Paul Krugman: Greece on the brink

The situation in Greece has reached what looks like a point of no return. Banks are temporarily closed and the government has had capital controls - restrictions on the movement of funds out of the country. It seems very likely that the government will soon have to start paying pensions and salaries of newly printed parallel currency. And next week the country will hold a referendum on whether to accept the demands of the "troika" - the institutions representing the interests of creditors - for more austerity.

Greece should vote "no," and the Greek government should be ready, if necessary, to abandon the euro.

To understand why I say this is because you have to realize that - most of what you've heard about Greek profligacy and irresponsibility is false. Yes, the Greek government is spending beyond its means at the end of 2000. But since then repeatedly reduced costs and raised taxes. Civil servants fell by more than 25 percent, and pensions (which were indeed too generous) are reduced dramatically. If you add to all the austerity measures, they were more than enough to remove the original deficit and turn it into a large surplus.

So why did not this happen? Because the Greek economy collapsed, largely a result of these many austerity dragging sebesi with revenues down.

And this collapse, in turn, has much to do with the euro, which is caught in Greece economic straitjacket. Cases of successful austerity in which the parties fail to rein in deficits typically include large currency devaluation, which makes them more competitive with exports. This is what happened, for example, in Canada in 1990, and largely that's what happened in Iceland soon. But Greece without its own currency did not have this opportunity.
Grexit problem was always the risk of financial chaos, collapse of the banking system of panicked withdrawals and hampering both business banking problems and uncertainty about the legal status of the debt. Therefore, successive Greek governments have acceded to demands for austerity Syriza therefore, the ruling left-wing coalition was ready to accept austerity already imposed. All that is asked in force stagnating further austerity.

Finally, accession to the ultimatum of the Troika will represent the final abandonment of any claim to Greek independence. Do not take to argue that troika officials are technocrats only the ignorant Greeks explaining what needs to be done. These technocrats are actually supposed visionaries who ignored everything we know about macroeconomics and every step along the way is wrong. This is not analysis, this is about power - the power of creditors to pull the plug on the Greek economy, which continues as long as the exit from the eurozone is considered unthinkable.