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. Last Updated: 07/27/2016

High Price of Losing Economic Sovereignty

The current turmoil in Greece did not begin when crowds of people took to the streets protesting the economic rescue plan and austerity measures cooked up by foreign bankers. Nor did it begin when the government and business community took on debt without having the slightest idea of how they would pay it off. The first and decisive step toward catastrophe came when Greece replaced its national currency with the euro, thereby forfeiting the basis of its economic sovereignty. Decisions that were once made internally by a country’s Cabinet or central bank are now being made externally by the European Central Bank.

The problem with giving up economic sovereignty is not that it hurts national pride but that it automatically leads to the end of democracy, even if democratic institutions remain in place. No matter how free the people are to express their will, they no longer influence the decisions made by the state. Once Greece forfeited its national currency, its economic policy was subordinated to the interests of European financial powers that place a low priority on the development of the Greek economy and that have little if any concern for the social problems in that country.

In reality, the problems that led to this crisis are not as serious as most people think. If Greece had retained its economic sovereignty, it would have done what Russia and Argentina did when they were faced with similar situations: declare default and sharply devalue its currency. Unfortunately, there is simply no other option available. Instead, what is happening now — placing Band-Aids on an ill economy to cover up the symptoms without treating the illness itself — may make a bad situation even worse.

Of course, economists all over the world like to blame the Greeks for having first gotten themselves into debt and now refusing to pay their creditors. But the problem was created by the country’s leaders and not by ordinary Greeks who are left having to foot the bill. What’s more, European Union leaders have no moral right to chastise their colleagues in Athens. Greek policy was right in line with the general EU economic course, and it received the full support and approval of Europe’s largest economic powers. Worse, financial situations similar to what happened in Greece are beginning to develop in a number of states that are still considered to have very successful economies. Britain is not far below Greece in terms of its external debt, and Spain, Portugal and Italy are experiencing similar debt problems. This is precisely why the EU simply cannot allow Greece to default. Doing so would not only expose Greece’s bankruptcy, but it would also expose the fundamental failure of the neo-liberal policies that Europe has sworn to.

The Greek government can try to put down a popular uprising using its riot-control forces, but repression won’t help rebuild an economy that is being destroyed right before our eyes by flawed policies.

Even if the Athens government does manage to prevail over its own people, it is bound to be a Pyrrhic victory. A new wave of economic problems will hit Greece, bringing with it a new wave of social unrest. And this time, the protests will erupt not only in Greece but throughout Europe.

Boris Kagarlitsky is director of the Institute of Globalization Studies. Michele A. Berdy will return next week to this spot.