Why Greece is Worth Saving (?)

According to CNBC News, the answer is here: Greek Bailout Deal Closer.

So it looks like we’re talking about a $146,000,000,000 bailout (Greek population is around 11,000,000). Who knows what these numbers mean…except to say that they are large.

In return, the government is promising “enormous austerity measures” (tax hikes, wage cuts, etc.).

But why is Greece worth “saving” at all? Well, I love this part. The reporter says “Well just look around…Greece is a huge export market for Germany…just look at all the Mercedes, BMWs, and Audis parked around here!!” (He is in Greece, with the Parthenon in the background as he is saying this).

Now, just hold on their a sec and let’s see if I have this right.

German workers bust their butts manufacturing automobiles. Rather than ride them around themselves (an act of consumption), they prudently decide to export all these fancy cars to Greece (an act of saving). Greeks can’t manufacture these automobiles themselves (or produce enough olive oil to pay for them) because…well, you know…you can’t do this and expect to maintain a decent tan, perhaps. So, the Greeks borrow the cars (an other goods, of course, like suntanning lotion and skimpy German-made thongs perhaps). Greece issues a collective IOU to pay for these things.

But now Greece is having trouble paying back its debt to the Germans. If they default, they won’t be able to afford any more German-made automobiles! The German export market will dry up, leaving German auto workers idle!

And to prevent this from happening, the German government stands prepared to tax its citizens to pay for (or at least subsidize) Greek debt, i.e., the German cars it sends to Greece…so that German workers can retain the privilege of working hard and shipping even more cars to Greece? What is this guy thinking (he is not the only one I hear speaking in this way)?

I don’t get it. But then again, perhaps this is one reason why I don’t get calls from CNBC soliciting my opinion!

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About David Andolfatto 95 Articles

Affiliation: Simon Fraser University and St. Louis Fed

David Andolfatto is a Vice President in the Research Division of the Federal Reserve Bank of St. Louis. He is also a professor of economics at Simon Fraser University.

Professor Andolfatto earned his Ph.D. in economics from the University of Western Ontario in 1994, M.A. and B.B.A. from Simon Fraser University. He was associate professor at the University of Waterloo before moving to Simon Fraser University in 2000.

His current research is focused on reconciling theories of money and banking. His past research has examined questions relating to the business cycle, contract design, bank-runs, unemployment insurance, monetary policy regimes, endogenous debt constraints, and technology diffusion.

Visit: MacroMania, David Andolfatto's Page

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