The powers-that-be in Europe have finally agreed to the latest Greek bailout.
As expected, the package will involve 1) the restructuring of Greece’s existing debt, 2) more “austerity” measures imposed on Greek government spending, and 3) a baby-sitting team from the rest of Europe charged with making sure Greece complies with the new deal.
Of all the observers who have pronounced judgement on the deal today, I am not aware of a single one who views this as a permanent solution.
Rather, like most of the deals in Europe to date, everyone thinks the new Greek bailout will just buy time.
Felix Salmon of Reuters still thinks Greece will still be forced to withdraw from the Euro, probably this year. Although the new deal will push off the country’s bond repayments for decades, Salmon says, the new austerity cuts will likely lead to further rioting and frustration among the Greek population. And this, Salmon thinks, will quickly lead to Greece reneging on its latest round of promises.
Once Greece fails to meet its obligations, Salmon argues, the team charged with making sure that Greece is complying with the deal will withhold bailout money.
And then the latest deal will fall apart, and Greece will leave the Euro.
This exit won’t be good news, says Salmon. It will be a disaster for Greece. But at this point it’s the only likely outcome.
Meanwhile, the argument about whether “austerity” is really a smart way for countries to handle crises like this continues. And the longer it goes on, the more it seems that John Maynard Keynes’s approach is the wise one: When economies tank, governments need to stimulate like crazy to pick up the slack.
Of course, Keynes also argued that, in good times, governments should run surpluses. And that never seems to happen. So regardless of which philosophy finally prevails in Greece, Europe, and the rest of the world, the argument will rage on.