THE ongoing Greek debt saga may yet take a surprising turn or two, but as it stands now, it appears the people of Greece have made a tremendous blunder that will have tragic consequences.
Most of the rest of the world has offered approval for the Greek voters’ rejection of further austerity in exchange for debt relief from the European Union. The vote on the referendum called by Prime Minister Alexis Tsipras after the most recent collapse of negotiations was seen as a triumph of democracy: Even though they may face hardships as a consequence, the people stood up to outside oppressors attempting to dictate how Greece manages its sovereign affairs.
That is a very stupid point of view for the Greeks or anyone else to take. The rejection of the demands of the EU and the IMF was a mistake, and the fact that it was arrived at through a democratic process does absolutely nothing to rationalize it.
Going it alone
Greece, in effect, has said that if the rest of Europe will not help repair the country’s finances on Greek terms, the country is prepared to go it alone. The trouble with that brave but foolish attitude is that the Greeks themselves are to blame for their own economic mess, and are not very likely to be willing or able to carry out the drastic structural changes necessary to clean it up.
At the end of last month, two articles – one in The Economist, and one published online by Forbes – succinctly summarized the problem with Greece: An inefficient bureaucracy plagued by nepotism, an inconsistent, glacially-slow justice system, badly-run, loss-making nationalized assets, and oligopolies entrenched in key industries by laws that restrict competition and new entrants.
Some commentators here have pointed out that these characteristics are disturbingly familiar. The reason why Greece ran into trouble while the very similarly managed Philippines has not is because much of Greece’s debt was incurred in maintaining social safety nets: Subsidized prices, wage controls, low- or no-cost health care and education, various forms of financial welfare, and so on. The Philippines has very little in the way of comparable safety nets, and thus does not have to pour money into keeping its population content in the same way Greece has for generations.
No sovereignty issue for PH
That presents an entirely different set of problems for the Philippines, but one problem it does not create is a reduction of sovereignty through debt; foreign or transnational creditors do not have the same sort of claim against the Philippines as they do Greece, and as a consequence do have the legitimate position to demand changes in the way the country is governed. How the country is governed will have little to no impact on any other country’s economic well-being, so if the Philippines wishes to exercise its democratic prerogative to maintain an unjust and unproductive system, there is little anyone else can or should be allowed to do about it.
Greece, on the other hand, because of its huge debts puts public and private creditors at considerable risk, and consequently gives those creditors the right to demand changes – after all, that’s exactly how the bankruptcy process works. The Greek people should have never been allowed to choose, because Greece is not the only one affected by their decision.
The proper course of action at this point would probably be to eject Greece from the eurozone. The Greeks do have the right of self-determination, just as any democratic society, and they have the right to make stupid decisions – so long as the consequences of exercising those rights only affect them.