Tuesday, 23 February 2010

Greece must not be bailed out

There's more and more talk, especially in the European circles, of the possibility of Greece defaulting on her sovereign debts, and because of that she might have to be bailed out.

Let's get to the causes here before we talk solutions - Greece has spend too much. It has, as a member of the eurozone, borrowed far too cheaply, and they've gone from budget surplus to 12.7% deficits (give or take some dodgy accounting).

Clearly then this is an issue of Greece spending too much - and it should cut back - not be funded in its profligacy. Perhaps the public sector workers will go on strike - it's their problem, their governments' irresponsibility. They've got used to too much spending, and have to return to normalcy at some point. If not, they'll go bust - and that will send an even more powerful message.

What does it say to Ireland, whose government has made the necessary cuts and austerity measures in order to avoid bankruptcy? The responsible bailing out the irresponsible? What does it say when the Eurozone actually breaks its own rules in order to save its own skin, just to stop it breaking up?

Economists talk of 'optimal currency areas'; the Eurozone was never one. Countries like Greece have shown that, enjoying German interest rates which overheated their economies. Now they are paying the price - and I don't think it will cause the eurozone to break up, but it would send a powerful message about currency unions - they don't work, except with very similar economies (take the USA).

Thank heavens the UK didn't join.

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