At some time back in the nineteenth century most of Europe realised that putting debtors into prison was not an effective method of enabling them to pay off creditors. Unfortunately today's European politicians have not, with respect to Greece, yet learned the lesson.
In a post in January this year I argued that the Greeks Greece should be allowed to adopt a Keynesian solution to their economic problems:
- granted a moratorium on debt repayments for, say, five years;
- allowed to borrow further at market rates;
- revive their economy and tax take, initially by growth stimulated by public infrastructure projects;
- sort out their tax-evasion and other endemic problems;
Instead, the cart is put before the horse. Rather than prioritising growth, this will be stifled by further government austerity, along with demands that large tranches of debt should be paid off now.
The reverse, Keynesian, policy is not "pie in the sky" theory, but can be illustrated from history.
The Greek government's Debt/GDP ratio is currently 180%.
In 1945 the UK's Debt/GDP ratio was 215% and it rose to 238% by 1947. But thereafter it fell steadily until the 1990s ( figures from ukpublicspending.co.uk/uk_national_debt_chart.html )
The reason was economic growth, at least in part facilitated by loans from the US which have now all been repaid.
Other post war European economies, including Germany, recovered from similar levels of debt, facilitated by some debt forgiveness and by massive Marshall Aid from the US
Greece is such a small proportion, about 2%, of the EU economy that an experiment in similar Keynesian expansion is perfectly feasible. In the unlikely event of its failing the consequences will be far less than the misery certain to be engendered by the present policy, which is doomed to fail.
So on Sunday the common sense thing for the Greeks to do is vote "NO."