A lot of people are poionting fingers at Greece’s leaders with claims that they are acting irresponsibly, but Nobel-prize winning U.S. economist Paul Krugman said Greece is doing the right thing.
He argues that the financial noose arond Greece’s neck has strangled the Greek economy. Every loan comes attached with spending cuts, austerity and damage to the Greek economy.
In the past, in every situation Greece has caved, becoming little more than a “financial slave state mired in an economic depression. There is no way Greece will ever be able to cut its way to rosperity,” says Krugman.”Given that Europe refuses to restructure Greece’s debt in a sustainable way and allow the country to try to grow its way out of its misery, Greece has no choice but to default and withdraw.”
Despite Greek PM A. Tsipras being called “weak” to put the question to the test, Krugman notes that he is being smart by not making the decision single-handedly. Rather, he is forcing his own government and people to make the decision with him, democratically via a referendum. This will improve Tsipras’ own odds of surviving the messy and scary period to come.
The current Euro structure, in which country governments control their own spending but borrow in a single currency, will never work over the long-term unless, says Krugman, unless states like Germany subsidize the poorer ones much like the richer states in the United States subsidize the poor ones. This concept is a no-go for Europe’s elite and this means that weak states like Greece are better off on their own.
Writing for his blog in New York Times, Krugman notes he would vote ‘no’:
I would vote no, for two reasons. First, much as the prospect of euro exit frightens everyone — me included — the troika is now effectively demanding that the policy regime of the past five years be continued indefinitely. Where is the hope in that? Maybe, just maybe, the willingness to leave will inspire a rethink, although probably not. But even so, devaluation couldn’t create that much more chaos than already exists, and would pave the way for eventual recovery, just as it has in many other times and places. Greece is not that different.
Second, the political implications of a yes vote would be deeply troubling. The troika clearly did a reverse Corleone — they made Tsipras an offer he can’t accept, and presumably did this knowingly. So the ultimatum was, in effect, a move to replace the Greek government. And even if you don’t like Syriza, that has to be disturbing for anyone who believes in European ideals.