The Greek people have led, so that their leaders can now follow. They have backed (with a landslide vote for “No!”) their brave and principled, if inexperienced and diplomatically inept, new government.
Now they need to turn their attention to rebuilding their economy. The first step must be to begin creating a new (and hopefully temporary) monetary system that can be used to get money circulating, economic activity jump-started and employment created. There are precedents for doing this, as I explain in a later post. Where possible government should help by using government resources (which could take the form of IOUs) to invest in jobs for Greek people (especially young people) and for ensuring firms, especially small family firms are revitalized and profitable. While it will be important to stabilize the banking system, this will only happen when the economy is stabilized, and recovery begins. It will not take long then for the banking system to return to health.
So the priority must be: recovery. And given that Greece has just endured possibly the worst depression in recorded history, it will be the case that most private sector firms and banks will be in a very weak position. That is why the Greek government will have to intervene and spend money (in whatever form it takes) on investment.
Such fiscal activism is more important to recovery than debt relief. That is why, as Andrea Terzi argues, it is important for Greece’s new finance minister to demand from Eurozone technocrats (EZ leaders are politically impotent) the fiscal space that is a priority for recovery, not just debt relief. Relief from debt payments – if it is ever negotiated – is a long-term process of lightening the burden of future debt repayments. But Greece cannot wait for that future. It needs action to revive the economy now – today.
And the magic is this: if a new currency (say IOUs as used for example, by bankrupt California in 2009) were to circulate quickly; if jobs are created by this new ‘money’, then economic activity will take off, wages, income and profits will be generated. Some of that income can then be used to pay taxes (and the Greek government must up its tax collection game!) – because income finances spending, investment and taxes. (Its not rocket science.)
As a result, the government’s debt burden will automatically decline – without any help from creditors – as a share of the economic cake (GDP). That will happen because the economic cake and the income it generates will expand, and income from the expansion (bigger cake) can then be used to repay debts. Above all, that income can be used to save the livelihoods of millions of Greeks, to increase the profits of small firms and thus to breathe life into Greece’s comatose economy.
So the task of the Greek people now, is to ensure that the new Greek Finance Minister forcefully rejects the archaic, self-destructive and private bank-friendly monetarism of the Euro system – and creates fiscal space (government spending) that will restore jobs, income, profits and tax revenues to the people of Greece – in both the private and public sectors.
In the immortal words of John Maynard Keynes: if the Greek government “takes care of employment, the (Greek) budget will take care of itself.”