My Great Big, Fat Greek Bailout

That is the set of possible solutions which have come up in the last week. Some older ideas may be resurrected and, of course, there could be new proposals.

Several prominent economists claim that it is impossible for Greece to cut its deficit as a portion of GDP from its current level of over 12% to under 4% within two years. They argue that the government’s cost cuts would ruin the ability of Greece to give essential services to some of its citizens and important public works. The deficit cuts would also involve large tax increases. Some of those are likely to be so large that they will be regressive. A 50% increase in the levies on tourist spending is bound to keep many tourists away.

Germany and France did not want the IMF to handle the Greek situation because would be a sign that the eurozone is a farce and that its goals of creating an area in Europe which could support common currency, trade, and economic standards was never more than a fantasy. That is probably true. It was never reasonable to believe that a small country like Greece could live by the same economic rules and with the based on the same financial model as an economy as large and healthy as Germany’s

The IMF will end up bailing out Greece not because Germany cannot afford to do so, but because Germany can already see that the eurozone experiment is a failure. The organization was never stronger than its weakest link. As the aftershocks of the recession continue, it is already clear that the trouble in Greece is not isolated. Germany can let the eurozone collapse under the weight of its own financial problems. And then Germany can be Germany again and not the lead member of league of economies that will suffer financial setbacks for years.

Douglas A. McIntyre