Sunday, July 12, 2015

Paul de Grauwe: "Europe's monetary union will not last"

Paul de Grauwe is a real authority on European economic policies. Here is an interview with him published by The Huffington Post on 10 July 2015:

What's Behind Greece's Spectacular U-Turn On Austerity
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Every week, The WorldPost asks an expert to shed light on a topic driving world headlines. This time, we discuss the Greek debt crisis with Paul De Grauwe, a professor at the London School of Economics.
The Greek government surprised everybody on Thursday by submitting a proposal to Greece's international creditors that would implement severe austerity measures in return for new bailout funds.
Less than a week ago, Greek Prime Minister Alexis Tsipras' government had urged voters participating in a national referendum to reject a bailout deal that included similar austerity measures. Greek voters gave that deal a decisive "no" in Sunday's vote. Europe then gave the country's leaders until the end of this week to submit a new proposal or face potential bankruptcy and the risk of exiting the eurozone.
Under Tsipras' latest plan, Athens would commit to significant pension cuts and tax hikes in exchange for the possibility of debt relief and three years of financial aid worth nearly $60 billion, Reuters reports.
The WorldPost spoke with Paul De Grauwe, the John Paulson chair in European political economy at the London School of Economics, about the Greek proposal and what it would mean for the Greek economy in the years ahead.
The proposal submitted by Greek Prime Minister Alexis Tsipras on Thursday includes such far-reaching austerity measures, and it is being described as a complete U-turn. What are the biggest concessions in the new plan?
The Greeks have conceded on the whole line. One of the big questions and main points of contention was austerity, and in fact, Sunday's referendum was in large part about the degree of austerity. The Greek government has now completely surrendered and accepted the conditions of the creditors. It's remarkable they went all the way to the referendum opposing austerity and then fall on their knees.
What did the Greeks get in return for making such big concessions?
As far as I can see, nothing. I haven't seen anything about debt alleviation.
What do you think has prompted the Greek government to make such a U-turn?
Greeks have been pushed to the abyss. The European Central Bank has been an instrument of politicians to starve the Greeks from cash. What happened is like torture. When you torture somebody long enough, at some point most people will concede because they can't stand it any longer. I don't think we can be very proud.
What happened is like torture. ... I don't think we can be very proud.
What impact might these new proposed measures have on the Greek economy? Until earlier this week, the Greek government insisted that more austerity would never be able to put Greece back on its feet.
It's a continuation of austerity and we've seen that austerity doesn't work. It will continue to cause low growth, recession and high unemployment, which leads to misery for so many people. In addition, it won't reduce the debt burden because output will continue to decline, and therefore the burden of the debt level will intensify. All this has been tried for the past five years, and now they just want to continue to do the same thing.
What would have been a better approach?
There's no point in continuing something that doesn't work, so they would have had to stop austerity. Also, the debt burden should have been looked at. My criticism is that the creditor nations should acknowledge that there had already been a restructuring of Greece's debt and that it has reduced the debt burden of the Greek government. It's time to provide liquidity to the Greek government so it can start working again.
This is a union that will not last.
What's a crucial element for HuffPost's readers to understand about the current crisis?
If you're a member of a monetary union, you face big risks because you're on your own when you get hit badly by negative economic shocks. In this monetary union, everyone says, "If you have trouble, don't come to me." Therefore, this is a union that will not last.
This interview has been edited for length and clarity.

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