Let’s stop calling it austerity. Whether in Greece, the UK, the US, or anywhere else government runs a deficit, we talk about budget cuts, and according to current economic lingo, budget cuts imply austerity. That’s incorrect. Reductions in government transfer payments imply change and eventual prosperity, not austerity. The fewer resources government controls, the more rapidly the entire economy becomes prosperous. Change comes fast, if government truly commits itself to lower taxes and less control.
Yes, if government proposes to cut pensions for current retirees, that counts as austerity. The retirees have no way to make up the lost income. But government should never get itself into a position where it has to renege on a promise to pensioners – people who have already retired. That’s not austerity as such; that’s just dishonest. If you have a contract and don’t make good on it, that’s simple fraud. Again, austerity does not accurately describe what happens.
The word austerity, and the phrase budget cuts, have become journalistic shorthand for something bad. People don’t want their government payments to go away. Sixty-one percent of Greeks who voted in the referendum this weekend, voted against the possibility that their government would promise the country’s creditors to limit government transfer payments. Greece is about to find out how well its currency, its fiscal policy, and its economy function without regular replenishments of cash from the European banking system.
Greeks surely know that the rest of Europe, Germany in particular, has written off the 300 billion euros that Greece owes to bond holders across Europe. ‘Greek debt’ has just become a contradiction in terms, to be replaced by ‘Greek worthless notes’. What options does the Greek government have now? What options do the citizens who elect their leaders have now?
If the Greek government wants to hyper-inflate its currency, in order to meet citizens’ expectations for continued payments, it can do that. If citizens want to accept worthless transfer payments to maintain their sense that something will continue to come into their bank accounts, that can happen, too. Greeks have already lived with austerity for three years and more, actually six or seven years, since the international banking crisis that crested in 2008 – 2009. They can recover from that disruption if they want, but they have certainly not chosen a straight path to that goal. Instead they have blamed other countries for their troubles.
All observers said this weekend’s referendum would be significant. Significant for whom, you want to ask, and why have we come to this reckoning moment now? The reckoning had to come at some point; at last it arrived. Creditors and borrowers have come to this understanding: creditors say to borrowers, ‘You will not receive any more’; borrowers say to creditors, ‘We will not repay our debts’. That’s pretty significant, although you could see the moment coming for a long time.
We have had almost four years of negotiations, all to see if Greece could not be persuaded to remain in the Eurozone. I don’t see why that goal was so important. Europeans worried that if Greece left the zone, either voluntarily, or because the European Central Bank forced it out, that somehow the monetary union would fail. Too many other countries in the zone carry a large amount of debt, creditors suggested. The general anxiety was that if Greece left, the dam would break and the monetary union would dissolve. The monetary union may in fact dissolve, but if it does, it won’t be because Europe’s creditors decided to write off their Greek bonds.
Let’s see what happens next. We should have reached this point in the debt negotiations in 2011. The Europeans managed to postpone the reckoning for four years. That’s a long time. If I were a German taxpayer, having paid taxes so my government could buy Greek bonds, I would not be happy now. German citizens could not expect to receive their money back four years ago. They certainly cannot expect to receive their money back after Greeks voted no – not to austerity as such, but to Europe’s offer of continued support under certain conditions. With Greece’s rejection, Europe’s support will stop. It ought to stop.