How does one say “Goodnight, Irene” in Greek? Or “Show Me the Way to Go Home”? Or, if neither of those classic festivity-enders does the trick, “Hit the Road, Jack”? In any case, the message needs to be sent: The party is over, and it is time for Greece to be shown the door, if the Greeks cannot find it themselves, and exit the eurozone.
A Greek default appears to be imminent. The question is whether it is to be an orderly default or a chaotic one. At the moment, the odds are about even between those two possibilities.
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Prime Minister George Papandreou has called a parliamentary vote of confidence and a national referendum on the European bailout conditions to be imposed on Greece. Those conditions include bondholders’ taking a 50 percent haircut on Greek liabilities while the Greek government promises to enforce austerity measures to reduce spending and return the country’s debt-to-GDP ratio to a more manageable level (though getting Greek debt down to the level legally required by the Treaty of Maastricht is not in the works, a fact that should put the European project in perspective). Athens has made such promises before. Greek unemployment remains high, its economy a shambles. The recent recession has made things worse than they otherwise would have been.
The European Union being the European Union, it had been assumed that these conditions simply would be imposed by Brussels, without the Greek people’s having a say. The vote threatens to throw a monkey wrench into European designs, and markets tanked on the news. And what would happen if the Greek electorate rejected Brussels’s agenda? It is far from impossible that Brussels and Athens would simply collaborate to impose the terms in the teeth of democratic rejection. The Greeks should keep in mind the experience of those national electorates that rejected membership in the European Union only to have the same referendum voted on again and again until Brussels got its way.
Unhappily, the Europeans aren’t much in funds these days, which has them appealing to China for assistance in their bailout scheme. Which is to say, not only would the deal make Athens entirely subordinate to Brussels, it would make Athens entirely subordinate to a Brussels that is partly subordinate to Beijing. That may be too high a price even for the pension-loving, debt-ridden, bailout-begging Greeks to pay.
And we would not blame them. Membership in the European Union as currently constituted is plainly incompatible with national sovereignty. In fact, the European project has quickly proved to be not only incompatible with national sovereignty but positively hostile toward it, its consolidation of transnational power and its running rough-shod over ancient nation-states exhibiting a degree of vigor and energy shocking even to the most suspicious Euro-skeptics. This incompatibility has come to a head now over fiscal questions, but it might have come to a head as easily over questions of national defense or immigration — questions in which the interests of a France or a Finland are very different from those of a Bulgaria or a Cyprus, but which in any case will be decided in accord with no country’s national interest but in accord with the interests of the bureaucratic elite in Brussels.
Greece seems to have a lot in common these days with a certain state where the Democratic Governor seems to have lost his playbook on taxes & gerrymandering ... External Link
This is the world in which we now live. Those who make the wrong choices ask those who chose more wisely to help them and then they reject the help offered because it doesn't meet their high standards. Folks who aren't smart enough, capable enough and/or motivated enough to care for themselves are allowed to set the standards for how others should care for them and then we wonder why the world economy is in chaos.
What's happening in Greece is happening here as well. People who believe others should provide them with the standard of living they want, but aren't necessarily willing to work for, protest against their benefactors for not providing them with all the things they deserve. And many in our government, including the President of the United States, agree with and encourage them. In either case, Greece or America, it's not likely to end well.
Time to unwind the Socialist super-state known as the EU. They are cooking up schemes to flex their radical muscles, such as the carbon tax on aircraft flying to Europe. In the long run, the complete disintegration of the EU is in everyone's best interest.
One thing we know about bureaucrats is that they do not give up power easily. The Greek people do have a right to vote on a pact that would not only set spending restraints, but dictate thier standard of living for decades to come. On the other hand, debtors usually don't have much say. That was the trade-off. In the end, niether the more productive Germans nor the Greeks like the arrangement. German bondholders were about to take a bath (they still will), and Greek taxpayers were about to be dictated from far off Belgium.
My prediction is riots in the Eurozone will eventually force the issue. The EU is dead.
Here are 2 reasons why leaving the Euro does not help Greece and austerity measures are needed.
First, saying that having their own currency will allow them to monetize their debts is a canard. The market should just price that risk in and charge them a higher rate than they would otherwise have paid.
Second, is that so long as there is a European Union (or just free trade), even without a common currency there is mobility of people and capital. Low wages and/or high taxes in Greece will encourage capital and popular flight to other EU members.
Thus, when push comes to shove, the Euro departure will do nothing to help Greece. Contrary to much criticisim of Northern Europe by Southern, it will not allow Greeks to enjoy a less productive lifestyle (but similarly consumptive) than their Northern neighbors. Greece will need fundamental soceital change (the austerity measures) or it will go into a death spiral of capital/popular flight.
Of course, getting rid of free trade is not a solution.
Thus, after a Euro pullout, we may next see pressure to pull out of the EU to allow Greece to better restrain capital/popular flight.
Higher rates exist regardless of the currency. But they can't even print their currency ... so outright default is more likely than depreciation ... thus rates would actually be higher ( given that depreciation usually is slower to evolve and hits the entire population to some degree, thus there is an internal bias to lessen it's impact ). In other words, the pricing is 100 or 0 vs 100 or 90,80,70. I'd take the latter, where they can at least print the notional currency. Given this weakness of Euro denominated debt, I believe that rates are actually higher for Greece than it would be using the drachma.
Another way of saying this:
True, the drachma would not be 1 to 1 with the Euro ... but the government and the people would have more control over the currency. And yes, it will probably get devalued over and over again ... but this would be slower than an outright default and less volatile to the world as well as to Greece.
Depreciating their currency would allow the Greek exporters to become more competitive. That's the only chance the Greek economy has left. A weak economy with a strong currency is an oxymoron, and unsustainable to boot.
I know some have criticized Papandreou for the referendum, but I for one can't understand the criticism. Yes the Greek citizens did vote in irresponsible people who spent way too much money. But they did not force the politicians to borrow that money nor did they force the whole banking industry to keep loaning them money. It is right and proper for the people to determine their financial future by a popular vote. Whatever that future holds.
It will be interesting to see how it plays out. The profits of doom say that if they default, we are all in trouble. I am not sure. Might be true. Or it might be that only a select few who profited all this time might take a bath and the rest of us might just do alright. Honestly don't know.
The analogy to me is the GM bailout here. Just had to bail them out to protect all the poor GM employees and prevent this huge loss of jobs and wholesale economic destruction and Armageddon. Had to violate bankruptcy laws and force the bond holders to take second to the pensioners. (Of course a large portion of the bond holders were other pension plans.) Had to do it at taxpayer expense. Now GM is outsourcing as fast as they can on our dime.
Or how about the TARP bailouts? Did lending really increase and stimulate the economy? Roubini (in "Crisis Economics") claims the banks cycled the TARP money back through government bonds and took a profit at taxpayer expense with really increasing liquidity as was supposed to happen.
It is too bad we do not have a referendum here. Then when we are in extremis with our foreign debt, we would have the option to take the risk of not letting foreigners determine the terms of our default. (Which unless we make a drastic course change will eventually happen.) It would be interesting to see how the American taxpayer would choose to handle the situation. Take it on the chin? Or tell the Chinese and the politicians that borrowed all that money, largely against our will, where to go and then take our chances. But we don't have a national referendum so we can be sure the terms will profit both the foreigners and the politicians and extract everything possible out of the taxpayer.
The longer I think about this whole debt issue, the angrier I get. Yes I know we all benefited somewhat from it. But a lot of us fought it the best we could with our vote. Even most liberals I know never signed up for it. The problem is, all the candidates conservative or liberal kept racking it up regardless of who had control or who we voted for. I am starting to feel a little bit like a Greek. I did not agree to this debt. A bunch of guys (and gals) in three piece suits did. And I am becoming increasingly unwilling to pay.
The hysteria against having the Greeks vote on their future is scary. They are facing 10 years of economic depression with the EU plan, and they should have a say.
"This was a gross miscalculation on the part of the European centralizers, who neglected to account for the fact that important, fundamental cultural differences — including language, family habits, and religion — ."
Goggle "North American Alliance" or "Amero" and you'll see our own design for the European Union.
Or simply review our own immigration policies.
No one considers the culture of America. We're suppose to pretend we are a "Proposition Nation"
nothing but an ATM machine. Everyone in the world is a potential American.
If you believe having sex with a virgin cures AIDS, or if you believe women should be mutilated at birth, or stoned to death when they become a widow, why, that's just dandy, come on in.
If you're from Mexico or Central America and you don't understand, or care, that driving while drunk, getting pregnant at 13, quitting school, speaking Spanish only, joining gangs, remaining true to your country of origin is harmful---not to worry, we White-European Americans will assimilate.
"But the alternative is a prolonged, slow-motion crisis and the entrenching of the one-size-fits-all, central-planning approach from Washington DC that is a very large part of the present problem and no part of its solution."
We have our own version of Greece. It's call Ohio.
They will be voting in about a week. Do they want more government control or less? It is very easy to see what is going to happen in Ohio given the way the polls are tracking.
The people of Ohio had better wake up quickly or they too will be controlled and have pensions and and the resulting taxes shoved down their throats not by the EU but the SEIC or the NLRB or the NEA. We have many versions of Greece in our own country and it is time everyone realizes it and votes this stuff down!!!
