Tuesday, February 28, 2012

The evolution of democracy

The cradle of democracy is evolving to revolution? If this (HT: MR) is what democracy brings then what else can we expect?

In addition to concerns about what would happen to their savings and what sort of social unrest would be stoked if Greece exited the EZ, most Greeks are cynical about how a new, independent central bank would operate. They recall that the central bank in Greece before EMU regularly printed money to line politicians’ pockets and encourage favors. If Greece exits the EZ, they expect that kind of cronyism and corruption would flourish once again.

While product and labor market reforms matter, it is hard to see how by themselves it can lift Greece out of its crisis:

A friend and I met up at a new bookstore and café in the centre of town, which has only been open for a month. The establishment is in the center of an area filled with bars, and the owner decided the neighborhood could use a place for people to convene and talk without having to drink alcohol and listen to loud music. After we sat down, we asked the waitress for a coffee. She thanked us for our order and immediately turned and walked out the front door. My friend explained that the owner of the bookstore/café couldn’t get a license to provide coffee. She had tried to just buy a coffee machine and give the coffee away for free, thinking that lingering patrons would boost book sales.  However, giving away coffee was illegal as well. Instead, the owner had to strike a deal with a bar across the street, whereby they make the coffee and the waitress spends all day shuttling between the bar and the bookstore/café. My friend also explained to me that books could not be purchased at the bookstore, as it was after 18h and it is illegal to sell books in Greece beyond that hour. I was in a bookstore/café that could neither sell books nor make coffee.

The prognosis for the cradle of democracy is bleak:

… Greece has few export industries it could rely on to grow its way out of the crisis even if it devalued its currency. He conceded there is tourism, but argued that any profits from shipping are kept out of the country and green energy is still but a mere pipe dream as an export industry for Greece. Given that Greece is not self-sustaining in agriculture, he suggested that a devaluation accompanied by hyperinflation would result in a starving population, and that the resulting civil unrest would destabilize the entire Balkan region.

Bottom line: It can’t exit the EZ. It can’t grow itself out of a crisis. It has no exports to speak of. It cannot create jobs. Might I also add that it can’t even encourage migration because the rest of Europe is unable to create jobs to absorb the inflow who might have been able to work elsewhere and send Euros back to Greece. 

Is complete collapse of Greece inevitable? If it is try imagining what it would look like - mass emigration to China? Mass murders and suicides? I can't imagine it.

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