Greece, riots and pain

By Dave Anderson:

The Greeks are about to get screwed massively as they undergo massive austerity to pay back their foreign creditors. The great political question for the Greek political system is who only gets lightly whacked and who gets beaten up with a 2x4. 

The current solution set is for the public sector and unions to be whacked the hardest.  This also means the young will get whacked as university and education costs will significantly increase.  The old are taking a bit of a whack as the Greek old age pension eligibility age is increasing for women, but the young are taking the pain more than the old. 

Paul Krugman argues that Greece will most likely leave the Euro-zone because of this crisis because they need some ability to grow their way out of the problem.  Staying in the Euro-zone means all the pain is concentrated among the Greek workforce, while leaving the Euro means Greece can export their way out of trouble:

I�ve basically laid out the logic already: even with a debt restructuring, Greece will be in deep trouble, forced to engage in severe austerity � and provoke a deep slump � just to close the primary, non-interest deficit.

The only thing that could reduce that need for austerity would be something that helped the economy expand, or at least not contract as much. This would reduce the economic pain; it would also increase revenues, reducing the needed amount of fiscal austerity.

But the only route to economic expansion is higher exports � which can only be achieved if Greek costs and prices fall sharply relative to the rest of Europe.

If Greece were a highly cohesive society with collective wage-setting, a sort of Aegean Austria, it might be possible to do this via a collectively agreed reduction in wages across the board �an �internal devaluation.� But as today�s grim events show, it isn�t.

Social cohesion and the ability to share pain will allow governments to manage crisi fairly effectively.  In areas where there is minimal social cohesion or the political will/ability to spread the pain among both the elite and non-elite, rioting will ensue as riots are a way that the non-elites have of threatening future pain on elites who are attempting to avoid pain.