Greece’s finances kicked off the “Euro Crisis”.
Democracy, if not beaten to it, will bring it to a conclusion.
Let’s face it, Greece is bankrupt. With national debt over 140% of GDP and a budget deficit of more than 10%, both steadily growing, it can’t even pay instalments on its instalments; let alone stabilise and rebuild its finances. It is spiralling deeper and deeper into debt.
If you were Greece’s bank manager, would you be lending it money?
No.
More’s the point, would you have been lending it money recently?
No.
But somebody has been. International banks and investors have been steadily providing credit at increasingly usurious interest rates as its finances have become more parlous and its credit ratings have been downgraded. A Greek tragedy has unfolded, a story of a spendaholic country and the shiver of loan sharks lining its pockets.
Tragedy Tomorrow, Comedy Tonight
And now Greece can’t afford to both live and make its repayments. So, it goes bankrupt, defaults on its debts, comes to an arrangement with its creditors to repay a reasonable amount of what it owes and then gets back on its feet.
Apparently not.
Instead, two rather distasteful things seem to be happening.
First off, our naughty, profligate child, having spent frivolously and got into too much debt, has gone running to Mum and Dad for help. Mum and Dad, in this case the stronger members of the Euro zone and the IMF, have given the naughty child a rap on the knuckles followed by a hefty wodge of discount finance to bail it out.
I’ll be good from now on, honest
And the naughty child is really, really, really trying. But it’s really, really, really hard and bad habits are really hard to break and we all know how tempting it is to have a bit of a spend-up when you’re feeling blue.
Aw, go on Mum and Dad, let me off again, I’ll be good from now on. This time I really mean it.
Despairing somewhat now, and scratching their heads in wonder at what they’re going to do with their problem child, Mum and Dad dispense a firmer rap on the knuckles. Oh, and another wodge of cheap-as-chips cash.
Nice.
While scratching their heads and wondering what to do with their problem child, Mum and Dad have probably asked themselves a very relevant question. Who the hell has been lending their child all this damned money for so long anyway, and what the f**k where they thinking?
Consequences and repercussions
I ask myself what I would do in this situation? Would I continue to bankroll my child’s way out of this mess and repay all their debts? Absolutely not. Because if I do that the tangible consequences of my child’s actions fall only on me; not on them and not on their lenders. Can the guilty, spared the full consequences of their actions, be expected to learn?
There seems to be a lot of crap circulating about the consequences of a Greek default. In particular a lot of commentary seems to associate a Greek default with them leaving the Euro. Frankly I don’t see the connection. After all if my child is a Euro debt borrower and goes bankrupt, they aren’t forced to forfeit the currency are they?
Greece can’t repay its debts so it should default, it’s that simple. The direct consequences will be painful, but they will be narrow and fair. Greece will find it massively harder to raise funds in the near future, but the EU and IMF can assist in this. At least their assistance goes to ensuring there’s food on the nation’s plates and not lining the pockets of reckless lenders, who in turn will feel the consequences of their irresponsible ways and learn a valuable lesson. Well, perhaps! There’s a first time for everything after all.
But that seems a lesson other Euro-zone countries don’t want to be learnt. Once the buyers of sovereign Euro debt realise that the issuing country will be allowed to default they’re going to be somewhat pickier about whom they lend to and how much they charge when they do. To the countries that will have to pay more for their debt this is unattractive to say the least. Could it be self-interest that has them minting fresh credit cards for Greece? Unfortunate if true, and not just for Greece, because ensuring that national debt is appropriately priced is the best early check on feckless spending; it’s the best possible way to prevent another Greece.
P**s or get off the pot
Other options just don’t cut it for me, and as a European citizen I’m sure I’m not alone in feeling that. Stronger rules on Euro-zone finances? There are already rules about the financial health of countries in the Euro zone and they’ve been ignored before, and ignored for bigger economies than Greece. Closer fiscal integration? Same thing; just more rules and procedures, checks and balances, for member countries to be given a pass on in the future. Joint Eurobonds? That’s just an increasingly grumpy (and impoverished) Mum and Dad bankrolling their profligate and unrepentant children. No consequences. No fair.
No European ruling parties are especially popular right now and many only govern through finely balanced coalitions of fair weather friends. How long before an election is fought on an agenda of the break up of the Euro – either Germany or France leaving it, Greece being ejected from it, or Greece itself walking out of it? How much pain will the Greek electorate take before they revolt? How much bankrolling will the German and French electorates stand before they do the same? How long before fair weather coalition partners turn into back-stabbing self-interested conspirators?
A sensible solution to Greece’s problems can be implemented here and now whereby the guilty feel an appropriate amount of pain and the innocent are reasonably spared. But that option won’t stay on the table forever. Politicians can have their say only for so long as it takes their electorate to next get theirs. Time to get real with Greece and do the right thing by everyone. Before it’s too late.