Monday, July 9, 2012
Unthinkable, Predictable Disasters
You’d have to be willfully ignorant to be surprised by Greece’s potential exit from the common European currency. First the famously misgoverned country failed to meet the initial 1999 fiscal and monetary targets for euro integration: a budget deficit below 3 percent of gross domestic product, a national debt below 60 percent of GDP, inflation within 1.5 percentage points of the lowest euro-member country’s rate, and a stable currency for more than two years. Then Greek officials were forced to admit in 2004 that they had lied when they said they did meet those targets.
In late 2009 the newly elected Greek government let slip that its annual budget deficit was coming in at double its predecessor’s previous forecast, which was already double what was technically allowed. The news was hardly startling, given that in its first eight years within the euro zone (2001–08) Greece averaged annual budget deficits equal to 5 percent of GDP, compared to the other members’ average of 2 percent; gorged itself on an extravagant 2004 Summer Olympics; and capped off the party in October 2009 by voting in the Panhellenic Socialist Movement party, which promised to spend even more money.
This reckless behavior was in keeping with Greece’s checkered modern history, which includes being the first country to be booted out of the euro’s main predecessor, the Latin Monetary Union, back in 1908 and suffering through at least four significant devaluations since World War II. That history was why the single biggest question about the common European currency as it was being established in the late 1990s was whether messy, balkanized Greece could coexist monetarily with disciplined, inflation-phobic Germany. Since October 2009 we have had a conclusive answer.