It looks like Greece is about to foul up:
By RACHEL DONADIO and NIKI KITSANTONIS
Published: November 1, 2011
ATHENS — The government of Prime Minister George Papandreou teetered on the verge of collapse on Tuesday, threatening Greece’s adherence to the terms of a new deal with its foreign lenders and plunging Europe into a fresh bout of financial turmoil.
Several lawmakers in the governing Socialist Party rejected Mr. Papandreou’s surprise plan for a popular referendum on the Greek bailout, raising the possibility that he will not survive a no-confidence vote scheduled for Friday that depends on his holding together a razor-thin parliamentary majority. Mr. Papandreou was holding an emergency cabinet meeting Tuesday evening to save his government, but the opposition and some members of his own party were calling for new elections immediately.
The impasse in Athens seemed likely to delay — and perhaps scuttle — the debt deal that European leaders reached after marathon negotiations in Brussels last week. Financial markets cratered on Tuesday for the second straight day, wiping out the gains since the Brussels deal was announced last week. Some analysts said that Greece was now coming closer to a messy default on its debt, and perhaps a departure from the zone of 17 countries that use the euro as their common currency.
Greece has two, and only two, choices: severe austerity measures, to enable them to get the money they need from the “eurozone” currency countries to avoid a default on its external loans, or to default. The people are up in arms about the austerity measures, and absolutely hate them, but if this referendum goes forward and the voters reject it, then Greece defaults. Once that happens, a lot of other people in Europe will suffer for having lent Greece money so the Greeks could live well beyond their means, but it also means that Greece won’t be able to borrow more money — except from absolute idiots — to finance the Greeks living beyond their means.
Either way, the Greeks are going to have to live only at the level that their productivity justifies. They can have austerity on a regularized, organized basis, or they can have austerity forced upon them chaotically. Greece is a democratic country, and it looks like the voters will get to choose between those two options, but a third option, continuing to live beyond what their productivity justifies, is not available.
(The governing) party, known as Pasok, is deeply divided. A more reform-minded wing is upset that Mr. Papandreou has not acted decisively enough to carry out the structural changes needed to revive the economy, while a more traditional wing is opposed to some of the changes that inevitably cut into the heart of the social welfare state the party was elected to promote.
Sorry, but “the social welfare state the party was elected to promote” simply isn’t sustainable. Eventually, a society must live within its means, and Greece does not produce enough for export — Greece has a sustained balance of trade deficit — which means that Greece’s standard of living, over the long haul, has been greater than its productivity justified. If Greece stays in the eurozone currency alliance, maybe they can restructure some of their loans, and maybe they can take advantages of the free trade within Europe to reduce their trade deficit. If Greece returns to its own currency, the drachma, as some are pushing, they can look forward to rapid inflation, and see even more of their productivity exported to buy the essentials that Greece imports: industrial and capital goods, food and petroleum.
Akis Tsirogiannis, a 42-year-old father who recently lost his job at a furniture workshop in Athens, said:
This deal, like all the others, is a life sentence of austerity for Greeks. The country is being run from the outside — by bankers and the European Union government. We need to reclaim our country, whatever that entails.
Actually, a life sentence of austerity is inevitable: it’s simply a matter of how living within their means is going to be achieved. But if the country is being run from the outside, that’s because for too long it was run from the inside, and bad, bad, bad decisions were taken. Now Greece paying the penalty. They may well get out of paying back their loans, through simply defaulting, but that doesn’t mean they won’t have to pay for their former lifestyle in other ways. If they return to the drachma, they’ll experience rapid inflation, and foreign sellers aren’t going to give them any breaks: it will take more and more drachmas to buy oil, because oil is sold in dollars, not drachmas. If they stay with the euro, they’ll see rapid deflation of wages and prices, which might help their exports some, but which would leave them with far fewer euros with which to buy imported goods.
There is a lesson in this for the United States. Greece’s economy is small, and Greece lacks a national currency that they both control and is in demand. The United States is fortunate to have the world’s reserve currency in the dollar, but eventually we, too, will have to start living within our means, have to start living only as well as our productivity justifies.