Friday, November 9, 2012

Is it worth it to sacrifice democracy in Greece for German banker bonuses?

As the Greece economy continues to spiral down under the burden of its excess private and sovereign debt, democracy in Greece threatens to become a casualty.

I find this particularly troublesome because it would be easy to save Greece.  Adopt the Swedish Model and require the banks to recognize upfront the losses on all the private and sovereign Greek debt.

The decision to save Greece comes down to how you answer the question of is it worth it to sacrifice democracy in Greece for German banker bonuses?

If you think that German banker bonuses are more important than saving democracy in Greece, is there any reason to think you will change your mind when it comes to democracy in Spain, Italy and France?

From a Guardian column,
In spring 2010, as Athens wrangled with the IMF and the rest of Europe for what would turn out to be a €110bn emergency loan, a revealing, chilling phrase slipped out. When Greece's then-premier, George Papandreou, begged for easier borrowing terms, he was told by Angela Merkel that the deal had to hurt. 
According to a well-sourced report in the Wall Street Journal, the German chancellor said: "We want to make sure nobody else will want this."  
She certainly made good on her side of the deal: Greece has spent the past two years on a financial life-support that has kept its government ticking over, but which has destroyed its economy and pushed its entire democracy to the brink of collapse....
The price of the severest austerity programme ever imposed on postwar western Europe has been severe. Greece's economy is in severe depression: this year its annual national income is projected to be 23% below what it was in 2009, that is to say that nearly a quarter of everything the economy used to produce has disappeared over three years. 
Partly as a result, the debt burden will soon be three times GDP. Unemployment has skyrocketed, with one in two young people out of work....
The chancellor should be congratulated.  It is clear from the price paid by Greece that nobody would ever want to engage in a bailout that protects the creditor nation banks.

However, the question needs to be asked why the chancellor did not want to inflict the same level of punishment on the bankers who made the loans.  After all, bankers were not forced to extend credit beyond the borrowers' capacity to pay.  So why should they be spared a lesson too?
In the heart of Europe, a democracy now teeters on the edge. True, most of the blame for this is that of a corrupt Greek elite that has dominated politics, business and media for many decades. 
But the rest of the eurozone is also guilty: first for enforcing impossible austerity, then for turning a blind eye to the predictable results. Mrs Merkel was surely right: no other country – in Europe or elsewhere – would want this.
So the question is how to prevent this from happening elsewhere given the massive amount of excess debt in Spain, Italy and France (just to mention a few countries)?

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