Paul Krugman has written an op-ed piece which essentially argues that Greece should leave the euro and that the troika demands for more austerity is simply a ridiculous policy. Krugman is exactly correct, but few other analysts have been willing to make the argument in public. Repudiating a debt is regarded as complete heresy in most mainstream circles. The truth of the matter is that Greece has already made heroic concessions and none of those concessions have increased the economic prospects for the country in the least. So instead of suffering for many more years under austerity, the Greeks should accept the pain of leaving the euro which will be quite intense but would last for only about two years if previous debt repudiations are any guide. Enough of this idiocy. The Greeks deserve more than being slaves to the troika. The IMF can continue to insist that the Greeks raise taxes, but as long as its Director, Christine Lagarde, gets a tax-free salary, its advice is hypocritical. Below is a photograph of an elderly woman who has just been told that she would not be able to withdraw her pension from the closed bank.
The world stock markets were rattled by the prospect of a Greek default today: most markets suffered large losses. According to USA Today:
“The Dow Jones industrial average fell 350 points, or 2.0%, to 17,597 for its biggest slide since June 2013. Indexes in Europe were hit even harder with Germany’s DAX index down 3.6% and France’s CAC 40 down 3.7%. In Asia, Tokyo’s Nikkei 225 fell 2.9% and China’s Shanghai composite lost another 3.3% to officially enter bear market territory — meaning a drop of 20% or more.”
But Greece is a small country and it’s not clear that such nervousness is warranted. Robert Samuelson is an op-ed writer for the Washington Post and he goes through the underlying realities of a Greek default and concludes that the stresses will be manageable. Samuelson’s analysis is accurate and persuasive, but he does not really address the psychological dimensions of a Greek default. The Greek debt situation, unfortunately, is not unique: it may be quite large, but there are several other countries in the world with similar debts. If creditors believe that the Greek default is a harbinger of other problems, then instability may spread even though it may not be warranted. For example, today Puerto Rico announced that it will not be able to pay off its $72 billion debt and the Obama Administration indicated that it was not going to bailout the American Commonwealth.
Tunisia is in many respects a bellweather state in the Middle East. It was the protests in Tunisia in January 2011 that started the sequence of events that we call the “Arab Spring.” The recent terror attack against tourists at a Tunisian beach was a devastating assault on the political consciousness of the Tunisian people. The success of the attack has caused some Tunisians to ask the critical question of whether the price of greater freedom is a susceptibility to terrorism. The question is a good one, but it is up to the people of Tunisia to answer it.
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