Dickson Igwe. Photo: VINO/File

Greece, despite voting no to Austerity on July 8, 2015, will be forced to adopt an austere culture by powerful institutions, countries, and leaders, in Europe. Or the country will be forced to leave the Euro Zone.

The Referendum is over in Greece. The exercise in democracy was an excellent idea. It brought things to a head by involving the Greek masses in the matter of Greece’s Debt Crisis: not just the political and financial elite of the continent of Europe. The European Union is increasingly an institutional dictatorship in its relations with smaller states.

Greece, despite the vote against Austerity, will be forced to adopt austere measures by forces from the outside. Financial power trumps popular democracy in certain matters. Greece will be dictated to by powerful institutions and leaders in Europe.

The fact remains that Greece possesses an unsustainable debt that is 180% of GDP. Greek debt of 348 billion dollars amounts to 29,000 USD for each of her 12,000,000 population. Interestingly the US debt of 18 trillion amounts to 60,000 USD per head of population. However, the US possesses a Central Bank that can pump trillions into the economy at will, in effect creating cash out of thin air. The US is an economy that is a much more powerful beast than the economy of Greece.

Deep problems remain for Greece. The Editorial Board for the New York Times put it this way on July 6, 2015: "Greece has suffered and will continue to suffer; its unemployment rate is over 25%; GDP has fallen 25% since 2008-." Austerity has done nothing for Greece, or its creditors, according to the newspaper.

There are two options open for Greece from the Troika: the European Central Bank, The IMF, and the Euro Zone States.  German Chancellor Angela Merkel and her Allies on the continent could risk the stability of Europe and threaten global finance by pushing Greece out of the Euro Zone, or restructure Greek’s debt of 350 billion USD.  

Greek banks are running out of cash. And had capital controls and limits not been placed on Greece’s depositor withdrawals, Greece would have seen the complete collapse of its banking system.

The New York Times believes Greece should remain within the Euro. It states that, "a Greek exit would do untold damage to the credibility of the Euro and the European Project by making clear that any country’s membership in the Euro Zone could be revoked. A Greek Exit will severely damage the credibility of the Euro Zone."

Another thing: the Staff Writers at the NYT further believe that, "Greece’s inefficient economy was not the reason for the present crisis."

European leaders and the IMF made the error in 2012 of a partial restructuring of the Greek debt owed to Germany and the rest of Europe.  The problem was compounded by these creditors demanding an austerity regime for Greece that stated that Greece should cut spending and raises taxes. Austerity drove up unemployment and made economic growth impossible. The economy flat lined and began to expire. Austerity has been likened to starving a cow in order to get the animal to produce milk.

"Greek officials past and present are responsible for many of their country’s problems. But European leaders have made the crisis worse by their mismanagement. Now it is incumbent upon Europe’s Leaders to end the threat by saving a small, paralyzed, country." 

The great lesson of Greece for Caribbean countries is that a small service based economy- Greece is tourism and shipping oriented- must be careful with getting into unsustainable debt. A non diversified economy that is dependent on external markets for existence can quickly fall into a debt trap. Greece does not have the economic firepower to reduce its debt in time, and to the satisfaction of creditors. 

Countries with powerful central banks such as the US and the UK can devalue to improve the balance of payments and boost export growth, or increase the level of liquidity in the economy by QE, the sale of government securities. They can also sink billions into their social and physical infrastructure: fiscal stimulus. However these are actions that are based upon global confidence in their currencies and economies.

Greece has none of those attributes. She depends on the goodwill of the more powerful countries in the European Union for her existence.

The value of cash is based upon faith and trust. Powerful and diverse economies are able to absorb the shocks that come from global economic uncertainty. Greece cannot at the present time.

There is a political dimension to the Greek matter. The Euro zone is not a political union such as the USA. It may possess a single currency, but its existence depends on the agreement of all the countries in the Union. The German taxpayer is unwilling to write off Greek Debt. The majority of northern European countries appear to share the German unwillingness to "let Greece off the hook."

If Europe was a federal state, Greek Debt would have been the responsibility of all the countries in the Union. If Europe was a political union, it would be impossible to divorce Greece, notwithstanding how terrible the marriage.

Connect with Dickson Igwe on Facebook and Twitter