Imagine that in the worst year of our recent recession, the United States government decided to reduce its federal budget deficit by more than $800 billion dollars – cutting spending and raising taxes to meet this goal. Imagine that, as a result of these measures, the economy worsened and unemployment soared to more than 16 percent, and then the president pledged another $400 billion in spending cuts and tax increases this year. What do you think would be the public reaction? It would probably be similar to what we are seeing in Greece today, including mass demonstrations and riots, because that is what the Greek government has done.
The above numbers are simply adjusted for the relative size of the two economies.
But tell us what’s really important, oh sweet business section of mainstream newspaper, reassure us investors! Will the banks who made bad bets on Greece lose a penny of their long-shot gambles?!?
Germany, fearing that Greece would soon default, calmed market fears Friday by retreating from its stance that banks and other private lenders should share the pain of a second bailout for Greece.
Well, there we go then, and I notice markets rebounded What would have happened if they hadn’t, if that bubble had burst?
Weisbrot also notes the obvious, that it’s the death of sovereignty that is the critical problem for Greece. Its government can’t do what must be done, because it has surrendered economic sovereignty to an unaccountable EU, IMF, and European Central Bank:
Greece would not be going through this if it were not a member of a currency union. If it had leaders that were stupid enough to massively cut spending and raise taxes during a recession, those government officials would be replaced. And then a new government would do what the vast majority of governments in the world did during the world recession of 2009 – the opposite, i.e. deploy an economic stimulus, or what economists call counter-cyclical policies.
And if that required a renegotiation of the public debt, that is what the country would do.
And finally we have the hysterical ravings of the UK Guardian’s business class editor on the possibility the Greek parliament does the right thing. He lays 2/5 odds on the following happening:
On Monday the Greek parliament votes against George Papandreou’s new cabinet and its plans for further EU-inspired austerity. The decision triggers a refusal by the EU and the IMF to forward new funds to pay interest on Greek debts.
Credit ratings agencies say that Greek banks are in effect bust because they are the biggest lenders to the Athens government. French and German banks, which are the biggest foreign lenders, lose billions. Markets crash. US and Middle Eastern investors begin a fire sale of assets in Spain and Italy as well as in Portugal and Ireland.
Within hours Silvio Berlusconi is on the phone to Brussels begging for funds. Italian public sector workers join counterparts in Greece and Spain on the streets to protest at steep wage cuts. Riots topple [financier-owned] governments and usher in [real democracies] promising [economic growth]. The EU falls apart as each country decides to leave the euro and issue their own currency.
Okay, yeah, I modified the lunacy a bit to make it more real world. I think we got a plan!