It’s hard to follow the day-by-day developments in the Greek financial crisis, in part because it’s murky and contentious, and in part because it’s a sort of slow-motion riot where each terminal crisis gives way to another creaky and uneasy point of “stability” on the edge of the cliff. But the best overall analysis I’ve yet seen appeared today; it’s by U.S. economist James K. Galbraith, in the German periodical Deutche Welle, right there in the belly of the creditor beast. He pursues an extended medical analogy that actually works:
Europe’s financial hospital has been busy for five years, dealing with victims of the world crisis and of the lending binge that came before it. Ireland, Portugal, Spain and (to a degree) Italy have filled the beds. They have taken the medicine, and followed the prescribed routine. Not one has fully recovered. But then again, none of those countries were ever lethally sick – at the worst, they suffered declines of 5 to 10 percent of GDP, and have been more or less stable for the past few years.
Greece is a special case. She was a weak patient to begin with. Her institutions were not strong. Her industries were not competitive. She binged on those pre-crisis loans. And when the collapse came, Europe and the International Monetary Fund (IMF) prescribed an exceptional dose of the standard drugs – perhaps three times more than was given to anyone else. The results were toxic. Greece has lost over a quarter of her income, she has 29 percent unemployment and her government has no cash reserves.
In any modern hospital, this patient would be on life support. Transfusions would be given. Intra-venous hydration, a feeding tube and an oxygen mask would be supplied. The doctors would not be embarrassed; on the contrary, they expect that in certain cases, the routine treatments do not work. They expect that in certain cases, more is required.
But today’s Europe is a hospital with no ICU. Instead, the doctors have kept the patient in the ordinary ward. Every few days, they come in and check the charts. They see that there has been no change. And so they lecture the patient. She must exercise! She must take still more of the medicine! She must not expect special treatment! After all, they point out, look at the other patients! See how much better they are doing! And on and on. And then the doctors depart.
Meanwhile, back in their offices, the doctors feud. One – the IMF – says that surgery is essential, to restructure the patient’s debt. Others – from the governments of Germany and other states – object that such surgery is costly and they do not wish to pay the bill. Meanwhile the European Central Bank administers saline liquidity – drip by drip – to the patient’s banks.
After five years of this, with death in sight, the Greek people have decided to reject the treatments.
Since the doctors will not change course, the “patient’ is now coming very close to deciding to leave the hospital and hope for the best–that’s the medical analogue for “Grexit”, a Greek departure from the Eurozone–since it could not be much worse than the regimen Europe offers.
But that’s where the medical analogy breaks down. If the “patient” does leave the “hospital,” the hospital and the doctors could soon be in nearly as much trouble as the patient, as the trust and mutual reliance that keeps the whole system afloat dissipates. And that makes the stubborn refusal of the European institutions to offer Greece any way out other than continued austerity measures that would cause the new Greek government to collapse really perverse: conditions in Greece can only get so much worse. They can get a lot worse in the rest of Europe.