Wednesday, May 16, 2012
Greece's tragedy should be lesson to all
Greece's radical leftwing party, Syriza, has one policy I agree with - the prosecution of the politicians and bureaucrats who are the architects of Greece's current tragedy.
That is all though - the policies to "reject austerity" are so demonstrably absurd, that they will demonstrate the simple failure to learn the lessons of the past couple of decades of Greek reality evasion.
As much as Syriza, the Communist Party (truly communist, in the Marxist-Leninist - Soviet model was the way to go sense) and the fascists want to paint it, Greece is not in an economic crisis because of foreign bankers or even the European Commission.
It is in a crisis because perpetual budget deficits are unsustainable.
This will continue, even if Greece exits a fiat currency supported by large economies for one supported by its own incompetent government. For let's be clear, Greece is no more likely to be able to reject austerity with a currency that will be as trusted as the Zimbabwean dollar than one trusted like the Deutschmark.
There is literally no alternative to austerity in one form or another.
So what are the options?
1. Greece follows the deal previously done with it. That means reducing its budget deficit to ultimately balance spending with revenue within the next few years. Bear in mind this deal already includes 80% of its debt being written off by the creditors. Not exactly wealthy bankers demanding their pound of flesh when most of what they loaned Greek governments is being written off. Of course what this means is shrinking the Greek state, less welfare, pensions at ages similar to other EU countries, less subsidies, privatising trading enterprises (e.g. railways, broadcasting, postal services), cutting the public sector and streamlining the tax system so that it is at a level people may be prepared to pay. If Greece accepts a public sector that it is willing to pay for, it can stay in the Euro and live within its means.
2. Greece rejects the deal and defaults. That means simply being unable to pay its way. The state can't overspend because it can't borrow (who will lend to it outside some German led guarantee?), so it stops paying wages to public servants, stop paying other bills and essentially shuts down. It becomes interesting if the military can't get paid. In effect it is instant austerity. Instead of the Eurozone deal lending, lending ends, so the budget deficit is wiped out - instantly - because you can't spend beyond your income if you have no credit. In this context, the Euro takes an enormous hit because of perceptions that Eurozone sovereign debt is no longer "safe", so it devalues somewhat. The Syriza party effectively thinks that Germany will be forced to lend to Greece to cover it - in other words that the Eurozone becomes like the United States - with the richer parts transferring money to the poorer parts. However, if Germany refuses (why should German taxpayers prop up an ungrateful, previously fraudulent Eurozone country that doesn't think the rules apply to it), then Greece truly faces a hard time, and will be tempted to take the next step...
3. Greece rejects the deal, defaults and announces a new sovereign currency. As easy as some commentators think this is, it is almost inconceivable. It is option 2, but with the printing presses coming out to issue a New Drachma which would be the new state currency to pay public servants and pay bills, and new debt is issued in the new currency. The effect will be collapse of Greek banks as Euro deposits are withdrawn en masse, and millions of Greeks open up new Euro accounts in non-Greek banks. All Greek businesses and citizens with debts in Euro face default, but suddenly Greek exports and tourism to Greece becomes remarkably cheap because of the new dud currency. Yet without austerity, Greece will rapidly face hyper-inflation from the government printing money to cover its deficits, plus a massive increase in the prices of imports, such as oil. In short, Greece turns into the stereotypical tinpot third world country, with a non-convertible currency that makes the Bulgarian Lev look like a safe bet.
4. Greece rejects the deal and gets a German led bailout with surrender of sovereignty. It isn't far removed from what was previously agreed, but this time it will be more thorough. The deal to keep Greece in the Euro includes direct government to government lending, but with surrender of Greek sovereignty in the meantime. You can just guess the attitude of the Marxists and fascists in Greece to the spectre of this.
Unless taxpayers of wealthier Eurozone countries let their government bail Greece out (which I doubt they will do), Greece faces living within its means. It will have to do so within the Eurozone or without it. At the very worst, Greece will put its head in the sand, default, be unable to pay for the army and it will stage a coup - seeing Greece kicked out of the EU and NATO and become the new laughing stock of Europe. Then the people of the former Yugoslav Republic of Macedonia, the people of Cyprus (especially northern Cyprus) and other neighbours might fear what a new militarised Greece will be like.
The lesson from all this is astonishingly simple.
Government's cannot evade reality forever.
They cannot borrow endlessly from creditors, especially ones that have already written off many of their past debts as bad debts.
They cannot borrow from other governments, accountable to taxpayers who want to know why their money is being loaned to a government that no one else will lend to, because its taxpayers refuse to pay for the state they demand.
They are not better off if they can just print money to cover spending - because people are not so stupid to believe there is real value in a currency manufactured by the government because nobody else will lend to it.
Austerity is not a policy choice on a whim, it is, as I have said before, just living within your means.
The tragedy in Greece is that the lives of millions are now being hit because past governments pretended this was not necessary, facilitated by public servants and facilitated by past creditors. They have been hit by the fraud of the profligate deficit spending state. They gained a welfare state more generous than most of western Europe, and state health and education systems they didn't have to pay for - and now face losing much of it all.
The real insanity is from the hard left, who believe that bankers should be forced to lend the Greek government other people's money, or the German government should force German taxpayers to do so. They have bemoaned profligate lending by banks that needed bailing out, but now want the same banks to lend to a feckless government that can't control its spending. They are deluded and use language that claim those demanding Greece face reality as "murderers", when it was their own welfare state philosophy that has brought Greece to its needs.
It is the peculiar brand of statist politics that has ruined Greece - the idea that government can offer more and more without producing more, without getting more money to pay for it. The idea that better healthcare, education and more generous pensions can just be given, not saved for and earned.
The big question is not whether Greece has austerity or not - it will have it, whether it comes from choosing to cut spending, being forced to cut spending or cutting spending in real terms by shifting to a new nearly worthless fiat currency.
Hard working productive people in other countries are not going to pay for Greece's bloated state sector, and they wont do it whether it is as it is now, or some Marxist or fascist version of the same. Greek citizens either have to hunker down and work within their incomes today, or leave. If they choose the chimeras offered by the far left, whether they be Marxists or nationalists, then the austerity deals of today will look like paradise compared to the ostracism their country will face.
UPDATE (since I'm in NZ for now): Idiot Savant still doesn't get it either. How can it be a bailout for German banks when it is the Greek government that needs borrowed money to function? This rhetoric is not dissimilar to the banker bashing that the Greek far-right/far-left is employing. What do the reality evading statists think will pay for the massive gap between what Greek governments spend and what they collect in revenue? There is NO repayment of debt under the bailout, just a government guarantee for deficit financing. The gap in understanding is palpable. The willingness to excuse rampant deficit spending is surreal. The belief in flat earth economics is expected though, because it's how Greece has been run for the last three decades.