Financial Times: Eurozone alarm grows over Greek bailout brinkmanship
WNU Editor: Europeans .... especially for those who believe in the EU .... always like to envision their ship of state (i.e. Europe) moving together in one direction. Give credit to the Greeks .... they have certainly upset that perception in the past week. But will Greece succeed .... in my opinion no .... because in the end they do need the bailout and (more importantly in the future) access to credit markets.
I am not at all confident that Greece will remain in the Euro or in the EU at all.
ReplyDeleteLet's review how we got here:
1. Greece falsified its financials and never really ought to have joined the Euro in the first place. Lenders loaned $$ to Greece cheaply, on the strength of the Euro, not on Greece's strength as an independent financial unit. In my view, lenders assumed that the EU would stand behind Greece's debt. That assumption was sort of like the assumed guaranty by the U.S. Government of debt issued by Freddie Mac and Fannie Mae.
2. During the years of cheap credit, Greece lived it up, and borrowed so much money that they can never repay it.
3. Private creditors have already been shellacked, and most of Greece's debt is now owed to Governments or institutions, such as the IMF.
4. The EU, ECB, and IMF imposed harsh austerity measures, and the Greeks have been living in almost depression-like conditions for years now, with no end in sight.
5. In light of 4, a majority of Greeks voted against austerity, i.e. against the fiscal discipline needed to pay down their debt. In effect, a majority of Greeks voted to file bankruptcy.
In light of 1-5, I think that Syriza views the situation as follows:
a. Greece faces years of poverty, no matter what happens.
b. For a nation, bankruptcy is achieved by inflation, i.e. rampant inflation wipes out, in terms of purchasing power, existing indebtedness.
c. One cannot cause inflation unless one controls one's own currency. In effect, leaving the Euro gives Greece the ability to engineer its national bankruptcy.
d. Inflation will cause massive pain, but so will adhering to the austerity plan, which the Greek electorate rejected. Moreover, Syriza can blame the EU, IMF, ECB, and the Germans for everything bad that happens now. The EU, IMF, ECB, and governments are abstractions and do not attract sympathy or empathy fro debtors. Syriza will assert that "no one is really being harmed" by Greece's default.
e. Syriza is much more interested in power than economics, and Syriza sees re-election in the poverty Greece will now endure. Moreover, as Marxists, Syriza does not really understand economics anyway.
I really think that, from Greece's perspective, leaving the Euro and, if necessary, the EU, looks like the best alternative. The EU may in fact share that conclusion.
Publius .... you have summarized beautifully what is the situation in Greece. I think the decision has already been made (and yes ... the Greeks did vote for bankruptcy) for Greece to get out of the EU and to default by not respecting loan payments and through inflation. So the focus right now is shifting to the future .... how to position oneself to have access to the credit markets once all of this has been blown over ... and how quickly can it be done.
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