Tuesday, 7 July 2015

Greeks Vote 'No'!

LAST weekend, the International New York Times' journalist Susanne Daley wrote:
'Just who is financing the the “yes” ads is unclear, according to Christos Xanethakis, media editor for Newpost.gr, who said the major opposition parties in favour of a “yes” have no money.'


Media coverage also appeared to be bias in favour of the 'yes' campaign with coverage of the 'no' rally by the six main stations in Greece had been 8 minutes compared to 46 minutes for the 'yes' rally. 


A leading editorial in the Financial Times, describing '[t]he logic (of Alexis Tsiparas the Greek prime minister) grew wonkier ever since the programme expired on Tuesday evening and Athens defaulted to the IMF', went on last Saturday to declare:

'The episode [the referendum] underlines Syriza's incompetence and untrustworthiness as much as its ideology.'


This is not a universal view among economists and financial pundits, however, the distinguished U.S. economist, Paul Krugman, last Tuesday in the New York Times argued:

'Don't be taken in by claims that the troika's ultimatum are just technocrats explaining to the ignorant Greeks what must be done. These supposed technocrats are in fact fantasists who have disregarded everything we know about macroeconomics, and have been wrong every step of the way.  This isn't about analysis, it's about power – the power of the creditors to pull the plug on the Greek economy...'


Since Mr.Krugman wrote these words and despite the threats and challenges, the Greek people on Sunday delivered a resounding 'no' vote last Sunday.  Which represents a victory for the Greek Prime Minister Alexisis, who had pushed for a 'no' vote as a way of giving him more negotiating power in dealing with the creditors who clearly want to set the terms and impose more austerity on the Greek people. 


Krugman writes elsewhere last weekend of the claims of the European officials that they have brought a 'recovery' in Spain but that 'success [in Spain], European-style means an unemployment rate that is still almost 23% and real income per capita that is still down 7% from its pre-crisis level.'  Portugal also obeyed the E.U. Demands and is, according to Krugman, some '6% poorer than it used to be.'


Finland is a model of virtue by European standards with sound finances and a good credit rating allowing it to borrow money at a low rate of interest.  Yet, Finland is in its eighth year of a slump cutting real gross domestic product to per capita by 10% and this shows no sign of ending. 


Mr. Krugman explains:  'What all these countries have in economies have in common, however, is that by joining the eurozone they put themselves into an economic straightjacket.'  Had they not done so they could have easily devalued their currencies, making their exports more competitive.  Inside the euro-zone they have no currencies to devalue hence their problem.


It seems that the only way out of the current situation, short of doing away with the euro, is for the creditors to exercise a more flexible and relaxed approach towards debt.  Not so easy given that many politicians demand more discipline of countries like Greece and Spain.  That way lies more suffering and misery. 


Krugman puts it more forcefully:  '... you should be even more afraid of the consequences of a “yes” [vote] because in that case we do know what comes next – more austerity, more disasters and eventually a crisis much worse than anything we've seen so far.'

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