Sunday 23 October 2016

Dear Greece - you do realise you've painted yourselves into a corner, right?

The discussions around the Greek crisis (involving the country's finance minister Yanis Varoufakis and others) show the need for more education on how capitalism works.

Report after report is talking about how Greek reaction is 'hardening' and speculating about whether or not a deal will be done.

Most of the economists I talk to describe it like a discussion with your neighbour about whether or not he should burn his house down - sure, if he sets it ablaze it'll be annoying and inconvenient for the estate, but it will be way worse for him.

So it is with Greece. Their options seem to boil down to taking a difficult rescue package. Or self-immolation.

Now, the Greek people are not stupid - they are not hardening in their opinions out of a bizarre urge to self-destruct. They protesting because they think they have options.

They're wrong.

In fact, they've been wrong for a long time. Let's not forget, their crisis started such a long time ago that one of the nations which came to their financial rescue was Ireland. That's how long ago it was.

In the intervening years we have slumped into - and crawled out of - an IMF bailout and are now one of the fastest growing economies in Europe.

Why? 'Cos we innately 'get' capitalism. We may not like it, but we understand where money comes from, how you attract investors and how you make yourself competitive.

These are lessons clearly not learned in Greece. That's no criticism of the Greeks, we have been weirdly lucky in making such a complete dog's dinner of our finances in the 80s that we have a fresher understanding of economic free-fall.

It may not be their fault that they don't 'get' capitalism. It may indicate they are nice people who believe that democracy, politics and self-determination trump the capital markets. The thing is, they don't.

If you want to pay your civil servants, your public employees, keep your banks operating, give your businesses a source of lending, then you are reliant on the international money markets (unless you're Cuba, and Cuba isn't a great role model).

Now, you can tell the money markets to stick their IOUs, but like all things in capitalism, that has a price. A very big price.

A lot of the Greek electorate is acting like they can make that price disappear. No chance. In fact, the longer they wait, the more harm is done to an economy which was held together with duct tape and spit, even in its best years.

It is undoubtedly sad for the Greek people. It means retirement plans will have to be scrapped. Working conditions will be made worse. Tax burdens will increase. Jobs will be lost. All of which is awful, and would be best avoided if there were any way. But there isn't.

That's why someone quickly needs to start explaining capitalism. If the Greeks want to default and decide to be Cuba, that's their choice. But it should be an informed one, not a deluded hope.

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