by Frank Schnittger
Sat Jul 4th, 2015 at 08:10:54 AM EST
Former Irish Taoiseach and EU Ambassador to the US John Bruton lays out the case against the Greek Government fairly succinctly in his article in the Irish Times today (4/7/15). In it he criticises US Nobel prizewinning economists Paul Krugman and Joseph Stiglitz for advocating a NO vote in the Greek referendum.
His arguments may be summarized as follows:
1. "Krugman says the euro was a "terrible mistake" because he claims it failed to insulate the public finances of the states of the euro zone from bubbles in particular countries, like he says the US system does. In fact, the US only does this to a limited extent and, unlike the EU, it has no general bailout fund for states".
In fact Krugman never claimed the US system could prevent housing bubbles and criticized neo-liberal de-regulation "reforms" for making such bubbles more likely. Furthermore, the US Federal budget is 20% of GDP compared to an EU budget of only 1% of GDP and thus Federally funded programmes like Social Welfare, Medicare and Medicaid can do a lot to alleviate the worst effects of (say) a burst housing bubble in Florida on the poorer people in Florida. How much better off would the Greek people be today if they had a social welfare and healthcare system funded by the EU?
2. Bruton continues: "He [Krugman] fails to outline what the Greeks might have used for money since 2010 if, as he seems to advocate, they had continued with their previous "non-austere" spending policies. They would not have been able to borrow the difference on commercial markets. Where would they have got the money?"
The answer is quite simple: If Greece had remained outside the Eurozone, as Krugman advocated, they could do what every Sovereign state with their own currency does: they could print it. Should currency markets deem this to be excessive, they would devalue the currency thus making the Greek economy more competitive and facilitating its recovery. That is how monetary policy normally works in states with their own currencies.
3. What Bruton also ignores is what almost every economist and most political leaders (including Merkel) have known since 2010: That Greece is basically insolvent and its accumulated debt burden is unsustainable. A default or radical "restructuring" of the debt is unavoidable, and this is not because of anything that Syriza or the present Government have done, but because of the unsustainable borrowing conducting by successive conservative Greek Governments who were and are political allies of Bruton's Fine Gael and European People's party.
4. Bruton goes on the justify the bailing out of European banks exposed to Greek debt in 2010 by turning private bank debt into public sovereign debt on the grounds that protecting the European Banking system was a "public good". So why aren't the Greek banks being provided with adequate liquidity by the ECB, and, if insolvent, being bailed out or restructured by the EU ESM and EFSF facilities set up for that very purpose?
5. Bruton concedes that a debt conference will be necessary: "But the convening of any such conference, and eligibility for any help from it, should be something that might happen five years from now. It should be conditional on growth-promoting reforms and budget-balancing, already having been fully implemented by governments seeking debt relief from it."
The Greek crisis is happening now, and any possible debt relief or restructuring in five years time will do nothing to alleviate it now. We wouldn't be having this crisis now if it had been done adequately 5 years ago in 2010 when the private banking loans were being converted into sovereign debt. This is just one more instance of European leaders trying to avoid their responsibilities and 'kicking the can down the road'. Ireland was promised something similar, and those promises have now been quietly forgotten by the Irish Government as much as anybody else.
And in the meantime the Greeks are supposed to continuing an austerity plan which, as Brian Lucey noted in his excellent article in yesterdays Irish Times, everybody, including the IMF, knows cannot succeed. Just as they knew the past 5 years would be as disastrous as they have turned out to be. All the evidence is that austerity policies are the very opposite of the "growth promoting policies" Bruton claims to favour and which the current Greek government are actually trying to implement.
The indifference of John Bruton and his political allies to the ongoing suffering of the Greek people and the abject failure of the policies he himself has advocated is absolutely stunning to behold. Blaming the messengers - Krugman and Stiglitz - who have consistently provided the evidence of that failure is no solution whatsoever. Trying to claim that they are only making those criticisms because they have no stake in the game is just plain ignorant.