Here
we go again. Under immense pressure from creditors in the European Union, the Greek parliament
has overwhelmingly voted 229 to 64 to accept another €86 billion bailout.
As
a part of the terms, Greece must raise taxes, increase the retirement age, cut
pensions, engage in foreclosures, evictions and liquidation on thousands of
homes and businesses behind in their payments, and “to put in place a
programme, under the auspices of the European Commission, for capacity-building
and de-politicizing the Greek administration,” according
to the text of the agreement.
These
were many of the same terms that Greek voters had overwhelmingly rejected in a
referendum on July 5 with 61 percent voting against.
In
return, Greece gets to refinance its debt — now totaling €323 billion. It gets
to stay in the Eurozone. And Greek banks may be able to reopen as soon as
Monday, as
the European Central Bank turns back on funding.
But
no write-down of Greek debt was agreed to, which had been a key demand of
Greece’s ruling party, Syriza. Rejecting the referendum was supposed to
strengthen Greek negotiators’ hands. Instead, they got nothing. At least so
far.
Such
a debt restructuring would come after a partial €100 billion
default on some €355 billion of government debt in 2012.
But
that barely helped the last time. Again, Greek government debt once again
stands at €323 billion, over 175 percent of the country’s Gross Domestic
Product.
The
real problem is that the economy has been unable to grow, instead contracting
an average annual 4.1 percent every year since 2008.
Unemployment
is still north of 25 percent.
10-year
treasuries are still greater than 10 percent — they had been over 30 percent in
2012 — although have dropped considerably since Greece caved into the European
creditor demands.
Still,
10 percent is not cheap financing, and will make achieving debt sustainability
extremely difficult.
The
reasons for the overall decline, however, are not too hard to understand.
Greece finds itself in the same demographic decline — with the working age
population slowdown coinciding with the economic downturn — that
Japan, the rest of Europe, and even the U.S. finds itself in.
So,
just at the time Greece’s tax base is dwindling, their Baby Boomers hit
retirement, and the economy is contracting an average 4 percent a year since
2008, European creditors think that’s a swell time raise taxes. It won’t work.
In
the meantime, it is hard to see how the current regime in Greece will be able
to turn things around. That is, not while it is still trapped in the Eurozone
attempting to use overvalued currency to pay an unserviceable debt.
Alternately,
it could just leave the common currency, reinstate the drachma, and establish
an independent central bank. Then, the debt could be repaid with drachmas,
albeit at a significantly discounted exchange rate.
It
would be a massive default, but Greece would once again be in sovereign control
over its own currency.
Even
out of the Eurozone, in order to achieve access to credit markets, Greece would
still have to undergo reforms to stabilize its budget and encourage growth,
mindful of its demographic challenges.
But
in the least it could do so under its own terms that its people’s elected
representatives could oversee.
What
is clear is that things are terrible in Greece right now. And they’re not
getting any better. The only people the bailout will help are Greece’s
creditors. So why continue the same thing over and over again expecting a
different result?
Greece’s
bailout is going to fail again. And when it does, their only salvation will be
to reclaim their sovereignty — and their currency.
Robert
Romano is the senior editor of Americans for Limited Government.
http://netrightdaily.com/2015/07/why-the-greece-bailout-will-fail-again/
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