A Pyrrhic Victory?

A while ago I commented on the importance of the recent goings on in the Eurozone.  It appears that various finance ministers have their doubts about extending the Greeks a 12 billion euro loan to prop up their imploding economy.  As well they should, although admittedly, their decision seems mostly to be pending passage of further austerity measures and privatization of Greek national assets.  Apart from the fact that austerity measures demonstrably deepen recessions, and ignoring Stiglitz' criticism that the IMF (which is playing a role in the negotiations) invariably advocates austerity and privatization because the IMF's attention is solely on deficits and inflation without paying attention to other aspects of an economy, there should be a bit of rethinking as far as dealing with the Greek situation goes.  


In my last commentary on the crisis, I linked to an article arguing in favor of debt forgiveness.  This should be considered more seriously than it has been.  Consider that Greek debt was projected to rise to 156 percent of GDP by 2012.  The bailouts described in the article are simply additional loans used to pay for the current loans, on which Greece is in danger of defaulting.  This is the international equivalent of using one credit card to make payments on another credit card.  It makes very little sense.  Moreover, by engaging in extensive privatization, the Greeks are sacrificing the long-term revenue that those assets are capable of yielding, without any guarantee that capital won't flee the country after privatization.  They are reducing direct government revenue while potentially eroding their future tax base.  


Even if the Eurozone grants the Greeks additional bailout money, they are simply deferring Greek debt.  It will be a Pyrrhic victory for the Greeks.