Paul Krugman said he would vote “no” to the bailout deal proposed by Greece’s lenders, saying it would destroy what remains of Greek independence, and doom the country to a drawn-out depression. The Nobel-Prize winning economist justified his position well, but according to recent polls a no vote seems unlikely.
In quick summary, Greece walked away from negotiations with its creditors over the weekend, forcing them to delay an IMF payment and possibly default. Likewise, the government called for an historic referendum where the voters will decide whether or not to accept a harsh ultimatum from its lenders. Greece’s Prime Minister Alexis Tsipras says the country should not, and to some degree cannot, take the deal.
The situation has shuttered Greek banks, sent stocks tumbling, and set the media on emergency watch – a natural time for an economist like Paul Krugman to chime in.
In his New York Times column, Krugman explains there are three reasons Greece should say no to the bailout terms.
“First, we now know that ever-harsher austerity is a dead end: after five years Greece is in worse shape than ever.”
The past five years have not been pretty for Greece. The country was forced to accept austerity policies in exchange for avoiding a sovereign default, all while the effects of the 2008 financial crisis lingered.
Paul Krugman claims the austerity measures are already enough to close the government’s original budget deficits, but that doesn’t matter much anymore.
During those five years, nearly a quarter of the economy has been wiped out. Unemployment numbers hover around 25 percent. Despite all the pain, Greece is in no better position to pay off its debts since tax revenue has been devastated.
Paul Krugman also explained that “with banks closed and capital controls imposed, there’s not that much more damage to be done.”
Krugman admits leaving the currency union is scary, but it might necessary to preserve Greek sovereignty.
The economist first described it as a “reverse Corleone,” an offer so bad Greece could not possibly accept it. And since the Prime Minister would be committing political suicide to take the deal, which violates his entire electoral mandate, the only explanation is that Europe is trying to force out Greece’s duly elected government.
As Paul Krugman wrote, “acceding to the troika’s ultimatum would represent the final abandonment of any pretense of Greek independence.”
“This isn’t about analysis, it’s about power — the power of the creditors to pull the plug on the Greek economy, which persists as long as euro exit is considered unthinkable.”
Two recent polls suggest Greece is willing to forgo that independence rather than face the dangers of a Euro departure, which would be almost certain if Greeks say “no” to the creditors.
According to the Telegraph, one poll from the Proto Thema paper said 57 percent of Greeks want to take the deal, only 29 percent were against. Likewise, a poll in the To Vima newspaper found 47 percent in favor of the deal, and 33 percent against.
The situation is still fluid with the Syriza government pushing for a “no” vote and trying to overcome the fear of a departure. Nevertheless, according to a political rationale presented by Vox, Greece’s exit could be far harsher than it needs to be.
In an article titled Greece is Doomed, the author suggests that Europe will have every incentive to impoverish the small country, within the bounds of international law. Logically, if Greece’s new currency and default proves to be a better solution in the end, like Paul Krugman suggests it will be, other EU countries suffering from long-term economic problems might consider their own departure – destroying the dream of a united Europe.
Worse yet, any success from the Syriza political party in Greece might encourage voters to support other far-left parties in other EU countries.
There are signs that this political rationale is already at work, with the European Central Bank promising to cut off emergency funds if Greece fails to pay its debts – a decision it doesn’t legally have to make.
Despite all the potential harm, Paul Krugman ends his piece explaining that it is time to stop considering a “no” vote as unthinkable for Greece.
“So it’s time to put an end to this unthinkability. Otherwise Greece will face endless austerity, and a depression with no hint of an end.”
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