The Greeks vote on something this weekend, but no one really knows whether it matters. The news indicates that the deal offered Greece is no longer on the table so the plebiscite on it would be moot. There’s also the fact that Greece appears to be in full blown financial collapse. The scenes on television remind me of the Argentine financial collapse of ’98. In fact, the comparisons are so close that the Argentinians of that era are advising the Greeks now.
Here’s an interesting documentary on the Argentine crisis.
The fascinating thing about this last phase of the now seven year crisis is that the enormity of Greek debt is finally being revealed. The IMF has released their analysis of Greek debt and there’s simply no way anyone can think the Greeks will ever pay their debts. It is a mathematical impossibility. Further, they will never be able to make their interest payments.
Greece has a €50 billion cash deficit through 2018, which means even under the bailout plan that was offered, Greece would be accumulating debt faster than it would be retiring debt. In theory, something magical could happen so that the economy would boom, but the debt burden makes that unlikely.
That means the people in charge of Europe have been lying to their public all this time. Default was an inevitability. That will then be followed by a restructuring of debt and debt forgiveness. Lying is no surprise as it was always assumed that the EU was buying time to transfer these debts from the private holders to the taxpayers.
The deliberate and seemingly pointless immiserating of Greece is what one would expect from a loan shark. It’s not the money, it’s the principle. The EU was supposed to make one big happy family of former countries. The trouble is one of the family members is a bit of a screw-up so the paterfamilias is teaching a lesson. It’s not so much for the one taking the beating, but for the rest. “Don’t be like Greece or we’ll break you like we broke them.”
That sounds good, but it remains to be seen if they will actually break Greece. The first hit is the worst hit and Greece is taking the first hit right now. By the time they vote, a fair number of Greeks will be ready to see it through. The next hit lands to the body of the EU financial system. No one knows what happens when the fallout from Greece starts washing up in the rest of Europe.
It’s easy to dismiss Greece as a dead beat country full of oily grifters. In theory, the Greek people have only themselves to blame for electing crooks and liars. That’s an argument against democracy, but the people never voted for bankruptcy. They were misled by their leaders, who got hooked on the heroin of global finance. They supported joining the Euro because they were told it would avoid these problems.
The problem at the core of global finance is that there’s no market mechanism to restrain public debt. The whole point of a floating currency regime is to disguise public debt in order to avoid making tough choices about the welfare state. It’s not an accident that since the Louvre Accords the size and scope of government has skyrocketed throughout the West.
In other words, a currency system based on credit has worked at hiding the cost of government. In fact, it has been so good at it no one noticed that Greece was running up debt at an alarming rate. In the old system, Greece would have been facing double digit borrowing rates long before they reached this point.
Sovereign debt is mostly a way to rob the property holders of countries. When the state borrows, there has to be someone on the other side of the transaction. If they borrow from their people then they are taking property with a promise to pay at a latter date. If they borrow from abroad, then they are promising their tax payers will pay at a later date.
The only people with the ability to pay sovereign debt are the tax payers.
In the old currency arrangements, this was understood. Lenders knew this. If you lent gold to the neighboring king, you did so knowing you may have to invade his lands to get it back. That made lenders more prudent, which made the crown more prudent. Credit currency makes it appear that default is impossible so no one considers the cost of collection.
Successive Greek governments have promised the property of Greek tax payers as collateral. The Greeks on the dole are demanding their checks and making a fuss about it on TV. The real revolt is the from the people with money. The Greek taxpayers are refusing to pay up. Unless the EU is ready to roll in the tanks, the debts will have to be forgiven.