Saturday, February 13, 2010
Does Greece have Europe over a barrel?
John Carney writing in Business Insider provides an insightful perspective on the standoff between Angela Merkel and the Greek labor unions:
The clear message to Europe coming out of Greece today was that the Greeks cannot and will not solve their debt crisis on their own.
Greek and EU officials have been attempting to convince bond investors that Greece can resolve its fiscal crisis. But the strike that shut down much of the public services in Greece today demonstrates that this just is not true. The political process in Greece is broken beyond repair.
The pledge by Greece to bring the deficit back within the EU limit of 3 percent in 2012 in the midst of a recession is not worth the paper it would be written on if it was written down. It would not only be economic suicide for Greece to meet this promise, it would be political suicide for any politician who tried.
Even if there were a solution within Greece, it's hard to see why the Greeks would choose to take that path when they can pass on the costs to their fellow EU members. The possibility of a bailout will be too enticing to Greeks, and they'll be willing to play chicken with the Germans when it comes to whether they'll default on their debts.
You see, the Greeks know that they can make or break the Euro. The unified European currency is premised on the idea that it is more stable than the older national currencies, not subject to the periodic devaluations that plagued Europe in the last century. A Greek sovereign debt default followed by a Greek withdrawal from the Euro will shatter that premise, revealing the Euro to be no better a guarantee of stability than its predecessors.
There is no way the Germans or the French will allow the Euro to be vaporized by the Greek debt crisis. The cost to them of not bailing out Greece would be more than the bailout.
In short, Greece has Europe over a barrel. They can't solve their own debt crisis, they don't want to solve their debt crisis, and they know they Europeans will have to bail them out.