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Austerity will not save Greece (or the Euro)

Austerity will not save Greece (or the Euro)

May 16, 2012

Like Brett Favre, and Madagascar sequels, the Greek Debt Crisis just keeps coming back. I thought the beast hath been slayed with Greek acceptance of a bailout-for-austerity package late last year, but I was mistaken.

Not only is the Greek debt crisis back, but its scarier than ever. Last week, the Greeks went to the polls to elect a new government to carry forward bailout induced spending cuts, but they emerged without any government at all! Not only did the Greeks support candidates that advocated a rejection of the austerity package, but far scarier nationalist parties emerged promising to rid the country of outside influence. The result is a hung parliament, and a new election scheduled for next month.

We should be deeply troubled by what is happening in Greece. I hope the German Chancellor, Angela Merkel, and other European leaders bent on forcing austerity upon Greece take heed. In the recent election, a far-right, neo-Nazi party named ‘Golden Dawn’ came out of nowhere to snag ~7% (21 seats) of the popular vote. Their campaign slogans include such gems as “Let’s rid this country of the stench.” Their logo looks a little (a lot) like the swastika. Like Nazis, Golden Dawn practices violence and advocates a virulent brand of nationalism and racism that should only be seen in a

Golden Dawn's emblem. Hmm, now where have I seen that before?

Riefenstahl film.

If you think you’ve heard this story before, you have. It’s called Germany, and the situation in Greece is eerily reminiscent of Germany in the late 1920s. Then, like the Greeks of today, the German government was bereft of leadership, punished by sanctions imposed by the Allies, and ripe for the wave of nationalism that soon sweep across it. In 1929, the Nazi party scored 1.1% of the popular vote in general elections. In the 1930 election, they won 18.3%. By 1933, Hitler was cooking brautwurst in Hindenburg’s helmet.

Austerity is not answer. Austerity stands to undo 70 years of European progress. Greeks are losing their salaries, pensions and jobs. Far from spurring growth, austerity is accelerating Greece’s decline as it’s GDP shrank -6.2% in 2011 compared to -3.4% in 2010!

Moral hazard is used as justification for punishing companies and countries that run aground the economic reef. Lehman Brothers was allowed to fail for that reason. Moral hazard is now used by Merkel, Sarkozy and other European leaders to exact hugely punitive cuts to Greek spending in exchange for a bailout. But when the Greeks riot in their streets because there is no food, or electricity, whom will they blame? Who they will run to?

Moral hazard is bad, but you know whats worse? Fascism. If the Greeks are allowed to default, or  are forced out of the Euro, then what becomes of Spain, Italy and Portugal? Very soon you will see a Europe divided between the north and south. The Euro will be dead, and the European Union will stand to unravel. How long then till the European powder-keg explodes?

Athens burns

The EU and Euro have brought peace to Europe by tempering nationalism with the fruits of capitalism. The Euro cannot be allowed to fail. Greece must be bailed out, and done so without any austerity measures. The time will come when the Greeks will have to answer for their economic excesses, but not now.  The great folly of Versailles was the economic punishment leveled upon Germany, as it led to Hitler’s rise and World War II.  Now ~90 years later, we’ll let the same thing happen again, all in the name of combatting the ghost moral hazard.

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