We should ask ourselves if we are practicing economics, or politics, in the way which we handle the Greece-EU crisis.
If I am an economist and you set me a goal to get the sick Greek economy back on track, I would be against austerity. Austerity in the true sense of the word. Spending cuts and tax hikes in the midst of a depressed economy WILL worsen the economy. There is no doubt of this.
However, I am also cognizant of the fact that Greece’s creditors have asked for structural reforms - and this is certainly needed. This is not austerity anymore. Improvements to the rule of law in doing business, removing clientelism and enforcing tax collection were lacking and is needed now of all times. But this is not austerity. Not in the true sense.
Insofar as I have explained my stance on austerity, I agree with the likes of Paul Krugman who is another fierce critic of austerity.
I have only spoken of economics thus far. Now on to the trickier part which is politics and history. The reason why Greece got into this situation in the first place was indeed because of irresponsible spending (and almost equivalently, and easily forgotten, lending by its creditors.) You can also throw in the role of financial institutions like Goldman Sachs who ensured that on paper, Greece could make the cut to enter the monetary union. Moral hazard is written all over the place.
However, again, if my job is to get Greece back on its footing again, I say that the latest deal signed by Tsipras at a much weakened position is a mistake.
Because it adds to austerity without any form of debt relief. The IMF, incredulously, has recently came out to stress the need for debt relief. To give some perspective, this is coming from a member of the troika which historically has been heavy on austerity.
Debt relief IS VERY unsavoury to every country in Europe and even to distant observers like us. Because we feel that the problem of moral hazard on the part of the Greeks is being ignored. The politicians also feel that it sets a precedent for other fiscally profligate countries to go down the same path.
But we should not let our normative judgments of the fairness of debt relief cloud our practice of economics. Like I say, if my goal is to help the Greece economy, austerity should be lifted, structural reforms put in place, and debt relief seriously looked into. Doing otherwise would mean putting politics before economics. I think that 4-6 years of 40% youth unemployment and 25% unemployment as it is widely measured is enough.
I agree that the way that the Greek government has handled the crisis this far has put this goal even further away from their grasp.
