Wednesday, 4 February 2015

WILL GREECE BRING BACK THE MIDDLEMEN?

Greek Finance Minister Yanis Varoufakis has a plan to link his country’s debt repayments to GDP growth. On the face of it, that makes sense. Everybody knows that debts can only be repaid when money is coming in. In debt-laden Britain, credit card companies go to some lengths to reschedule loans when people simply can’t pay. When the alternative is bankruptcy and permanent default, it makes sense to be patient.

Greece’s creditors know this. The German government knows this. German people, however, like many in mainland Europe, are not used to the casino-style property market that prevails in Britain, and the casual, “telephone number” personal borrowing that goes with it. They take debt seriously, so Angela Merkel has a domestic political problem in selling any deal to a financially conservative electorate.

Deal, however, there seems likely to be, and one reason for this is that Mr Varoufakis is framing his compromise plan in conventional economic terms. By linking debt repayment to GDP growth he is effectively committing Greece to an economic development strategy designed to maximise GDP - the standard measure of an economy’s success.

One of the most interesting things to come out of the crisis in Greece, however, as commentators have noted, is the way in which unconventional economic structures have arisen to replace the system that failed. Examples include food co-ops, which reduce prices by bringing producers and consumers closer together, and in some cases eliminate cash entirely from transactions.

GDP doesn't measure real wealth such as food, but only the amount of money that changes hands. Those co-ops that have cut out the middlemen are generating less GDP, even though the total real wealth (the amount of food) is the same, and both producers and consumers are better off. And if people are collaborating to grow food for themselves, then it could be that no cash changes hands and no GDP at all is registered.

The scale may still be relatively small, but Greece has just voted overwhelmingly to bin the old way of doing things, so the emergence of innovative economic relationships that work significantly better on a human level is not something that they will necessarily want to see halted. So the question arises, will Syriza seek to bring back the middlemen in order to get GDP moving and satisfy its creditor-partners? Or is it serious about the new, collaborative, economic models, in which case holders of GDP-linked bonds may have a long wait on their hands.

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