Greece: do or die

They cannot understand why we would voluntarily give our money to politicians to manage. In their world, politicians are (by and large) corrupt and the electorate is not going to fall over itself to part with it's hard earned cash just to see it ultimately find it's way into the pockets of politicians and their cronies. Therefore, there has always existed a kind of unofficial standoff between the political class and the rest and, it seems, it's a standoff that both sides have accepted as, "that's just the way it is!"

This reality was given scant attention when Greece became a member of the European Economic Community (EEC) in 1981 and again when it joined the Eurozone in 2001. Much has been said about the fiddling of Greece's books to gain entry to the Eurozone. The facts are that Greece did not meet the convergence criteria for entry but its Eurozone partners, who wanted Greece in, thought the country was too small to be a threat to the rest of Europe. Their failure to insist on strict adherence to the convergence criteria, made them complicit in Greece's entry.

The creation of a monetary union in Europe was really a political project - not an economic one - designed to limit the power of Germany (after reunification), and its central bank. Its aim was to tie Germany's fortunes to the rest of Europe. Countries were therefore admitted into the Eurozone without seriously considering their ability to exist in an environment where monetary and fiscal policy options would be limited.

This was a serious flaw in the project's architecture as was the decision to have a single interest rate. It allowed countries with previously high interest rates to reduce their costs of borrowing to match those of the more productive countries to the north. This, in turn, fuelled even more borrowing which, in turn, led to rapid growth.

Greece was one of these countries and it quickly experienced the artificial euphoria of rapid, consumer-led growth. The country went on a spending spree, ironically buying products made in the industrial northern states of Europe with money lent to them by those same states. The government failed to control the borrowing and it also failed to put measures in place to increase the nation's productive capacity. It therefore failed to create a competitive economy.

When the GFC hit in 2008, Greece had no structure in place to cope with the fallout. It had amassed huge debt without the means to repay it. It had little choice but to negotiate bailout packages with the 'troika'.

Greece exposed the deficiencies in the architecture of the euro and what has now become obvious is that this is not a Greek crisis but a crisis of the euro project as a whole.

According to the Greeks today, the debt restructure was "badly designed and administered by those who had to be reformed but refused to be reformed" – its political class. The austerity programs have not taken account of the pain and suffering of humanity and have failed to provide the oxygen needed to kick start a new economy.

Austerity has led to the halving of wages, pensions and superannuation, it has led to a youth unemployment rate of 62%, it has led to a brain drain – 200,000 scientists have left the country - it has put one third of the population below the poverty line, it has led to a sharp and sustained increase in suicide rates and it has led to a collapse of the national income. These are not the settings from which an economy is born. Without liquidity, there can be no growth.

The wisdom of abandoning Keynesian economics in favour of austerity needs to be questioned. There is a popular belief that the "troika" wishes to punish the Greek public for electing a non-compliant government.

Alexis Tsipras' newly elected government has asked the "troika" for breathing space to allow it to develop appropriate fiscal primary surpluses to deal with the humanitarian emergency, to seek growth packages from the European Investment Bank to create investment and jobs, to address privatization and to address the chronic deficiencies of the Greek economy and state. The "troika's" response has been a firm "no".

There is a limit to how much people can take. If they're backed into a corner with little room to manoeuvre it would be futile trying to predict what the Greeks might do – and "do" they will because, as history has shown, they certainly won't lay down and die.