Ode to a Grecian Spurn: A Case for the Grexit
Oxi! The citizens of Greece spoke in late June, voting by a 22.6 percent margin to reject their creditors’ austere demands in exchange for a bailout. Germany, a primary Greek creditor and fellow Eurozone member was entitled—if not obliged—to feel slighted by the results of the referendum. Germany’s economy drives the Euro, and Greece is hurting its value by nearly defaulting. The official Greek retirement age has substantially trailed that of Germany in recent years, and a government retiree in Greece will likely receive a much more favorable pension plan (covered by taxes) than a German federal worker.
However, using tax funds for these generous pensions has proven problematic for Greece. According to the Organisation for Economic Co-operation and Development, Greeks dodge their taxes substantially more than Germans, EU citizens, and companies on average. The tax-collection infrastructure in Greece is so poor that failing to pay taxes is relatively commonplace; this is exacerbated by the high levels of self-employment (and thus income self-reporting).
As Greece struggles to make debt payments on time, it is becoming clearer that the lifestyle within Greece is incompatible with those of its creditor countries. What was once the most prosperous civilization in the world has, in the millennia since, slowly devolved into a failed welfare state.
Some would argue that this is all Greece’s fault. After all, they are a sovereign nation who set their own policies, and these policies incentivize sloth. But this is institutionalized, and many of the policies outdate their beneficiaries; Greeks were born into this crisis waiting to happen.
Raising the retirement age and cutting pensions, measures Greece had already taken because of past pressure from their creditors, is not something aging Greeks want to impose upon their own generation. It hurts. Hellenic creditors in the EU, many of them well-to-do, cannot simply forgive Greece’s debt; that would set a dangerous precedent and undermine the Euro’s value. But they cannot pretend like they are not at all at fault here. These loans were predatory in the sense that the creditors knew, given the sociopolitical climate in Greece, that they would likely not see their money again.
In reality, Greece should never have been admitted into the Eurozone at all. The government used deceptive, if not outright false, accounting to create the appearance that its budget deficit was low enough to meet the qualifications for entry into the new currency. Greece wanted a less volatile and more broadly circulated coin and the cachet of membership that its geographical neighbors lacked. More powerful and robust European economies sought to expand the reach of the currency and facilitate trade, knowing that interest rates would be manipulated in favor of the more influential countries’ interests.
In defending the Euro, some draw comparisons to the relative success and longevity of the U.S. Dollar. After all, the US and the collective Euro member countries have roughly the same population, and similar to how the Euro is spread across countries, the dollar is spread across 50 different states. But Euro parties are sovereign, with vastly different cultures, social policies, and economic policies. They are capable of unilaterally altering these; the discrepant pension plans and retirement ages are strong examples of this. Additionally, regulation like tax collecting varies substantially in Eurozone countries, but is consistent in the U.S. on a federal level. While there is one central bank in the system, it is not responsible for the welfare of every nation in the same way the Federal Reserve needs to keep the entire United States afloat-U.S. states are not sovereign nations.
Of course, this logic does not demerit the concept of a currency such as the Euro. The Euro demerits itself. As we have seen in Greece, and also in other countries like Portugal and Spain, this system is polarizing at the ultimate expense of all who use the currency. As of publication, the Euro is approaching parity with the US Dollar; it hovers around $1.10, down over 25 percent from the five-year maximum exchange rate in 2011 when a Euro was worth $1.48.
The multinational currency has been a revealing experiment, and a Greek departure from the Eurozone would be a revelatory event. Many fear that the Euro could spiral downward after the unprecedented exit of a Eurozone member. Nobody knows exactly what would happen, but after all is said and done the status quo would probably change for the better. Greece would have full control of its currency. European economic powerhouses wouldn’t keep getting dragged down. The immediate future would be tumultuous, and no economist can say with confidence what it would entail. One would hope that the ends would justify the means.
No matter how the next few years unfold, it will be tough on ordinary Greeks. Austerity hurts. A very weak new currency also hurts. And if they depart the Euro, there will be no going back.