Why you should care
Economic crises suck. Why aren’t we trying to prevent them?
Greece has survived a meeting with its creditors, winning a four-month extension on its debts and fending off even deeper austerity. Great. But for those who’ve gotten tired of the crisis bailout drama, a question: Why hasn’t international law solved this already?
It’s not just that everyone’s known about Greece’s woes for a long time (OZY correspondent Laura Secorun Palet gave a good rundown over the summer); it’s also something deeper. Extreme debt happens, and it will keep happening — thwarting plans for integration, for economic development, for a good life— yet there’s hardly any global process for dealing with it. In the United States, rules around Chapter 11 determine what happens in bankruptcy: who gets paid first, what the debtor must do, how to restructure, etc. There’s a strong argument that lack of clarity around sovereign bankruptcy (when a nation goes belly-up) is one of the reasons for Greece’s woes.
Could the Greek crisis catalyze a better way? Attempts to create an international bankruptcy process — or court — have failed before, but Eric LeCompte, of Jubilee USA, hopes this time will be different. There has been some momentum over the past few months, he says, especially at the United Nations and International Monetary Fund. “All of this work became much more serious again,” he tells OZY.
The repercussions of crisis can linger for years in even a robust financial system, as Chana Schoenberger describes in The New Era of “Maybe” Mortgage Lending. Seven years after the U.S. housing market melted down, its mortgage market seems to be resettling at last. Before the crisis, banks were telling most people “yes” to a home loan, then pretty much “no” in the immediate years after. Today you can expect a big, fat “maybe” if you are pursuing the American dream of home ownership. Read more here.
And in Invisible Economic Forces Invade the U.S., OZY global finance writer Steve Butler reports that in the years following the financial crisis, the economy is still shifting and resettling … into deflation. Falling prices are great if you have cash, he writes, but they reflect a depressed world where consumers and businesses aren’t spending money and aren’t buying the oil, copper, iron ore or coal that took billions of dollars to develop just a few years ago. Typically, they also take away one of the key policy tools to revive a stumbling economy: cutting interest rates. That’s because lending rates need to go below the inflation rate to stimulate the economy. But with inflation near or below zero, that’s mathematically impossible. Read more (and weep) here.
And then, of course, there’s the political fallout to economic crisis. In The Trouble With Greece, OZY contributor Katerina Sokou outlines some of the repercussions of austerity in Greece’s polity — among them, the rise of a formerly obscure neo-Nazi party called Golden Dawn. As the crisis-struck state fails to provide basic public services, like safety and security, Golden Dawn’s anti-austerity, anti-establishment and anti-immigration rhetoric has found purchase. Read more here.