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devil duck

What Greece should have proposed to the ECB, the IMF, and the EC

As you know, we need several billion Euros in the next few weeks. We recognize that none of this money will actually go to Greece; it will go from one set of creditors directly to another set of creditors, who in turn will say that we're in good standing on their loans.

We also request that a substantial fraction of our debts be written off, or at least refinanced at a much lower interest rate, so we don't spend so much of our income on debt service and can spend some of it reducing principal.

In exchange for these considerations, we will take the following steps to ensure our ability to repay loans in the future.
1) We will INCREASE means-tested pension payments.
2) We will INCREASE pay levels for government employees (particularly at lower levels)
3) We will INCREASE and EXTEND unemployment benefits.
4) We will INCREASE poverty-support payments.
5) We will DECREASE the most regressive consumption taxes, while improving tax enforcement.

All of these measures have the effect of putting money into the pockets of the people most likely to spend it immediately in the consumer economy. Economic research shows that in a depressed economy, such measures have a multiplier significantly larger than 1, and are among the most efficient ways to stimulate economic growth, jobs, and future tax revenues. These measures also have the effect of triggering inflation, which encourages companies and individuals currently holding cash to invest or spend it, thus creating more jobs; inflation also shrinks the real value of our debts, making them easier to pay.

Of course, we're not a large enough part of the Euro economy to inflate the Euro on our own, so we ask the larger countries in the Eurozone to undertake similar measures.

What -- you say this is a joke, and that we don't seem to realize the seriousness of our situation? On the contrary, we are keenly aware of its seriousness: our people are starving. This is anything but a joke.

We've followed the austerity prescription for five years now: our government is now running a primary surplus (all of which, and more, goes to debt service, so we're still racking up debt). As a result of the resulting economic depression, our unemployment rate is now about 25% (50% among youth) and our debt-to-GDP ratio has grown from 126% to 177%. We've tried it your way, and it doesn't work; we see no reason to believe that more of the same toxic medicine will now magically become healthful. Give us two years to try a different prescription and see whether THAT works. In either case, we will all learn something from the experiment, which will cost our creditors no more than continued austerity would.

Alternatively, we can continue to follow the austerity prescription, our economy will continue to shrink, our debt load will continue to grow, we will continue begging the EU for money every year for the rest of our lives, and none of our creditors will ever see a repayment that doesn't come from another creditor. Most of our population will flee the country in search of economic opportunity somewhere else, creating a refugee crisis measured in millions of people. But you will have demonstrated your firmness and resolve.



Very well thought out post. Do I hear echoes of Paul Krugman here? I don't understand why Germany refuses to consider other options than austerity. I think it's their sense of puritan financial morality. But macroeconomics does not really work like the household budget. But Germans can be so bull headed. Believe me, I know.