Papandreou still a democrat after all

The Euro crisis is close to the implosion point, where no one will be able to pretend anymore. The economic “rescue” plan intended to pull Europe back from the brink will come down on Greece like a ton of bricks, imposing a decade of harsh austerity, unemployment and misery, leaving them in the year 2020 with the same debt-to-GDP ratio as when the crisis started. The Greeks are expected to endure this in order to minimize pain for lenders and, crucially, enable the pretense that Greece has not defaulted on its sovereign debt. If Greece officially defaults, that will trigger payouts on endless numbers of financial derivatives called credit default swaps (CDS), which are basically insurance policies that lenders take out with other lenders to hedge against just this possibility. No one knows exactly how much money has been wagered on likelihood of a Greek default or who the ultimate bag holders are, but the entire structure of mutual obligation is basically a house of cards. If lenders actually have to face reality, and if the European Central Bank continues its intransigent policy of refusing to print new money (which the Germans, with their vivid memories of Weimar-era hyperinflation, adamantly oppose), then everything comes tumbling down and there will be a mad scramble for the exits: bank runs, economic chaos, cats and dogs living together, mass hysteria.

The thing is, the people of Greece are not meekly accepting the fact that they are being reduced to debt peonage, and their Prime Minister, George Panandreou, has shocked everyone by actually agreeing with them and calling for a referendum on the proposed deal. Good for him! Democracy may not actually be dead in the land of its birth. Our own Mark Carney is on the right side of this issue as well. As for those who insist that debts have to be paid, you’re not wrong, but there are two sides to every transaction, and the people who lent money to the Greek government didn’t do it out of the goodness of their hearts. It was a business transaction, done in the expectation of gain, and I fail to see why only one party should suffer the consequences of its failure — especially when it means a boot stamping on the face of ordinary Greeks for the foreseeable future.

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