With Greece in news, the world seems to be making efforts to understand the Greeks better. Why they are in trouble and what can be done and so on.
In a financial mess, it is not just the irresponsible borrower; the irresponsible lender also has equal contribution. In this case, the biggest lender to Greece is Germany. It was Germany’s tax payer’s money at risk. Though Germany is going to be the biggest loser now I suppose no one (apart from Germans) is sympathetic towards it. The reasons lie in the history too.
It was Germany at the heart of the two world wars. If there was no Stalin, Hitler’s ambitions would have become a reality. If we go two thousand years past into the history, Romans called them as Barbarians. It becomes apparent that they did not share any great relationship with their neighbors.
Today’s Germans are very efficient at their work. The machinery produced by them is world class. Their economy produces a surplus. But what do you do with that surplus money which goes on accumulating every year? It is lent to neighbors and foreign countries.
One of the borrowers was Greece and when they were not able to repay their loans, Germany insisted Greece should cut its Govt. spending and implement tax reforms to run a budget surplus. Greece did to good extent; deploying austerity measures had put a greater pressure on its economy. Its unemployment went up. Its economy began to shrink. Its public felt they are not respected in the European Union and during the recent election they chose a leftist Govt. which opposed austerity. Its new leader has to confront Germany opposing to cut its Govt. spending. Even if Greece runs a budget surplus, it would take more than 30 years to settle debt. With a kind of social unrest, there is no patience left in Greeks to struggle for another three decades for the mistakes done in the past. They are angry with European Union (in which Germany is the biggest player) for asking for further budget cuts. So it reflected in the last week’s vote too. They want to leave the union.
What right Germany has in advocating how Greece should run its Govt.? If its is because Greece owes money to Germany, why Germany was not cautious while lending and let the debt balloon become bigger? That seems to be the question many are asking now. And here history comes alive again. Germany had led to physical destruction and loss of capital during world wars and now some think they are doing it economically with countries like Greece.
But the real problem lied in the formation of Euro currency. It is becoming clear now that without political integration, a common currency won’t work. All the countries in the European Union had their respective Govt.’s. Their policy approaches were different, so were the risk profiles. When they formed a union with a common central bank (ECB) and a common currency (Euro), the inefficient countries in the union would become losers. Since all of the union becomes one market with a common currency, those countries who produce quality goods at a competitive price would gain and those who cannot would see their domestic production reduce. To make up for that, local Govt. will have to step up public spending to keep the economy going. One country's exports are another country's imports. Germany’s surplus had to cause deficit somewhere else. Greece, Spain and Italy had suffered. That is the argument of few noted economists.
If and when Greece comes out of the union, it will pay its price with a weak currency, higher rates and inflation. And it would also set stage for other countries to leave the union too. And if the idea of Euro gets scrapped someday, Germany may not run the same surplus then. But this experiment is already affecting lives of many including those victims in Greece, all of them did not live at Govt.’s expense but everyone will pay the price of inflation and unemployment.
Those who do not learn from history tend to repeat it, so goes a saying.