Global economic system shows signs of weakness; Greek creditors have 'criminal responsibility'

Once again, the global economic system — one of Pope Francis’ favorite topics of discussion and criticism — is displaying signs of core fragility. 

“A sudden deterioration in Greece’s debt crisis shook global markets Monday,” reports the Wall Street Journal.

“Stocks around the world tumbled after a weekend breakdown in negotiations between the Greek government and its creditors left the country teetering on the brink of default and pushed it closer than ever to an exit from the eurozone,” the Journal reports.

“The Dow Jones industrial average fell 0.67 percent, the Standard & Poor’s 500 index fell 0.65 percent, and the Nasdaq average fell 0.76 percent in early trading in New York,” the New York Times reports

“Investors have been concerned by the probability that Athens will be unable to meet a 1.6 billion euro, or roughly $1.8 billion, loan repayment to the International Monetary Fund that is due on Tuesday, with uncertain consequences for Greece’s future in the eurozone and even in the European Union.”

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The Times reports that “there was no sign on Monday of widespread panic.” Holger Schmieding, chief economist at Berenberg Bank in London, was quoted as saying: “we expect contagion control to work, by and large.”

However, the Economist paints an uglier picture: “European stocks started the day with losses of 4% or more as investors reflected on the weekend news from Greece…The sell-off reflected a sharp change in mood compared with Friday, when investors were expecting that Greece and its creditors would reach a deal. The Portuguese stockmarket was one of the worst affected, falling almost 6% at the open on fears that the economy would be dragged into the crisis (the Athens stock exchange is closed).”

“Contagion was seen in the bond markets too,” the Economist reports, “with Spanish and Italian 10-year bond yields rising around 18 basis points, while the German equivalent fell 15 points; a spread widening of around a third of a percentage point. The euro was slightly lower on the news, falling less than 1% against the dollar.”

Speaking to Time, the celebrated American economist Joseph Stiglitz, an expert on economic inequality, took Greece’s creditors to task, saying that they have a “criminal responsibility.”

The Time article states: “A few years ago, when Greece was still at the start of its slide into an economic depression, the Nobel prize-winning economist Joseph Stiglitz remembers discussing the crisis with Greek officials. What they wanted was a stimulus package to boost growth and create jobs, and Stiglitz, who had just produced an influential report for the United Nations on how to deal with the global financial crisis, agreed that this would be the best way forward. Instead, Greece’s foreign creditors imposed a strict program of austerity. The Greek economy has shrunk by about 25% since 2010.”

Stiglitz told Time that Greece’s creditors —the International Monetary Fund, the European Commission and the European Central Bank — “have criminal responsibility for causing a major recession.”

Stiglitz told Time that he sees two possible outcomes if Greece pulls away from the euro.

If the Greek economy recovers after abandoning the euro, it would “certainly increase the impetus for anti-euro politics,” encouraging other struggling economies to drop the common currency and go it alone. If the Greek economy collapses without the euro, “you have on the edge of Europe a failed state,” Stiglitz says. “That’s when the geopolitics become very ugly.”

“The creditors should admit that the policies that they put forward over the last five years are flawed,” Stiglitz said. “What they asked for caused a deep depression with long-standing effects, and I don’t think there is any way that Europe’s and Germany’s hands are clean. My own view is that they ought to recognize their complicity and say, ‘Look, the past is the past. We made mistakes. How do we go on from here?’”

Stiglitz told Time that the most reasonable solution to the crisis would be for Greece’s creditors to write off their debt and admit that “austerity hasn’t worked.”

[Vinnie Rotondaro is NCR national correspondent. His email address is vrotondaro@ncronline.org.]


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