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