The new Greek finance minister, Yanis Varoufakis, may be a rabid Socialist - not far off a full-blown Communist, judging by some of what I've seen and heard and read from him - but he's spot-on in an interview he gave to CNBC today. You can read the article here, and view the video interview in full (which I highly recommend).
For those who don't want to click over there, here's the money quote.
Q: You owe the European Central Bank six billion Euros between July and August. Are you not going to pay?
A: Well, if you look at the existing agreement, the existing agreement recognizes that, ah, we can't pay. And it imposes upon us the very strange notion that as a bankrupt state, we must borrow money from our partners - even more money than they've already given us - to repay a central bank which is in the process of printing one trillion Euros. Now, you only have to state this to realize that this is not a God-given, Divine imperative which Europe shouldn't be discussing.
That's precisely the right answer, irrespective of Mr. Varoufakis' politics or ours. Basically, the European Central Bank (and most commercial banks in Europe) lent money hand-over-fist to Greece from the moment of its entry into the European Union, even though it was plain as a pikestaff that the country was economically and politically incapable of paying back those loans. When the whole mess eventually blew up during the 2007/08 financial crisis, Europe insisted on Greek austerity measures to repay the debt that have resulted in a 25% contraction in GDP and an unemployment rate of something like 50% among young people.
At long last the Greek people have demonstrated that they've had enough. They've proven themselves to be, on the whole, fiscally irresponsible, self-centered and greedy, but I can't disagree with the step they've just taken. They've elected a government that's dedicated to restoring Greek financial sovereignty, and in the process will punish those who lent irresponsibly. If banks lend responsibly, to credit-worthy borrowers, they tend to get their money back with interest. If banks get greedy and lend to anyone who's capable of signing a piece of paper, they should by rights lose their shirts. In the case of Greece at least, it looks like that may now happen. It should have happened to many banks in this country during and after the financial crisis, but thanks to the Fed's "too big to fail" mantra we, the taxpayers, were forced to pick up the tab for the bankers' recklessness and fecklessness. We're still on the hook for it. It's a big part of the doubling of the US national debt that's occurred under President Obama's administration (although, to be fair, it began under his Republican predecessor).
(Note, too, that from 2008-2011 Iceland chose not to follow the Greek model, but held its nose and took its medicine the hard way. It rejected calls from politicians and central bankers to assume national responsibility for the bad decisions of its banks. It showed them the finger, allowed its financial institutions to go bankrupt, and rode out the resulting national and international fiscal storm. Guess what? Six years later it's doing very nicely, thank you. I've no doubt that the lessons learned - and imparted - by Iceland have been absorbed by the upstart wave of rebellious Greek politicians . . . )
Perhaps it's time for a Yanis Varoufakis of our own in Washington.