Seven Greek Myths
What’s happening in Greece is a great tragedy. Here’s why.
What is happening in Greece is not just a travesty. It is a tragedy. Not of the naive kind: where a character flaw causes a downfall. But a true and great tragedy. One that is as unjustifiable as it is needless.
But. The myths, half-truths, and sheer nonsense, swirling around the key issues obscures this simple reality. So in this short essay, I’m going to reveal precisely how and why, by debunking seven key myths.
- If Greece doesn’t pay back the EU, the EU will go broke. It is contended by hawks, largely ignorant of both facts and economics, that Greece owes a colossal sum to the EU — one that would surely cause financial ruin to the EU if it’s not paid back. That’s 100% fictional. Leaving aside emergency funds, Greece’s actual debt to EU countries is…50 billion euros. But the EU is a 15 trillion Euro economy. Let me put that in perspective: Greece owes EU countries…a third of one percent of EU GDP. Not just not a colossal sum — not even a meaningful sum. A minute and utterly trivial sum. (And nope…the “emergency stabilization funds” don’t count, they are not what’s at issue here…unless you think entire nations should be ruined for not immediately repaying “emergency stabilization funds”. In that case, what’s the point of them at all?).
- The ECB must call in Greece’s debt…or else. Or else…what? Or else…the fact is: nothing. Greece owes another several billion to the ECB. But this “debt” is largely an accounting fiction. Nations don’t truly “owe” money to their own central banks, for the simple reason that central banks hold the reins over money itself. Nothing bad — -in fact nothing at all — would happen in real economic terms if Greece suddenly “owed” fifty seven thousand billion times more to it’s own central bank tomorrow. Think about it: the central bank can simply issue money whenever it chooses, in an amount to precisely offset the amount that is held in the accounting fiction of such “debt”. The ECB could cancel, write off, or extend Greece’s debts with precisely zero effects on the real economy of the EU tomorrow. Let me say that again: The ECB could end this fake crisis tomorrow if it wished, with precisely zero effects on the EU’s real economy. That it doesn’t is not sane economics: it is pure politics — the politics of spite, unreason, and division, not the politics of sanity and union.
- Greece has been free-riding on Germany. Totally false. Rich EU countries have benefited tremendously from an artificially cheap currency. One pulled down, of course, by the lower productivity and wages in poor EU countries. All the rich EU nations are export-led economies. If their currencies were to be valued at par with the productivity of their national economies, they’d likely be 20–30% more expensive — and so would their exports. And that, in turn, would cause rich EU economies to stutter, as people bought less of their exports. How many less BMWs would Germany sell to the USA with a deutschemark that was 30% more expensive than the euro — making a starter yuppie 3 series cost not around 40k USD, but closer to 55k USD? Perhaps you see the point. In short, rich EU countries have benefited tremendously from a kind of subsidy from poor EU countries — one in which currency is artificially cheap, and so they can stockpile surpluses built on cheap exports.
- Rich EU countries have no moral or economic obligation to poor EU countries. Wrong. If you follow the logic that rich EU countries have been the main beneficiaries of a currency union, then it follows ineluctably that rich EU countries with surpluses owe at least a portion of those surpluses directly to currency union. And to poor EU countries in specific. Without them, the surpluses they have piled up would simply not exist. That is precisely what a currency union means: it is a way for everyone to share in the benefits of trade. That the EU and ECB refuse to play by its rules is an indictment of them: not Greece, Spain, Italy, or anyone else.
- Poor EU countries will not reform unless they’re ruined. Wrong. In no rational sense does reform require starving countries of cash. In fact, driving poor EU countries into needless depression isn’t likely to drive reform — it’s more likely to fuel the anger and resentment that give rise to extremist nationalist politics. Gee, I wonder when we’ve seen that story before.
- The EU is a losing proposition. Wrong. Wrong. So wrong it hurts. Wrong morally, economically, and politically. In fact, the EU is one of history’s great accomplishments precisely because it is a great win/win for Europe. Let’s review. Greece owes a third of one percent of GDP to the EU. But presumably the benefits of union, and especially an undervalued currency, have been far, far greater than a third of one percent of GDP. How do we know? Because the EU’s economy has grown at far more than that rate ever since it was formed! So. Let’s assume that Greece costs the EU one third of one percent of GDP…forever. Every single year. So what? The benefits still vastly outweigh the costs. If a union can’t absorb pennies to earn euros — then what is it’s point? Even a child can see the logic here: the costs are tiny, and the benefits are vast. There is no reasonable argument that can suggest otherwise. It is pure illogic — driven perhaps by nationalism, ignorance, or fear — to claim that Greece is a burden on the EU. If anything, if you have followed the logic so far, the EU has benefited more from allowing poor countries to join than poor countries cost it. And that was precisely the point of the EU.
- Rich EU countries shouldn’t help poor EU countries. Wrong again — and fatally so this time. If you accept the fact that the EU is a win/win proposition — even if Greece costs it one third of one percent of GDP forever, until the end of time — then the conclusion is crystal clear. The Rich EU should and must help the poor EU. Not for their sake — but for its own. Because they themselves stand to lose a far greater deal from a hobbled EU than they do from an inclusive one. The currency and trade gains will evaporate; surpluses will rebalance; and soon everyone will be worse off. Not just Greece, Italy, and Spain, but France, Germany, and the rest of the rich EU.
Greece versus the EU is a small example of a bigger phenomenon, that I’ll write about more in detail to come. Liberal institutions turning viciously, savagely, irrationally conservative with a vengeance — in the face of logic, reason, history, and truth.
And that perhaps is the truest tragedy of all.
Not just that Greece is being ruined over pennies. But that history’s greatest political union is.