“A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked … The landslide victory of the “no” side offers at least a chance for an escape from this trap… let the drachma’s value drop, both to encourage exports and to break out of the cycle of deflation. ”
-Paul Krugman, Noble Prize winner in Economics
Greeks have said no to austerity reforms suggested by banks. Patriotism has triumphed over prudence. This may lead to exit of Greece from European Union and Euro will cease to be currency of Greece. It will mean they will go back to their earlier currency Drachma.
Given current economic situation, Drachma won’t worth much against Euro. Some economists believe that this will encourage exports as it will be cheaper for European nations to buy from Greece due to weak Drachma. This in turn will encourage growth.
In 1953, European nations (including Greece) had written off half of West Germany’s debts. This write off helped Germans to invest money, which they would have otherwise spent on paying interest, in economic development. This resulted in Germany becoming economic power house of Europe. Now many feel that Germans should return favour. Writing off debt will result in financially strong Greece.
“The Greek debt should be written off in the same way the German debt was written off in 1953, just eight years after the end of World War II.”
In theory this sounds sensible, but it ignores personalities of Germans and Greeks. Germans are hardworking and thrifty. They have what Max Weber calls “Protestant Ethic”. This helped Germans in building strong economy.
Greeks on the other hand are spendthrift and are ruled by leftists, leftists believe in spending lot of money on non-developmental areas like paying pensions, salaries, welfare etc. Greeks lacks fiscal prudence and austerity of Germans. For three decades, Greece ran unsustainable fiscal deficits, borrowed to cover them -and then lied about it to join the Euro in 2001.
Their counterparts in India the AAP and socialists also believe in wasting money in giving free electricity, free water, free housing etc. Such activities can never lead to strong economic growth, it only increases debt burden.
Leftists, socialists, communists have failed to create an economically powerful state. It only leads to vast bureaucracy, large armies, elite political class, wasteful public expenditure, spendthrift habits and loss making public sector units.