The European finance ministers have agreed to punt the Greek question to the Eurozone leaders who began their meeting in Brussels a little over 30 minutes ago. By Greek question, I am referring to whether they decide to loan Greece as much as 74 billion euros ($82.6 billion) or show them to the Grexit. France and Italy oppose a Grexit; Germany favors it.
The dispute is not so much about the money as it is about resolving two competing considerations: (1) whether Greek officials will make a good faith effort to comply with the terms of the loan and (2) whether the eurozone will begin unraveling and eventually collapse if the leaders of the eurozone decide not to loan the money. There is no easy answer.
As Paul Krugman said Friday in the New York Times, the unitary currency and hard money loans (i.e., austerity) constitute a major structural impediment to an improving economy.
What turned Greek debt troubles into catastrophe was Greece’s inability, thanks to the euro, to do what countries with large debts usually do: impose fiscal austerity, yes, but offset it with easy money.
The main point, however, is that the ratio of debt to G.D.P. is up because G.D.P. is down by more than 20 percent. And why is GDP down? Largely because of the austerity measures Greece’s creditors forced it to impose.
Greece, unfortunately, no longer had its own currency when it was forced into drastic fiscal retrenchment. The result was an economic implosion that ended up making the debt problem even worse. Greece’s formula for disaster, in other words, didn’t just involve austerity; it involved the toxic combination of austerity with hard money.
As I’ve said before, I think Greece would be better off in the long run, if it were to print its own currency and reject the austerity measures.
The Guardian is providing live coverage of the summit meeting of the leaders of the Eurozone. You can follow it here.