It is difficult to overestimate the seriousness of the Greek crisis, not just for Greece, but for Ireland too. Let us be very clear, the choice being presented is between amputation or recuperation.
The German plan, which is what the rest of the eurozone governments are supporting, sometimes gleefully, is to kick Greece out of the euro if it defaults. This is the amputation solution.
The other choice is the recuperation approach favoured by the IMF – and you would expect most reasonable people. This revolves around more debt relief and a plan to keep Greece in the euro and give the country time to try to turn the economy around.
The cold financial fact is that the Greeks don’t have the money to pay, so they will default again. In reality, the credibility problem for Greece is not that it has already defaulted – as argued by mainstream European politicians – but that it hasn’t defaulted enough.
The IMF has already said that Greece needs another €50 billion of debt relief. The US is privately supporting that view, not least because the US has seen these default crises before, notably in Mexico, and understands that debt forgiveness is part of the economic healing process.
But Germany is digging its heels in and is behaving as if only the reckless debtor is responsible – rather than the reckless creditor too. Unfortunately, this narrative is not only false, but for a country like Ireland – with, let us not forget, the highest total debt-to-income ratio in the world – very dangerous. If interest rates were to rise sharply, for example, do you think the 400,000 people on tracker mortgages would be able to pay? Where would we stand on debt deals then?
As has been the case in Ireland, getting into too much debt didn’t happen overnight. It took years of appalling government, here and in Greece, to go bust. We have only managed to grow because Ireland isn’t really a European economy at all. We are part of the Anglo-American economy – that’s where we trade, that’s where investment comes from and that’s where our people go to in an economic crisis.
Because Britain and the US and the likes of Canada and Australia grew strongly from 2012 onwards, they dragged us with them.
Our big bet is that the English-speaking world continues to grow and we will be okay, more or less, because we earn revenues by exporting to these countries and some of that revenue can be used to pay down debt.
If you don’t have revenue from the growing Anglo-American world, you are snookered – which brings us nicely to the European continent.
On the continent, things are much more complicated. Greece has been going slowly bust for years and German political opinion has been slowly becoming more unforgiving towards its debtors.
Ironically, because there is always a surplus for a deficit and a creditor for a debtor, the extent of Germany’s foreign debts is a reflection of its own massive current account surplus. It really is a victim of its own success.
As the German surplus got bigger and bigger, the amount of money available to German banks to lend also got bigger and bigger and they lent more and more to countries that were not getting stronger, but actually getting weaker and weaker.
Then suddenly, echoing Hemingway’s observation that you go bust two ways – “gradually, then suddenly” – Greece went bust. However, it is important to appreciate that the process took years of bad decisions on both sides. The Greeks are doubtless culpable, but so too is the EU for allowing this debt spiral to happen.
Now we have a stand-off between a bankrupt country and a German political elite, which has backed itself into a corner by promising the German people that Germany will not tolerate a default. In essence, Merkel has promised the German people that she will get all their money back, but now she is realising that there is no money.
As a consequence, the only way she can win politically is to turn Greece’s Great Depression-style catastrophe into an easily digestible morality tale for her electorate. So we end up with a piece of theatre pitting the feckless, lazy Greeks against the stoic, efficient Germans. Like all theatre there is an element of truth to the yarn, but a yarn it is.
For the German electorate, hard-working Germany must be seen to punish indolent Greece if it votes today to default. But how can Frau Merkel do this?
The only way Germany can be seen to win politically is if it pushes Greece out of the euro. At least then, Merkel can sell a “don’t fuck with us” story to her electorate. (Sorry I couldn’t put it more politely.)
Unfortunately for the Germans, they don’t seem to want to admit that it is actually illegal to force Greece out of the euro and Germany, much as it would like to be rid of Greece, has a small issue of democracy and legally binding treaties to get around.
For a country that was destroyed by a strange little man with an odd moustache who stated that treaties were “nothing more than pieces of paper”, such a high-handed approach to international law might appear, at best, forgetful.
When you stand back, you can see that if the Greeks can’t be forced legally to leave the euro, they won’t. This means that the IMF view should prevail, but in the next few days, the Germans have the Greeks by the short and curlies and the pressure is being felt in the collapsing Greek banking system.
The Germans know they have only one chance to force the Greeks to leave, which is by collapsing the Greek banking system with rumours that a No vote means leaving the euro – which it doesn’t.
Doesn’t it strike you as distasteful that the richest country in Europe should try to destroy the poorest country in the eurozone by actively encouraging a bank run which would eviscerate Greek people’s meager savings?
And furthermore, doesn’t it make you a bit queasy to know that our government has become Europe’s most vocal pom-pom girl, cheerleading this grisly spectacle?
In addition, doesn’t this approach strike you as particularly odd when the entire strategy upon which this government was elected was to get “retrospective bank debt relief” for Ireland?
Ireland has most to gain from the IMF view that, in countries where there is far too much debt – personal and governmental – the only way out of a crisis is co-responsibility, where debtors and creditors do deals.
Quite why we are taking up the German cause with such gusto when it’s not in our interest is beyond me. Can you figure it out?
“Quite why we are taking up the German cause with such gusto when it’s not in our interest is beyond me. Can you figure it out?”
Because ‘we’ are spineless, cowardly lick-arses.
Quite why we are taking up the German cause with such gusto when it’s not in our interest is beyond me. Can you figure it out? Well there are a number of potential reasons: 1. They are absolute idiots 2. There are economic reasons. 3. There are political reasons 4. Bribery While I believe 1 to be true I don’t think that is the reason they are selling us out. Reason 2 doesn’t stand up as you have pointed out. Reason 3 has some credibility. They perhaps don’t want the Greeks to succeed because it will make them look bad.… Read more »
http://www.theguardian.com/world/2015/jul/06/greek-finance-minister-yanis-varoufakis-resigns-despite-referendum-no-vote The bully is still the master of the playground, insisting that they will not talk to certain representatives of a not yet sovereign nation. Not until the Euro is rejected, but not just rejected but replaced with proper money, will Greece recover. Replacing the EURO with another central bank fiat currency is simply poison from the same jar. Talking of debt relief is a fools quest when the actual system of indebtedness is still in place. When do we get to debate the real reason for the depressive state. when do we debate the indebted state of all the… Read more »
Good article. Lots to think about. David’s two crucial claims for me are: “Because Britain and the US and the likes of Canada and Australia grew strongly from 2012 onwards, they dragged us with them.” and “this narrative is not only false, but for a country like Ireland – with, let us not forget, the highest total debt-to-income ratio in the world – very dangerous.” As to his first statement, in the country which borders with the UK it’s been often overlooked that the UK (and Australia) are re-aligning themselves from the US towards China so this begs the question… Read more »
And the US’s stance:
https://wikileaks.org/nsa-germany/intercepts/WikiLeaks_US_Bugs_Germany_Plotting_BRICS_Bailout_for_Greece.pdf
The head of the IMF Christine Lagarde said that the “IMF is standing by ready to assist Greece if requested”. Christine Lagarde is on a tax-free salary of approximately 500,000 Euros plus other significant benefits and now wants to impose penal tax rates on Greek Citizens who earn less than 1/25th of her salary. The German Fuehrer Herr Merkel says that there is “no basis for an agreement with Greece”. This from a woman who was a Citizen of a failed State called East Germany which was bailed out at huge expense by Western European Citizens. I don’t remember Irish… Read more »
The art of the printing of iou’s in this case the euro and flipping it into a funny money Monopoly money Ponzi scam would explain the self serving interests buttressed inner circle keeping guard over it across all nationalities binding them all together in a nod and wink club.
Hi,
“In essence, Merkel has promised the German people that she will get all their money back, but now she is realising that there is no money.”
Are you not convinced that it’s the banks she made the promise to?
The people will do what they are told especially in a fatherland.
Michael.
Yanis Varoufakis writing in The Guardian today:
http://www.theguardian.com/commentisfree/2015/jul/06/yanis-varoufakis-angela-merkel-crisis-global-minotaur-capitalism-europe
There is one certainty with regard to Michael Noonan, and the responsibilities that he is given. And that is that, ultimately Noonan will fail badly.
Does anybody remember his spell as FG leader. He was such a clown, he should have been finished forever. Now, we have the media saving his blushes. Because everybody in official Ireland needs to pretend all is well.
Noonan will wreck Ireland more than Cowen yet. Debt is climbing upwards. The cost base is going out of what. And the state system is garnering in more money, and generating the same abysmal performance as before.
Concerning the EU, it has been screwed up by two Frenchies who represent the reason why many French people left France, for other places (London, Canada, California, NYC, Munich, and Ireland). They were never interested in “egalite”- they were interested in saving useless morons who were running French banks recklessly. Trichet. Sarkozy. Sarkozy wanted the EU to “bailout” the lenders holding Greek debt, and he got his way. Cowen was second up to demand this, because he knew Irealnd would be the next country needing a 2bailout”. The EU has become a stinking farce. I feel sorry for the people… Read more »
Tony, one for you:
“Forget Gold, Bitcoin is Backed by Time”
http://www.coindesk.com/forget-gold-bitcoin-is-backed-by-time/
I’ll just leave this here.
https://truthandsatire.wordpress.com/2015/07/03/greece-the-one-biggest-lie-you-are-being-told-by-the-media/
Sadly preaching to the converted, Varoufakis is a principled politician fighting for his country, Noonan is converting his stocks to gold….
Just a thought on the powerful forces arraigned against Greece and democracy in general. “A little research on the internet shows that collectively the countries of NATO far exceed the capabilities of Russia. The GDP of NATO is seventeen (17) times larger than Russia’s. NATO military spending beats Russia by ten (10) times. The population of NATO is six (6) times bigger than Russia’s. The idea that Russia represents a threat to NATO and the US is mere propaganda. To those who cite Russia’s nuclear arsenal, if Russia didn’t have a powerful nuclear deterrent by now NATO would have reduced… Read more »
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/06/Greece%20Oxi%20Vote_0.jpg
Nationalized banks and a parallel currency?? That would be fun.
http://www.zerohedge.com/news/2015-07-05/greece-contemplates-nuclear-options-may-print-euros-implement-parallel-currency-nati
Gurdgiev always his his finger on the pulse…
http://trueeconomics.blogspot.co.uk/
Colette Browne is becoming more and more outspoken in recent months, and rightly so.
http://www.independent.ie/opinion/columnists/colette-browne/eu-should-take-lesson-from-german-history-and-give-greeks-a-break-31356956.html
It seems that the US and their Euro colleagues are not taking any chances on Greece. If they don’t sign a deal which suits both NATO and the banks a military takeover will be played out. Seems Victoria Nuland has already paid a visit to organize the military takeover if it is needed. All of this is textbook IMF policy and is exactly as John Perkins explained in his book Confessions Of An Economic Hitman. Democracy is only tolerated when the vote suits their agenda.
http://www.prisonplanet.com/us-preparing-coup-to-prevent-greece-from-falling-under-russian-influence.html
http://nogrexit.wesign.it/fr
The Greek government did what others governments feared to do and what if they are successful were will that leave those other governments and countries, as result other governments follow Germany – the Merkle folly – the Greeks can’t pay now and austerity means they can never pay, wake up Merkle and stop saving your ass.
When one owes the bank a Euro one worries, when one owes the bank billions the bank worries…
Ah lads, regardless of all the love here for Tsipras, I really do not know what kind of a clown he is; on a high after the referendum result could easily dictate some sort of terms, yet comes with no homework to one of the most crucial EU meetings in years.
http://www.independent.ie/business/world/greece-crisis-alex-tsipras-met-with-anger-at-eurozone-meeting-as-he-had-no-written-proposals-31359707.html
You have to appreciate why he is driving everyone nuts is he a spoofer or what….
Or maybe the laziness of the Greek diplomats are are microcosm of the whole Greek peoples mess. These guys obviously don’t work to late…
How the troika can negotiate with Greece
http://www.newyorker.com/humor/borowitz-report/scientists-earth-endangered-by-new-strain-of-fact-resistant-humans
http://www.capx.co/the-eurocrats-are-punishing-greece-to-scare-other-countries/
I read this piece by Ashoka Mody (In bad faith) late last night, provides some respite into all that Greek bashing of late. It is a lengthy piece but well worth a read, I’ve copied and pasted an extract from it below: To see this, we must go back to a lesson that American economist Irving Fisher taught in 1933. He says—in italicized words—on page 344 that “the more debtors pay, the more they owe.” (debt deflation cycles). That pathological condition arises in the midst of Great Depressions, such as the United States in the 1930s and Greece in the… Read more »
A solution from someone called David McWilliams – hell go far
http://www.independent.ie/opinion/columnists/david-mcwilliams/how-a-chinese-puzzle-could-enable-the-greeks-to-have-the-last-laugh-31360589.html
Peter
he’ll go far!
An interesting post from Peter Hitchens today:
http://hitchensblog.mailonsunday.co.uk/2015/07/some-thoughts-on-the-greek-crisis.html
‘But Germany, and its many desperately sycophantic self-abasing clients in the ‘new’ formerly Soviet-dominated EU states [What about Ireland??], whose leaders would have been ready for their people to eat thistles if it was the price of getting into the Euro, continues to support a policy of exemplary punishment for the rebels. I think all this gives a clue as to what the EU really is, deep, deep down.’
Let the Greek b*stard have it!
Any country that wishes to remain sovereign must have its own currency and be self contained in mind and deed. Living within ones means is crucial and then only export surpluses and buy imports with the earned income. Avoiding debt is paramount and that requires a currency that is not debt based as all fiat currencies currently are. There is no escape from debt based bondage if we insist on using a debt based currency. It matters not who we are aligned with until that problem is addressed. The bankers control the world as they control the currencies and consequently… Read more »
http://www.sovereignman.com/trends/108-greeks-executed-for-abusing-the-welfare-system-17235/?inf_contact_key=6de0264891bbf79b01e87c5d66478a328acf306223e09385e2881c5bd191d288
Thanks be to Gold!
http://money.cnn.com/2015/07/07/investing/china-stocks-shanghai-crash/