The way the IMF, ECB and EU are handling the Greek debt crisis causes me to wonder if I'm really missing something about economics. The current program being offered for Greece consists auctioning off state assets, tax hikes, wage cuts and overnight top-to-bottom restructuring. The mantra is austerity, austerity, austerity. Conceding that this crisis is very different, isn't this the opposite of what was done during the mortgage crisis by countries with more monetary and fiscal policy options?
For some perspective on the severity of the situation:
spending cuts and tax increases of a similar scale in the United States would amount to $1.75 trillion, considerably more sweeping than even the most far-reaching proposals for reducing the American federal budget deficit. And Greece has promised to generate another $72 billion by selling off prime state assets, which many Greeks consider a fire sale of national patrimony.
How could this program possibly lead to the kind of situation that would move towards stabilizing European credit markets? I'd be surprised if you could find a credible economist who thinks that simultaneously raising taxes and slashing spending during a crisis is a good path to growth. And growth is the important thing here: without it, you're just going to have a Greek depression without the ability to use either monetary or fiscal policy. Greece will become a drag on the EU and will become reliant on the charity of other European nations. I can see Angela Merkel cringing at the thought:
So the government of Greece is going to sell off everything it can. And then cut wages. And then raise taxes. With the current economic climate in Greece (and knowing that things have to be sold), companies and investors are going to want a discount on state entities. Cutting wages is a great way to lower tax revenue. And raising taxes might get you back to even, but it's a great way to kill demand (and the expectation of low demand is going to further depress entity prices). So basically, everyone's going to get a lot poorer and the state gets a one-time shot in the arm from below-value selloffs. Lower wages may help competitiveness in the long run, but we're talking about Greece defaulting very soon. The goal of all this is to fix the short/medium term for the Euro and European banks, which have plenty of exposure to Greek debt. Throw in the $40 billion of U.S. exposure from default insurance, and the severity of actions being demanded of Greece don't seem to be for Greece's long term competitiveness.
Again, I feel like I'm really missing something about economic thinking if this is the plan to assure relatively short-term solvency to allow the Eurozone room to breathe. The situation is hard, there are lots of moving parts, but asking a country like Greece to come up with $112 billion (a third of GDP) in the next five years isn't likely to stabilize anything. This looks like too much austerity with contradictory goals.