, It's their own fault.. Another criticism is that moving to the Drachma is no longer possible. The last was essentially, You have to pay your debts, and so does Greece. The purpose of this diary is to answer these two common objections.
Greece is so messed up that moving off the Euro and onto the Drachma won't solve anything
When I think about the effect that 5 years of 25% unemployment would have on a country I get angry. And yes, I do blame the troika for imposing the spending cuts and tax increases that have made it worse and sustained this unnatural disaster. Now, some people take great umbrage with me blaming institutes like the IMF. They'll argue that Greece has "deep structural issues that are caused the whole mess".
In some ways this is true. Greece has always had a week economy, and that probably has a lot to do with government policies: A tax code that's tough to enforce; a stringent licensing bureaucracy, and a whole lot of laws written by special interest business groups that exempt certain industries in certain areas in certain ways from licensing and taxes with pension payout plans all over the map. I will concede this point. But here's the rub: Greece has always had these "deep structural issues", but this is the first time its unemployment rate has skyrocketed, stayed high for this long, and to make matters worse, government benefits are decreasing at the same time?
As I state yesterday, Greece always dealt with these issues by having its currency devalued on the international market. When it first started in 1953 it was 30 to 1 against the U.S. dollar. When Greece went off the Drachma, it was 340 to 1 against the dollar. That is quite a drop over the years and certainly not ideal. However, during that time Greece's economy constantly grew and government benefits grew too. There were a few currency crisis(and even a military coup), but it served its purpose.
Some people may still grumble about inflation is bad. However, comparing 5 years of 25% unemployment to inflation and a growing economy - it is not even in the same ballpark when comparing human misery. But, apparently, people will still say that inflation must be avoided at all costs(Check the comments below!)
Don't blame the troika, Greece's problems are their own.
A variation of the criticism is that the Troika aren't the bad guys. They're just trying to get Greece to solve its aforementioned problems and they won't do it. One does not have to dig far to realize how false this is. Whenever the financial masters of the world negotiated with Greece, their help was always contingent on 4 things:
1. Move taxes off of business and capital
2. Move it to labor via a Sales Tax
3. Cut government pensions and healthcare spending
4. And if you have time... make some of these government reforms.
If the troika had just insisted on number 4 on the list above, I would be on their side. But that is never the emphasis of their demands. Instead they make most people pay more taxes and get paid less. Which any economists worth his salt will tell you will send an economy into a tailspin - as it has done for the last FIVE years. If that isn't evil, I don't know what is? Greece could've followed the U.S. route and be well on its way to recovery, but instead the financial crisis turned into a 5 year disaster - a completely man made disaster created by the financial elite of the world.
The troika are like a parent who dealt with a kid eating too much ice cream by sewing their lips shut for 2 weeks. The damage from not eating for 2 weeks is far worse than eating too many sweets. And so I come along and say, "sewing that kid's lips shut is evil", but the friends of the parent say "well... the kid shouldn't have ate so much ice cream". To mix metaphors, the solution has done far more harm than the original problem (there I go ranting again... I'll stop... for now.)
Moving to the Drachma is no longer possible
So the solution for Greece is to drop the Euro and go back to controlling their own currency. Now, some people thinking about how to do that believe that it is impossible to do. However, countries have launched new currencies in the past 60 years several times. So it is possible. While there are practical concerns, the general path is easy to understand.
First, the Greek Government announces that all taxes can be paid using the new Greek Drachma or existing Euros. Greece prints up a bunch of Drachmas and offers to pay people and businesses with them instead of Euros. Why would they want Drachma? Well, because Greece will pay them more if they accept Drachma. Some people now have Drachma, they give them to others who turn around and pay their taxes with them. Soon, there is now a new currency.
The downside is that the Drachma won't be worth as much as a Euro - but that is the point. I'll concede again that this isn't ideal, but Greece has to do something to accommodate their weaker economy. And right now they have two options: Devalued Drachma, or keep the Euro and 25% unemployment.
At this point a critic might say something like, "but where are they going to get the money to spend Drachma's?" or "they have to have a bond market! Monetized debt! hyperinflation, oh my!" Some of these critics will be sincere, others are people who think that the only legitimate source of money is gold and that it is a combination of ignorant masses and sorcery that modern, non-gold based currencies exist.
There's nothing I can say to convince the latter, but to the former, I'll explain. After launching the currency, Greece will do what it did before joining the Euro. It'll sell bonds where people give Drachma to the government in exchange for more Drachma in the future. But those bonds aren't needed at the start. This is a critical point. How would Greece sell Drachma bonds, when none are currently in existence? They can't! To believe otherwise is to fall for several of the 7 Deadly Innocent Frauds of Economic Policy.
The first step for Greece is to spend the Drachma into existence. (Correction, the REAL first step, as I stated before is announcing that taxes can be paid in Drachma. Thus, creating a demand for the currency)
Now, if you understood that fairly simple explanation, you now understand how to launch a new currency. Congrats, you now know something that the rest of the world pretends it doesn't.
You have to pay your debts, and so does Greece
Finally, the most common pushback I got in the comments were people who were bewildered that I called the troika's focus on debt repayment a "cultish attitude". After all, don't we all have to pay our debts.
To that I answer, well "duh". Yes, everyone, including countries need to pay their debts... to a point. And that point is when you reach the point where it is impossible to pay your debts. At that point, most of us - including business, corporation, cities, and people- declare bankruptcy. Nations don't usually do that. They instead have their currency devalued until businesses export more.
But the people running the neoliberal institutes don't even consider that. They keep trying to force Greece to pay as much as possible which only hurts their economy. That is what I'm talking about when I say it is a cultish attitude. They keep insisting with all their might to squeeze Greece for more, and when it doesn't work they try the same thing, except harder. - That isn't the actions of a rational being, that is a cult-like attitude. Their essentially saying, "THIS will work because my neoliberal philosophy says it will and so I'll keep doing it no matter the results until it DOES work".
Thanks for reading, and hope ya'll found it entertaining as well as educational.