The mainstream media would have us believe two myths about the Greek financial crisis: one, that the inability of the Greek government to meet its debt payments is a threat to the Euro and perhaps to the European Union itself; and, two, that Greek “austerity” would be a disaster for the Greek people.
The mainstream media takes it for granted that the proper “solution” is for some entity to bail out the Greeks—perhaps the European Union (EU), the European Central Bank (ECB), the International Monetary Fund (IMF), or some combination. Furthermore, the assumption is that when markets go up it is due to speculation that a bailout is imminent and that when markets go down it is due to some roadblock to an expected bailout. When the governments and their agencies agree upon the proper form of new loans, and/or loan guarantees, along with a token reduction in Greek spending, all will be well. In other words, the mainstream media portrays this financial crisis as one that can only be resolved by more government intervention.
First lets look at the so-called threat to the Euro, which is equated as a threat to the EU itself. Greece uses the Euro as its legal monetary unit. When Greece joined the EuroZone (not all EU members are members of the EuroZone, meaning they have not yet exchanged their national currencies for Euros), the Greek drachma was exchanged for Euros. Now all transactions in Greece are denominated in Euros. Greek citizens buy and sell using Euros. The Greek government spends Euros and, when it runs a budget deficit, it borrows Euros from private banks…the ECB being restricted by treaty from buying sovereign debt. The Greek crisis is simply that the Greek government is spending more Euros than it receives in tax payments, and private banks are balking at lending it more.
Since the Greeks no longer have a national currency, they cannot debase it and pay off their creditors with cheapened drachmas. So, the Greek government is left with the choice of raising taxes, cutting spending, or some combination of the two that will satisfy its creditors. Now, would someone please tell me why and in what form this Greek financial crisis, serious as it is to the Greeks themselves, constitutes a threat to the Euro?
(Read more from patrickbarron.blogspot.com)