Greece: a new low
from Peter Radford
Count me among those who expect Greece to default on its debt. I see no viable alternative. The Greek experience is unique. Other troubled Euro zone nations are less culpable for their demise. At least from a distance it is well known that Greece has a major problem with aspects of modern society: for one thing its citizenry seem to think they can cheat endlessly on their taxes, and yet still benefit from some of the most generous government programs in the entire world. Getting something for nothing has become a national pastime. That would be fun and quite fitting for a small marginal banana republic. It is not at all fitting when you are tethered to the German mother ship.
As the Greeks spiraled towards an inevitable debt restructuring the German and French banks were quietly cringing. They were the fools who lent a very large portion of the cash about to be declared lost. Simultaneously, strong voices have been raised within the Euro zone arguing that the private sector should not bear the brunt of the failure of the Greek government to meet its obligations. Somehow, these people argue, the Greeks should be made to straighten out their dire economy and set a good example to all the other countries who might consider default were the Greeks to lead the way. For the sake of the banks and solidity the extreme austerity needed should be forced down Greek throats. One example of the kind of extreme ideas floated is the notion that Greek taxes should be collected by someone else and not by the Greeks – no one trusts them to get it right. When you insult a nation that much you have crossed the pale. Even if you are correct. Its obviously time for the Greeks to be kicked out.
None of this would be happening, at least in its current comic book style, were Greece outside rather than within the Euro zone. Presumably an independent Greece would have mixed some form of debt restructuring with a massive devaluation of its currency in order to soften the blow domestically. It cannot follow this course whilst on the inside. Which is why many people are suggesting it should just go its own way. Perhaps, they hint, Greece was not ready for modernity.
But the bigger issue is on those bank balance sheets. Were the Greeks to default there would be substantial losses for a number of banks. Some of them might even find themselves needing state assistance. Bail out fatigue has set in sufficiently for politicians everywhere to be extraordinarily leery of yet another bank bail out. These idiots were stupid enough to make the loans – and surely they did enough due diligence to see that the Greeks were lying through their teeth with respect to their budget balancing capability. So why can’t they take the losses they so richly deserve? This line of reasoning is why there has been a steady drumbeat in favor of making sure that the private sector doesn’t get away scot free again. Someone has to pay for the incompetence of the banks, even if it isn’t the bankers themselves.
Then there’s the voter revolt in the northern Euro zone nations. Voters are understandably upset to see their tax money flooding south to bail out the greeks who, as everyone knows, avoid paying taxes like the plague. If the Greeks want to be childish, why should those stolid Finns, Dutch, and German folk have to cough up to underwrite the Greek games?
So while the European Central Bank declares default is not an option so as to protect the banks, politicians all over Europe are embracing exactly that default. A perfect clash between capitalism and democracy has been set in play.
The political and economic logic at play leads to only one end game: Greece defaults and leaves the Euro Zone – at least until it gets to grips with its endemic cultural aversion to modern sound governance. In terms of the totality of Europe Greece is small. It is causing problems way beyond its worth to the community. It should be put outside, maybe quarantined, and thus less able to undermine the rest of Europe.
And the European Central Bank should stop acting as if the problems faced by the German economy are one and the same as those faced by the Euro zone as a whole. It might be that Germany needs higher interest rates right now. Spain, Portugal, Ireland, and, yes, Greece surely do not. Either Europe moves towards closer union – more along the lines of the US – or it falls apart.
But that’s all to be revealed.
As of now the Greeks have hit a new low. And that was hard to do.