Something just has to give. If Greece's politicians are corrupt and/or feckless enough to continue to allow the EU (i.e., Germany) to drive their economy further and further into the ground, they will surely face some kind of political collapse or massive depopulation as Greeks migrate in large numbers to wealthier EU countries where they can get jobs and make a decent living. I have no special insight into Greek politics. But the trends we see there make the grim alternatives look pretty obvious if they don't find some way within the EU framework to end the austerity madness.
Their only real constructive alternative is the Argentina approach of 2001-2, which in Greece's case would mean bailing out of the euro zone and repudiating their debt. It would take them a decade or more to get back to decent and reasonably stable growth but they wouldn't be condemned to poverty and six-day workweeks and chronically high unemployment and a hug percentage of the younger generation moving abroad.
The Troika, the combination of the EU, the IMF and the European Central Bank (ECB) that dictates austerity policy to Greece (essentially on behalf of German Chancellor Angela "Frau Fritz" Merkel) is demanding - you guessed it! - more austerity from Greece. (Troika verlangt von Athen schärferes Sparprogramm Welt Online 09.09.2012) It's the only tune they know and they never stop playing it.
Meanwhile, Germany and Frau Fritz are caught in a dilemma largely of the Chancellor's own making. If Greece pulls out of the euro, it could set off a panic accelerating the already staggering run on Spanish banks and even lead quickly to a bank run in Italy. Legally, as I understand it, neither individual countries nor the EU authorities can stop depositors from moving funds from one EU country (like Spain) to another (like Germany). If Spain or Italy bailed out, the euro would likely be at an end. This would not only seriously disadvantage Germany's very export-oriented economy, which would suddenly have to go back to a national currency that would be valued much higher than the euro currently is. It would also leave Germany holding the bag on a trillion dollars or more worth of "Target 2" debt that it accumulated as a result of the one-sided capital inflows to Germany from other EU countries in the last three years. That would, in effect, impose a level of debt relief - Germany couldn't collect that debt from other EU countries - that would be orders of magnitude higher than the expense would have been at the start of the debt crisis in 2009 if Germany had just flat out provided enough debt relief to Greece to bring Greece's debt ration to GDP down to manageable levels.
So Frau Fritz is fixed on keeping Greece in the EU and the eurozone and under her austerity program. (Merkel will Euro-Austritt Griechenlands unbedingt verhindern Spiegel Online 08.09.2012) She intends to keep her hands on Greece's throat and intends to keep strangling them, in other words. According to the Spiegel report, whose sourcing is only vaguely described but sounds like a leak on Merkel's behalf, Frau Fritz believes a Grexit (Greek exit from the euro) could have the kind of domino effect that the Lehman collapse in 2008 had.
Notably, this article says that a pending decision about further financial aid to Greece likely won't be made until November, though it doesn't note that the US Presidential election takes place then.
Tags: angela merkel, austerity economics, eu, euro, european union