The Greek Syndrome: A Prelude to Revolution?

Time to go to Greece! I should have already been there, but due to the general strike I have been forced to reschedule my flight for this morning. Hopefully, I will be there soon.

It shouldn’t come as a surprise that the Greek people are on general strike again – not the first time and, to be sure, not the last. Would you not go on strike if you were in their shoes?

The mishandling of the debt crisis by the international agencies is obvious. How can the so-called troika, that is the European Union, the European Central Bank, and the International Monetary Fund, expect the Greeks to accept such harsh austerity measures, which is not only cutting sharply their current consumption, but has also been driving their country’s economy into an even deeper recession? No doubt, the Greeks must learn how to live within their means and not beyond them, and they must learn how to pay taxes instead of avoiding them, but there is a limit of enforced austerity and there is a case for sharing the burden of necessary adjustment.

I have suggested to keep the IMF out of this case, and to deal with it through European institutions. Unfortunately, they’ve committed a series of mistakes, including the one the other day. Not only the Brussels bureaucrats, but especially Chancellor Merkel and President Sarkozy and their advisors are responsible for this mismanagement. The delay of the release of the next earlier agreed upon bail-out tranche is a severe mistake.

The contraction of GDP in 2011 could be as much as 6 percent. Hence, the fiscal basis is still shrinking further.  It is no wonder that the government can’t meet the target of bringing this year’s deficit down to 7.5 percent.

At the same time the false claim is repeated over and over again that there won’t be a default of Greek foreign debt. There will be. It is unavoidable and the sooner it is admitted, the better, since the overall costs of dealing with such a messy situation will be less dear. It is high time to accept the reduction of Greek debt by a half, what I’ve been suggesting for the last half a year here and elsewhere, including my comments published several months ago in The Economist, Financial Times, and on RGE’s EconoMonitor.

Of course, the reduction must be based on tough, yet sensible conditionality, calling for a proper fiscal adjustment. It must be carried forward by the Greek government in a way that is understandable and acceptable to the Greek people. Otherwise, there won’t be a calm solution to the challenge, but rather a revolution, if it has not started already. And not only in Greece…