[Marxism] Fwd: The Case for Letting Greece Go - WSJ

Louis Proyect lnp3 at panix.com
Thu Apr 9 12:44:24 MDT 2015


On 4/9/15 12:33 PM, Ralph Johansen via Marxism wrote:

> Murdoch's paywall again.

The Case for Letting Greece Go
The risk now is political contagion from rewarding non-reform.

Thursday marks another deadline in Greece’s struggle to avoid default, 
as a €450 million payment to the International Monetary Fund comes due. 
Athens says it will meet this obligation, but sooner or later Prime 
Minister Alexis Tsipras and his government will miss a payment to 
someone if it doesn’t agree with creditors on a new bailout. An exit 
from the euro would then be a real possibility.

No one should cheer a Greek exit, which would be a disaster for the 
Greeks. But if Athens won’t implement reforms that would return Greece 
to growth and sustainable finances, allowing the country to leave would 
be the least bad outcome.

Unlike the crises of 2010 and 2012, Greece’s current threat to the 
eurozone isn’t financial contagion. More than 80% of Greece’s sovereign 
debt is now held by governments or official creditors, including the 
IMF, other eurozone governments and the European Central Bank. They can 
absorb default-related losses.

As of last September the exposure of private eurozone banks to Greek 
debt was less than €17 billion ($18.36 billion), one-third of the level 
in 2012 before Greece’s second bailout. The amount is probably lower now 
and much of this debt is short-term and speculative, according to Fitch 
Ratings.

A Greek exit also won’t drag down other small eurozone economies. Spain, 
Ireland and Portugal have pressed forward with some supply-side reforms, 
and their bond yields have remained relatively stable and low since the 
latest Greece crisis began.

Greece’s main contagion threat now would be if it is bailed out again 
without reform. Athens wants creditors to reward Greek voters for 
electing a government committed to dismantling the reforms Greece needs. 
If creditors allow Athens to increase government spending while 
reversing labor-market liberalization and privatizations, they’ll 
encourage anti-reform movements elsewhere.

Spain’s left-wing Podemos party has polled well since Syriza’s Greek 
victory in January as Spaniards consider whether it might offer an 
alternative to painful reforms, and the party won 15 seats in the 
regional parliament in Andalusia last month.

Ireland’s Sinn Fein is gaining support for its anti-reform platform, and 
it invited a Syriza government minister, Euclid Tsakalotos, to its 
recent party conference. Italy has its own anti-reformers in the 
Northern League and the Five Star Movement.

Europe’s original bailouts were flawed. They were biased toward tax 
hikes to boost revenue, with too little thought for pro-growth reforms. 
A serious Greek government would offer to press ahead with privatization 
and deregulation in exchange for some leeway to cut tax rates along with 
government spending cuts. But Syriza has insisted on a return to 
something like the status quo ante, with higher spending, anti-growth 
tax policies and delays or halts in deregulation.

Accommodating Syriza’s agenda now would be a severe blow to a eurozone 
that urgently needs faster growth. Consider how hard it has been for 
France’s Socialist government to pass even a modest reform package that 
increases the number of Sundays that businesses can open to 12 from five 
a year.

The Alternative for Germany (AfD) party, founded in 2013, has also seen 
its support grow during this year’s Greek crisis as German taxpayers 
rebel against continuing to subsidize a recalcitrant Athens. Germans and 
other northern Europeans recognized the benefits of the common currency 
enough to extend a temporary hand to smaller countries during the crisis 
in exchange for reforms. They’re less likely to support a currency bloc 
that looks like a blank check.

The strongest argument against allowing Greece to leave the euro is that 
it would dent the bloc’s appearance of permanence, making the euro more 
like a currency peg that members could leave at will. But we doubt other 
countries will want to follow Greece’s example once they see the damage 
to Greeks.

They might even take the warning as incentive to do more to fix their 
economies. What’s not sustainable is allowing euro members to bully 
their way into deals in which they reap the rewards of a currency union 
without living by its rules.



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