Monday, February 16, 2015

Drama Syriza

Image by Rainer Hachfeld via cagle.com.

Krugman offers a really helpful analogy for the Greek crisis from Weimar Germany, which we always remember for the hyperinflation of 1923 when we ought to be thinking of the terrible deflation brought on by the austerity policies (cutting wages and welfare payments, tightening credit, and raising taxes) of Chancellor Heinrich Brüning in 1930-32, which was a decisive factor in bringing you-know-who into power in 1933. Austerity was a really bad idea for Germany, and has been a really bad idea for Greece so far.

An earlier and deeper cause of the collapse of the Weimar Republic, he goes on to note, was the terrible burden of debt imposed on Germany after the Great War by France and England under the terms of the Versailles Treaty in 1919, and the fruitless attempts of the Powers throughout the 1920s to collect this money (which they never came close to doing, even when French and Belgian troops occupied the Ruhr district in 1923-25 with the idea of taking it out directly in the form of coal).


In fact, as Krugman doesn't mention here, it was because of this burden that Brüning proposed his austerity plan at the very moment when Europe was about to hurtle into the Great Depression, and held on to the idea as the depression took hold. It was in order to meet the terms for a debt restructuring proposal out of America, drafted by the industrialist Owen D. Young.

Germany was, in fact, in a situation very precisely analogous to that of Greece, really forced into an austerity that would prevent the country from growing economically in order to meet the demands of its implacable creditors. Like Greece, Germany was guilty (in German, the same word, schuldig, is used to mean both "guilty" and "in debt") too, as some commenter was pointing out; they weren't just being punished, but being asked to pay for serious material damages on the territory where the war was fought:
France's most industrialized region in the north-east had been laid to waste during the German retreat. Hundreds of mines and factories were destroyed along with railroads, bridges and villages
and the same was true of Belgium.

Nevertheless nearly everybody can now see that it would have been better for the entire world if their debt could have been forgiven, moral hazard and all, or drastically reduced (all the parties did succeed in negotiating a 90% reduction and temporary suspension of payments, rather too late, but the stupid US Congress nixed the deal in December 1932). The Germans, surely, ought to be able to see it very clearly. And yet the German authorities go on with the most extraordinary smugness about how, well, these shiftless Greeks have borrowed this money and they must repay it, even as they insist on conditions that make it virtually impossible for the Greeks to make any money with which to pay.

Germans, constantly haunted by the image of a few months in 1923 when some people are supposed to have had to carry their money around in wheelbarrows, and forgetting every single other thing that happened to their country during the first 25 years after 1918. Why are people so stupid?

The other thing I wanted to say about Greece is a purely fiscal reason why it's a really good thing they've elected a truly left-wing government for once: because among the things that have made Greece a corrupt country over the last many decades is the way rich people don't pay their taxes, to a tune (as Maria Petrakis has been writing for Bloomberg) of some €30 billion a year, while at the poor end of the income scale the minimum income you must earn to pay taxes has been decreased from €12,000 to €5,000.

This laxness on taxation of the rich and brutality of taxation on the poor is not only desperately shorting them of the revenue needed to give the Germans and others their blood money, but also making theirs a de facto extraordinarily regressive tax system and certainly contributing to a rise in income inequality—in a country that seemed to have really overcome income inequality during the salad days of euroloan-fueled growth.

So a real left-wing Syriza government under Alexis Tsipras, as opposed to the weak-willed traditional Pasok socialists, may be really trying to do something about this, connecting it to the debt crisis, as the Bloomberg report says:
“The great struggle is the struggle against tax evasion, which is the real reason our country reached the brink,” Tsipras said in parliament on Feb. 8. “The new government guarantees that in this country justice will be served.”
If the Germans let them. Here's hoping!

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