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Greece submits to Germany

Greece has been living beyond her means for many years. A welter of exotic methods were devised to preserve the profligacy from its natural consequences, including, above all, the European currency union, which affords European periphery nations the extraordinary luxury of borrowing at German rates.

When the consequences of profligacy, in due time, began to present themselves, a German solution emerged: austerity.

In January, Greeks voted decisively against austerity, electing a hard-left government of quacks and celebrity academics. In early July, Greeks voted still more decisively against austerity in a national referendum purposed toward giving these quacks and academics more leverage in bailout negotiations. That backfired spectacularly.

This week the Greek parliament, in sullen resignation, voted to accept even harsher austerity.

The guiding purpose of European Union negotiations was to preserve the currency union: but German severity in the negotiations was predicated on the willingness to countenance a lasting breach of the currency union, specifically the exit of Greece from the Eurozone. He who loses his life will find it, while he who finds his life will lose it.

Greece, it appears, has now found its Eurozone lifeline, and it is a most austere one indeed: far deeper spending cuts and much higher tax increases than what Greek voters rejected on July 5th. Everything that Prime Minster Alexis Tsipras and his Socialists campaigned against — and won the elections by opposing — they will now get, good and hard. And the Germans are still talking openly about a “temporary” Grexit.

The reluctance of Greek voters to contemplate abandoning the euro as their currency grounds their humiliation. In the end Greece clung to the advantages and prestige of the euro more tightly than Germany clung to the vision of a complete and intact currency union. Berlin called Athens’ bluff.

Next, the Greek parliament will be obliged to pass various labor market reforms that make Scott Walker’s throne of skulls in Wisconsin resemble a modest pile of chicken bones at a buffalo wings joint. Greek public assets, many billions of euros in value, will be held in some sort of EU/IMF trust as a means to finance the coming bailout. Decades of generous public-sector benefits will be pared back; long-overdue liberalization of protected markets will be imposed; parsimony will be inflicted by distant bureaucrats; and taxes will rise at every step of production.

A hard-left government, while still clutching at the benevolences of the euro, chose flattery and cheap nationalism over facing up to the difficult decisions occasioned by decades of Greeks living beyond their means; and ultimately induced in Brussels technocrats and German politicians a severity rarely seen in Europe.

Beware Eurozone bureaucrats, even those bearing gifts.

Comments (11)

Paul, I think you just coined an official motto for the nihilistic culture that has swallowed most of the West:

A welter of exotic methods devised to preserve profligacy from its natural consequences

Any buffs wanna take a crack at rendering it in Latin?

Pardon me if you catch me spamming it in conversation.

Greek public assets, many billions of euros in value, will be held in some sort of EU/IMF trust as a means to finance the coming bailout.

So, will we see the Parthenon, that icon of western civilization, being auctioned off to the Chinese in lieu of debt payments? Is it worth more than dollar? Will some Chinese commie-entrepreneur put a MacD into it? There's irony for you.

It's difficult to find much specificity on the nature of these "privatizations" of national or state assets, but since tourism is, after shipping and agriculture, a major source of Greek revenue and wealth, one supposes that some methods will be devised to get tourism assets in the hands of creditors. Those creditors, by the way, are to my understanding predominantly European. I doubt the Chinese have much exposure to Greek debt at all.

Here's some fascinating detail from a Financial Times article

Greece’s creditors say they will not consider debt relief – expected to take the form of extended maturities and easier repayment schedules, rather than outright write-offs of debt – until their experts have conducted a formal review of how successfully Athens is implementing its bailout programme. That review might well have to be delayed, if a Greek election were called for October.

A snap election might also deepen scepticism in other eurozone capitals about the ability or willingness of a Syriza-led government to stick to its newly embraced path of tax increases, pension and labour market reform, and privatisations. Mr Tsipras signed up to these policies with obvious reluctance only a week after the Greek people, following his advice, had rejected softer bailout terms in a July 5 referendum.

The latest Syriza defections, if they occur, are expected to come from legislators representing agricultural districts who are upset about proposals to bring farmers fully into a strengthened national taxation system, the party sources said.

There's another illustration of my point, made repeatedly over the years, that austerity invariably includes sharp tax increases of the kind so often pined for by the very sort of liberals and leftists who rage against austerity.

That wouldn't be because they always slip new liberal programs into those tax increases, would it? Naw, that's impossible. Nobody would do such a thing!

So, Paul, what would have happened if Greece had done the "right thing". Would they have dumped the Euro? Then what?

I'm not sure if abandoning the euro is the right thing to do, but it would at least be the most effective way to alleviate the debt problems.

An ideal Greece would have found the leadership, starting about at least a decade ago, to face facts and tell the hard truths, ultimately with an eye toward gradual reform of the country's bloated public sector, and a restoration of is tax revenue from a recalcitrant private sector. Far too many people have been bought off with luxurious and unaffordable pensions. Far too many businesses and individuals skirt tax laws. Seems like the problems are cultural and political more than purely economic.

So, due to decades of lying about economic reality, what we have here is a breakdown of an ability of the society to even try to be honest and forthright about both law (taxes, particularly) and economics, because there is no will to live the consequences of that truth.

Sounds like the precursor conditions for a revolt and repudiation of former claims of wealth. Could be limited to claims of debt instruments, but is more likely to extend to claims of other sorts (a "stock share" is, after all, just a piece of paper unless the state enforces more). Socialism or banana republic despotism often follow.

I do not understand who would lend any money to Greece at this time except at exorbitant rates. Can someone tell me who is doing the lending?

Dad --

Mostly it's Eurozone public institutions, the ECB and the various bailout funds that have been established. The ECB lends short-term euros directly to the Greek central bank, for instance, which in turn keeps Greek banks afloat.

As for what private actors are buying Greek debt, I'm guessing it's speculative hedge funds and the like: folks who are willing to take a chance on buying a really cheap security in the hope that Greece will turn it around and the bonds will soar in value. It's not altogether unlike the old junk bond traders of the 1980s.

I do not understand who would lend any money to Greece at this time except at exorbitant rates.

Mr. Paul, Sr.: I was thinking the same thing. Although private actors might be willing to buy a risky investment in the hopes Greece turns it around, surely they would only do so at exorbitant rates: 20% to 30% annual rates? Which means that Greece would have to hand off 1 billion "worth" of bonds for 700 million or so of hard cash, the 1 billion due in 2 years. Surely "turning it around" to that extent is hard to see happening, converting 700 million into 1 billion in liquid wealth in 2 years? Sure, a longer bond would give them more breathing room...but would demand even higher interest: 2.6 billion due in 5 years?

Doesn't all that money have to get invested in actual businesses to return a profit margin? Most businesses, when they have an infusion of cash, build new capital structures: new factory wings, new production line "tools", etc, which generally will be amortized (paid off with increased profits) over 10 to 20 years, not 2 or 5.

Tony, I believe Greek bonds spiked to close to 40% in 2012, but have stayed well below that ever since. The Financial Times reports an interest rate of 13% or so right now. The Greeks have also received numerous concessions on maturity dates and (less often) lower rates.

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