c/o an unnamed genius…
I think having family (albeit distant relations) in Greece helps me understand the situation from a humanitarian perspective, but I also know there are going to be some severe implications for Europe so here are my thoughts.
Greece is broke, and creditor demands to cut welfare further is akin to pushing welfare payments down to a point that cannot support the recipients, so they become impotent and pointless as a negotiating tool for the Germans. The Greeks knew they had little to lose in voting NO, so the majority did vote NO, i.e. they voted against more austerity.
It is typical in Greece that a pensioner couple may be receiving a benefit which supports an impoverished existence (following massive and necessary cuts to benefits in recent years, fair enough so far). However, it is often the case that the same payment is supporting one or two adult children who are unemployed living at home, i.e. the payment may support 3-4 people, when in it used to support (before cuts) 1-2 people. Youth unemployment is 50% in Greece. They are in a deep depression, like the US experienced in the early thirties, suicide rates have skyrocketed and many people are fleeing the country (economic refugees).
Background
Some points to ponder:
If I lend you $100,000 look out, if I lend you $700,000,000,000, I’m the one who is not going to sleep at night. Debt is like a dead weight, Greece economically speaking may be a donkey and not a racehorse, but adding dead weight to a donkey in the race, is a form of reverse handicapping.
Regardless of whether Greece defaults , there is a questionable legal basis for expulsion from the EU as it is a political Union. Politics will win, as Greece was helped by Goldman Sachs to use dodgy accounting to enter the EU in the first place, everyone knew it too! So why would they let Greece leave now when the EU helped Greece into the EU in the first place?
- The massive debt Greece owes effectively passed effective (non-democratic) control of Greece to its lenders, this was never going to be permanent.
- Many European firms benefited from (bad) loans to Greece for infrastructure project e.g. Olympics, as the money went straight to them, and the debt and stadiums where left to the Greeks, the lenders cannot cry poor either.
- The lender and borrower are equally responsible for the current mess, they both should all suffer for poor decision making. The Greek people are suffering for avoiding taxes and wanting a free ride, but now some debt write offs must occur, lenders must take a hit, or else the same crisis will emerge every one to two years.
- Many Greeks took advantage of easy welfare for decades, times have changed, they must learn to support themselves.
- The debt Greece has borrowed is unsustainable, creditors need to write a big chunk of it off. They are kidding themselves if they think this won’t be defaulted upon.
- The depression in Greece is likely to continue no matter what happens next, at least for a short period.
- If the debt is written off, Greece can emerge in 2-5 years and start growing again, if the debt remains they cannot ever recover.
- The US is a powerhouse, because they allow business people to default, and start again. Greece needs to be given a new start.
- The Greeks fought like maniacs and spilt blood against the AXIS powers and the Nazi’s, who destroyed Greece.
- Germany owed Greece money after the war, along with 34 or so other countries, Germany’s debt was largely written off some years later, to allow it to recover and stave off Russian communism, now the shoe is on the other foot.
- One real reason the German’s were willing to lend Greece more unpayable debt, is to prevent a write off of existing debts (ie kick the can down the road, this is not right), which will demonstrate how fragile the EU financial system is, this is pointless, as it will be worse in 2 years’ time if we don’t face reality now.
- Another reason the German’s were willing to lend Greece more, is to prevent a write off of existing debts which will give the likes of Spain and France a green light to do the same (moral hazard), if debts are written off in Greece, Spain, France, Portugal, the value of the Euro may collapse.
Moving Forward
- The Greeks are screwed, the Germans are screwed. More debt would mean the Greeks would be screwed forever, they have taken a big risk, but so have the Germans, as no one really knows how this will play out exactly.
- My guess is that the IMF will offer humanitarian loans to Greece on easy terms, and the EU Central Bank (ECB) quarantines the Greek banking system from Europe’s.
- Greece may stay in the EU political union (to prevent any chance of Chinese and Russian support), but I think this an educated guess, and only one possible outcome of many.
- The current Socialist Greek government is not best suited ideologically to lead Greece out of depression – in many ways it will have played its part if debt is written off, however Greece needs a government that will promote small business and enterprise.
- Free markets and hard work are needed in Greece, socialism relies on spending other people’s money, this has clearly failed.