Monday, 13 February 2012

Greek government votes for EU austerity

Greek MPs vote in favour of the EU's austerity demands last night but not without significant opposition both in the parliament building and on the streets.

In the end 199 MPs voted in favour of the EU's demands whilst 74 voted against.  All the main parties suffered rebellions by their MPs, resulting in 44 expulsions from New Democracy, Pasok and Popular Orthodox Rally.  MPs were swayed by the doom prophecies of the EU-appointed unelected Prime Minister, Lucas Papademos, seemingly oblivious to (or more likely uninterested by) the rioting on the streets in Athens in protest at what they were doing.

It is estimated that between 80-100k protesters were out on the streets of Athens attacking police (who apparently ran out of tear gas), setting fire to buildings and looting.  The city of Athens only has a population of of about 655k.

Greece's problems stem from joining the €uro in 2002.  Suddenly finding itself using a stronger, German-backed currency, borrowing became cheaper and easier.  So they borrowed and they borrowed big - far more than they could pay back if the €urozone gravy train was ever derailed.  Then came the train wreck and they had to be bailed out, along with Ireland and Portugal just to be able to default on part of their debts rather than all of them.  And now they have to be bailed out again to do another partial default.

Greece didn't meet the criteria for joining the €uro and went into it on the back of a lie - a lie made all the more outrageous by the fact that everyone knew they were lying, even the EU who supported their entry nonetheless.  Greece had a large public debt and budget deficit before joining the €uro, now they have a huge public debt and a budget deficit so large that the EU has demanded sweeping austerity measures that will put millions out of work and below the poverty line in return for which they will let them get even further into debt with a pay-day loan to cover the €14.5bn bond repayments they need to make next month.

Rather than follow the failed EU model, Greece needs to follow Iceland's lead and devalue and default - they are expected to have a budget surplus next year.  The €uro is too expensive for bankrupt Greece and their debt repayments are unsustainable.  They need to default on their repayments and leave the €uro.  This will inevitably lead to their expulsion from the EU straight-jacket (even though it would be illegal to expel them but I don't imagine it would stop them anyway) but if it doesn't then they should leave of their own accord.  Defaulting will free up capital to pay pensions and wages and clean up after the rioters who have been telling them in quite blunt terms that they don't want them to do what they're doing now.

Outside of the €uro, interest rates can be slashed which will stimulate foreign and domestic investment and outside of the EU they can concentrate on their own people rather than being forced to work for the other 491m EU citizens who don't live in Greece.  After defaulting, Greece won't be able to afford to borrow so they will have no choice but to live within their means but they will have their own currency back, control of their interest rates and a unilateral moratorium on debt repayments until such time as they can afford to start paying them back.  Greece would be in a much stronger position to negotiate with their creditors if they were faced with the prospect of their bonds being written off.

The EU has, of course, welcomed the decision of the Greek government to ignore the wishes of the Greek people and agree to the EU's austerity demands but have postponed a decision on whether to actually hand over any bailout cash until next month.  Whether the Greek people accept this affront to democracy has yet to be seen but as they've accepted an unelected, EU-appointed technocrat as Prime Minister, the chances are that they'll set fire to some more stuff and then accept it.
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