Greece faces death by a thousand cuts…(Et Tu Amerika?)
Lucas Papademos was suitably apocalyptic. If the terms of the second Greek bailout were not approved, the Greek prime minister warned over the weekend, there would be a “disorderly bankruptcy that would create conditions of economic chaos and social explosion.
By Jeremy Warner
13 Feb 2012
“The savings of the citizens would be at risk. The state would be unable to pay salaries, pensions, and cover basic functions, such as hospitals and schools, and … the country – public and private sector alike – would lose all access to borrowing and liquidity would shrink.
“The living standards of Greeks would collapse. The country would drift into a long spiral of recession, instability, unemployment and prolonged misery. These developments would lead, sooner or later, to exit from the euro.”
Up to a point, these warnings are of course all true. Much less clear is whether the enforced penury of continued euro membership which Greek MPs eventually voted for on Sunday night amounts to a better alternative. Any analysis of the economics suggests powerfully that it does not.
Now it is certainly the case that once in the euro, exiting it is not a path any government would willingly contemplate. Without the second bailout of €130bn, Greece would not have had the money to redeem the €14bn of bonds which fall due on 20 March. The resulting default would mark the start of a process of national bankruptcy which in the first order would mean state pensions, wages, contracts and medical bills not being paid. From there, the insolvency would multiply outwards into the already deeply impaired private sector, where many businesses would find it impossible to stay afloat.