Athens Is Burning and Angela Merkel Holds the Spent Match
Prof. Peter Morici
Athens is besieged by riots, because ordinary Greeks understand what their leaders wonâ€™t admit. The reforms imposed by Angela Merkel and Greek creditors will delay but not avoid a sovereign default. Those wonâ€™t solve the nationâ€™s chronic economic problems, and ultimately will cause the ruin of Europeâ€™s most ancient civilization.
At issue are the conditions imposed by Germany and other rich European nations, the IMF and European Central Bank, and private creditors in exchange for an aid package and deal to cut Greek government debt in half and avert a sovereign default in March. These draconian budget cuts, including some 150,000 government jobs, a 22 percent cut in the private sector minimum wage, and other reforms are intended to make the Greek economy more competitive, attractive to investment and ultimately capable of repaying its remaining debt.
In addition to ascent from the sitting Parliament, Germany and others are demanding that opposition political leaders pledge not to seek to renegotiate these terms if Greeks vote for a change in government. Essentially, led by German Chancellor Angela Merkel, Greeceâ€™s creditors are demanding that Greece become a German protectorate, deprived of democracy, or it will be let to default, treated as a pariah by the EU, and impoverished.
That might be acceptable, if the reforms would fix the Greek economy and permit sustained growth, but Greeks rioting in Athens and elsewhere have figured out what their leaders wonâ€™t admitâ€”the package canâ€™t work.
Like other southern Eurozone nations, the euro is overvalued for Greeceâ€™s economyâ€”it makes Greek exports too expensive and imports from places like Germany too cheap. Consequently, all the Mediterranean nations have been running large and growing trade deficits with Germany and other northern economies, and borrowing to pay their billsâ€”thatâ€™s the origin of all that sovereign debt in Portugal, Italy, Greece, and Spain, and why each of them is in need of some kind of bailout.