An Observation about the Greek Debt Crisis

My previous two posts on Greece reminded me of something I meant to comment upon the other day.  On Friday’s Morning Edition there was a story on the Greek crisis that had the following observation that struck me:

Resolving this crisis has taken years, and there’s a reason: a debt crisis has never really been solved this way before.  Here’s Zoe Chace of NPR’s Planet Money team.

[…]

CHACE: Usually, it’s like this: the countries default on their loans – then we talk.

It struck me upon hearing this that yes, that’s true.  The immediate example to me was Mexico in the early 1980s (and then several other Latin American cases that followed suit):  the countries in question basically came out and said one day:  we are suspending loan repayments because we cannot afford to keep paying.  This led to economic crisis (locally and regionally).  Then came the scramble to fix the problem which eventually led to structural adjustment of economies under the auspices of international lending institutions.

The Greek case is different:  instead of going off the cliff and then sending in the rescue crews, the goal here is to find a way to stop form going over the cliff.

Of course, this approach is driven by the fact that Greece is not only in the EU, but part of the Eurozone.   Its partners have every reason to avoid being dragged off the cliff too.

FILED UNDER: Europe, Quick Takes, World Politics
Steven L. Taylor
About Steven L. Taylor
Steven L. Taylor is a Professor of Political Science and a College of Arts and Sciences Dean. His main areas of expertise include parties, elections, and the institutional design of democracies. His most recent book is the co-authored A Different Democracy: American Government in a 31-Country Perspective. He earned his Ph.D. from the University of Texas and his BA from the University of California, Irvine. He has been blogging since 2003 (originally at the now defunct Poliblog). Follow Steven on Twitter

Comments

  1. WR says:

    And of course, the solution is to let all the bankers keep the billions they stole while bankrupting the Greek people. I’m sure Tom Friedman and Mitt Romney believe this is the way the world should work, but they may be surprised at the violence all those icky little proles start employing when it’s made perfectly clear that the only people who matter are those who have all the money.

  2. Ben Wolf says:

    This isn’t about getting money out of Greece any more; even the Germans know that is n longer possible. The goal is to force ever-more-onerous austerity packages onto the Greeks until they leave the eurozone. The Troika just can’t let it look like that’s what they’re doing, otherwise the structures and institutions emanating from the Maastricht Treay will be irreperably damaged.

  3. Dunce says:

    Greece is part of the EU but they could exit the union as part of the solution and work out. California and Illinois know that they can not be decoupled that way and will never balance their budgets. This is part of obamas plan , to promote civil strife and civil war that will be resolved by destroying our constitution and establishing a dictatorship. It matters not to him who prevails in the civil war because his interest is in transforming America into a weaker country that other stronger countries will tear apart.

  4. WR says:

    @Dunce: I’m sorry that your life is so miserable that your only escape is into these ludicrous conspiracy theories. If there’s anything the OTB community can do to make you feel better, please let us know.

  5. michael reynolds says:

    The aptly named, Dunce, ladies and gentlemen.

  6. An Interested Party says:

    California and Illinois know that they can not be decoupled that way and will never balance their budgets.

    It’s so amusing when certain people make claims like this…as if only big blue states are having trouble balancing their budgets…as if red states are all paragons of budget discipline…please…

  7. grumpy realist says:

    One of the other problems with Greece is a culture of corruption and tax evasion. The concept of “unless we hang together, gentlemen, we will all hang separately” hasn’t really taken hold.

    I miss Japan. Xenophobic as hell, but at least they understand the concept of a non-corrupt government.

  8. Brummagem Joe says:

    Greece exiting the Eurozone doesn’t remotely threaten its existence. Arguably it would make it stronger by removing a weak link. However for a variety of reason other zone members want Greece to stay in and in the case of the Greeks they want to stay in because the consequences of them leaving would be infinitely worse than the various measures they are being compelled to undertake in order to receive further aid. This is clearly understood by the Greek ruling class which is why it passed in the Greek parliament. So far they’ve been pretending to take aggressive measures to deal with their problems but it looks like they’ve come to realise the game is up.

  9. Brummagem Joe says:

    @WR:

    And of course, the solution is to let all the bankers keep the billions they stole while bankrupting the Greek people.

    Actually the Greek people bankrupted themselves.

  10. Vast Variety says:

    This is the result of sharing a currency with multiple countries without a single unified fiscal policy. In the long term, the only way the Euro will really work is if Europe unites.

  11. Hey Norm says:

    “…This is part of obamas plan , to promote civil strife and civil war that will be resolved by destroying our constitution and establishing a dictatorship…”

    That’s friggin’ awesome. Seriously…what is the collective IQ of Republicans? 42?

  12. Andre Kenji says:

    The point is not about a country that´s barely bigger than Kentucky: the point is about saving German and French banks. Besides that, both Argentina and Mexico have lots of commodities to export. Besides that part 2, countries like Brazil and Mexico are keeping large reserves precisely because of the experiences of the defaults in the 80´s.

    Greece is basically a fiscal raven for cargo ships and a resort island.

  13. WR says:

    @Brummagem Joe: Actually, the Greek people are terrible about paying their taxes and the Greek government was terrible about enforcing the tax laws. So they looked for the easy way out, and there were Goldman Sachs and the other criminal enterprises who told them if they invested in these outrageously complex financial instruments, all their problems would be solved. Of course, the instruments were frauds, but Goldman and company got to keep the money they made.

    When someone is swindled by a con artist, you can blame the victim for being stupid and greedy — but he isn’t the criminal.

  14. Ron Beasley says:

    @Vast Variety: You are correct but that would result in Eurozone = Germany. That’s not going to happen which is why the Eurozone was a really bad idea to begin with and it will end very badly.

  15. Brummagem Joe says:

    @WR:

    Actually, the Greek people are terrible about paying their taxes and the Greek government was terrible about enforcing the tax laws

    .

    This is only the half of it. The Greek government also took on all kinds of infrastructure projects and made currrent and future committments to public employees and indeed all citizens that it funded by borrowing at low interest rates made possible by membership of the Euro. They then repeatedly lied about the state of their public finances to keep the money coming until the entire edifice came tumbling down. GS role in this to the extent they had one was fairly minor and not much different if at all different from that of other lenders and hardly justifies the somewhat paranoid exaggerations you’re suggesting. The Greeks were greedy feckless layabouts who lied about their financial condition and not by any stretch of the imagination victims in all this.

  16. Brummagem Joe says:

    @Ron Beasley:

    That’s not going to happen which is why the Eurozone was a really bad idea to begin with and it will end very badly.

    I doubt it Ron. The Eurozone is not going out of business and will almost certainly emerge from all this turmoil greatly strengthened and playing by largely Franco/German rules.

  17. gVOR08 says:

    The Greek deal is like sanctions against Iran, N Korea, and previously Iraq. We don’t know effective ways to selectively target the elites who run the system and made the bad decisions; so we take a sledgehammeer to the populace.

  18. Brummagem Joe says:

    @gVOR08:

    We don’t know effective ways to selectively target the elites who run the system and made the bad decisions; so we take a sledgehammeer to the populace.

    La Populace at all levels were the main beneficiaries of this system whether it was everyone not paying taxes or people working in the public sector retiring on full pensions at 45.

  19. Ben Wolf says:

    The same problems will continue to emerge in the eurozone so long as no fiscal union is established. Trade imbalances ensure some nations will accumulate debt beyond their ability to sustain, and without government spending to replace net financial assets their economies will fall into recession.

  20. Vast Variety says:

    @Hey Norm: Well, 42 IS the answer to the universe and everything.