It’s now Greece’s crisis, not the Greek crisis
- July 7, 2015 – 2:06PM
BusinessDay contributing editor
It might seem pedantic, but there’s a big difference between what was the Greek crisis and what’s now Greece’s crisis.
When Greece’s massive debt hit the fan five years ago as the result of dumb bankers being blind to industrial-scale tax evasion, grandiose government spending and insanely indulgent social security topped by widespread rorting, it was the Greek crisis that quickly morphed into the PIGS or PIIGS crisis – Portugal, Ireland, Italy, Greece and Spain.
In any event, there’s a strong case made for Greece being better off by in effect declaring bankruptcy and leaving the euro zone.
When markets were panicking then, most of the Greek debt was owed to banks. The possibility of Greek default threatened Europe’s banks with a contagion effect that would have spread through the world.
As Band-Aids were applied to Athens and various half-hearted promises were made about reform, there were plenty of commentators suggesting that Greece’s debt could not be fixed. Even with bond holders taking a sharp haircut, the debt was simply too large for the little Greek economy to work its way out from under – and that was without the impact of greater austerity.
But the refinancing and emergency funds weren’t really about solving the Greek debt problem. They were about kicking the Greek can down the road until the threat of contagion was contained, until the other PIIGS members were stabilised, and most of the Greek debt was transferred from banks that couldn’t handle the loss to institutions that could.
Five years later, it is primarily Greece’s crisis, rather than the Greek crisis. There are still concerns of course – markets are all interconnected and don’t like uncertainty, fear is a reason for international investors to seek what they consider is relative safety – but it’s now Greece that is doomed to suffer most of the pain whatever deal is done or not done in Brussels.
It is a big, colourful story that is getting disproportionate play here, partly because of the large Greek population in Australia, partly because the idea of Western country’s banks being closed and cash rationed is rather frightening. Barring some institutional catastrophe, there are almost no economic links between Australia and Greece that matter.
Indeed, much of the story is being covered from the social and political angles rather than the economic. The protests, the genuine tales of people suffering a slide back to Second World status, the dramatic politics make good television. And in some quarters, the idea of a brave left-wing government taking on the evil capitalists stirs hearts. . . . .
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