It has long been clear that the creation of the euro was a terrible mistake. Europe has never had the preconditions for a successful single currency, especially the kind of fiscal and banking union that, for example, ensures that when the housing bubble bursts in Florida, Washington automatically protects the elderly from any threat regarding your health care or bank deposits.
Stiglitz also opts for No
Joseph Stiglitz, former chief economist of the World Bank (WB) and professor at Columbia University in New York, also defends that the Greeks vote “no” during the consultation this Sunday.
“A yes would mean an almost endless depression (…). A no would at least open up the possibility that Greece, with its strong democratic tradition, could take its destiny into its own hands”, estimates the Nobel Prize in economics in 2001 in an article published in Guardian.
In this way, adds Stiglitz, 72, “Greeks could have the opportunity to shape a future which, although perhaps not as prosperous as the past, is much more promising than the unconscious torture of the present.”
Leaving a monetary union, however, is a much more difficult and terrifying decision than ever; Until now, the continent’s most troubled economies have taken a step back from the brink. Time and again, governments bowed to harsh austerity demands from creditors, while the European Central Bank managed to contain market panic.
But the situation in Greece has reached what appears to be a point of no return. Banks are temporarily closed and the government has imposed capital controls (limits on the movement of funds overseas). It seems very likely that the executive will soon have to start paying pensions and salaries on paper, which in practice would create a parallel currency. And next week, the country will hold a referendum on whether to accept the demands of the troika — the institutions that represent the interests of creditors — to step up further austerity.
Greece must vote “no”, and its government must be ready to leave the euro if necessary.
To understand why I say this, we must first realize that most – not all, but most – of what we have heard about Greek debauchery and irresponsibility is wrong. Yes, the Greek government was spending beyond its means in the late 2000s. But since then it has repeatedly cut public spending and increased tax collection. Public employment fell by more than 25% and pensions (admittedly too generous) were slashed. All the measures were, in short, more than sufficient to eliminate the initial deficit and turn it into a large surplus.
He knows all sides of the coin in depth.
What We Heard About Greek Debauchery and Irresponsibility Is Wrong
Why didn’t this happen? Because the Greek economy collapsed, in large part, as a direct result of these massive austerity measures, which caused revenues to plummet.
And that collapse, in turn, had a lot to do with the euro, which put the Greek economy in a straightjacket. In general, successful cases of austerity policies, those where countries manage to reduce their budget deficit without sinking into depression, are accompanied by significant currency devaluations which make their exports more competitive. This is what happened, for example, in Canada in the 1990s, and more recently in Iceland. But Greece, without its own currency, did not have this option.
Do I mean by that that the Gresort —Greece’s exit from the euro—? Not necessarily. The problem with Grexit has always been the risk of financial chaos, a banking system mired in panicked withdrawals, and a private sector hobbled by both banking problems and uncertainty over the legal status of debts. This is why successive Greek governments have embraced demands for austerity, and why even Syriza, the ruling left-wing coalition, was ready to accept austerity that had already been imposed. The only thing he asked for was to avoid a greater dose of austerity.
But the troika rejected this option. It’s easy to get lost in the details, but now the key point is that creditors have offered Greece a take-it-or-leave-it offer, one indistinguishable from the policies of the past five years.
This offer was and is destined to be rejected by the Greek Prime Minister, Alexis Tsipras: he cannot accept it because it would mean the destruction of his political raison d’être. Its objective must therefore be to get him to resign, which is likely to happen if Greek voters are sufficiently fearful of confrontation with the troika to vote yes next week.
It’s time to put an end to this unimaginable. Otherwise Greece will face infinite austerity
But they shouldn’t for three reasons. First, we now know that ever-tighter austerity is a dead end: after five years, Greece is worse off than ever. Second, virtually all of the dreaded chaos around Grexit has already happened. With the banks closed and capital controls imposed, there is no more harm to be done.
Finally, adherence to the troika’s ultimatum would imply the definitive abandonment of any claim to independence from Greece. Let us not be fooled by those who claim that the Troika officials are just technicians explaining to ignorant Greeks what to do. These so-called technocrats are, in reality, fantasies who have ignored all the principles of macroeconomics, and been wrong at every step. It’s not a matter of analysis; it is a question of power: the power of creditors to unplug the Greek economy, which will persist as long as leaving the euro is considered unthinkable.
So it’s time to put an end to this unimaginable. Otherwise, Greece will face endless austerity and depression with no hint of its end.
Paul Krugman He was awarded the Nobel Prize in Economics in 2008.
© The New York Times Society, 2015.