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Economics Archives

July 18, 2015

Greece submits to Germany

Greece has been living beyond her means for many years. A welter of exotic methods were devised to preserve the profligacy from its natural consequences, including, above all, the European currency union, which affords European periphery nations the extraordinary luxury of borrowing at German rates.

When the consequences of profligacy, in due time, began to present themselves, a German solution emerged: austerity.

In January, Greeks voted decisively against austerity, electing a hard-left government of quacks and celebrity academics. In early July, Greeks voted still more decisively against austerity in a national referendum purposed toward giving these quacks and academics more leverage in bailout negotiations. That backfired spectacularly.

This week the Greek parliament, in sullen resignation, voted to accept even harsher austerity.

The guiding purpose of European Union negotiations was to preserve the currency union: but German severity in the negotiations was predicated on the willingness to countenance a lasting breach of the currency union, specifically the exit of Greece from the Eurozone. He who loses his life will find it, while he who finds his life will lose it.

Greece, it appears, has now found its Eurozone lifeline, and it is a most austere one indeed: far deeper spending cuts and much higher tax increases than what Greek voters rejected on July 5th. Everything that Prime Minster Alexis Tsipras and his Socialists campaigned against — and won the elections by opposing — they will now get, good and hard. And the Germans are still talking openly about a “temporary” Grexit.

The reluctance of Greek voters to contemplate abandoning the euro as their currency grounds their humiliation. In the end Greece clung to the advantages and prestige of the euro more tightly than Germany clung to the vision of a complete and intact currency union. Berlin called Athens’ bluff.

Next, the Greek parliament will be obliged to pass various labor market reforms that make Scott Walker’s throne of skulls in Wisconsin resemble a modest pile of chicken bones at a buffalo wings joint. Greek public assets, many billions of euros in value, will be held in some sort of EU/IMF trust as a means to finance the coming bailout. Decades of generous public-sector benefits will be pared back; long-overdue liberalization of protected markets will be imposed; parsimony will be inflicted by distant bureaucrats; and taxes will rise at every step of production.

A hard-left government, while still clutching at the benevolences of the euro, chose flattery and cheap nationalism over facing up to the difficult decisions occasioned by decades of Greeks living beyond their means; and ultimately induced in Brussels technocrats and German politicians a severity rarely seen in Europe.

Beware Eurozone bureaucrats, even those bearing gifts.