In a recent debate about the Greek debt and the Greek government's Don Quixotic efforts to reduce it, a very rare consensus was achieved. Both the government who implements the directives of the triumvirate (ECB, IMF, EU) and the opposition who vehemently opposes the austerity measures, agreed in anathematising the event of restructuring or default of the Greek debt. Despite the fact of the mathematical inevitability of restructuring and default both agreed that the debt can be sustained and/or repaid in full. They argue that it could be done if Greece had a 6% primary surplus, or growth of more than 4% for the rest of eternity. Armchair generals could not come up with a better scenario. But maybe they are right! Maybe Greece can pull 350bln rabbits out of the conjurers hat and repay the debt. Any real Greek tragedy must have a Deus ex Machina to finish the plot. Or maybe, the Germans or other good willing Europeans can forgive the Greek debt binge.
The Greeks may not be wrong in this one. The word "fail" is not something that Europeans like. Failure is not part of the European way of doing business or part of Europe's cultural heritage. While in the United States of America failure is seen as a necessary trial and the only way to gain experience and wisdom, in Europe, failure is a miasma, a taboo a total no-no. Failure is not an option in a similar way "Resistance to EU policies is futile". When failure comes, it is either swept under the carpet or is dressed as a "moral success" and achievement of some higher yet unforeseen good.
The arguments they employ against default are typical of a drama queen. First, they argue that default of a country would lead the country out of the EU, next, that the Euro would collapse as more peripheral countries (another derogatory name for PIGS) would follow. It naturally follows that the EU would disintegrate, the German dream of European conquest would be achieved and/or the Americans would see their influenced in Europe reestablished. The gloom and terror that follows easily competes with the best traditions of the Christian Hell and countries that leave the EU would be placed in a sort of European limbo. And all because a small and, lets admit it, an insignificant country like Greece or Ireland cannot meet their debt obligations. Why European politicians are so afraid to face real life? Would a 350bln default trigger the collapse of our societies as we know them? When Lehman collapsed more than 650bln were wiped clean and despite the pain and suffering of the bond holders most of them seem to be doing ok 2 years later. What is missing from Europe is more defaults that would put an end to the accelerating moral hazard and less socialisation of losses.
The attention span of most politicians is very short, until the next election. Naturally they don't want to be known in history as the bankruptcy leaders but as the saviors. The Greek prime minister Mr G. Papandreou got one better, in a televised interview he proclaimed that he will "save Greece" and he does not care about "not being re-elected ever again". Quite obviously, one is obliged to ask the negation of his statement; was he striving to bankrupt Greece in the process of being re-elected all these years? Many would agree with the later statement even if they have faith in the current intentions of the Greek PM.
Lets get one line of reasoning out of the way. Countries do not liquidate on bankruptcy, like corporates do, they Restructure their debt and continue to exist (happily or not) thereafter. Thus the real question is not whether Greece or Ireland can repay their debt obligations but what is the price for doing so. If these countries embark on an all out strategy to repay their debt in full they may find their societies in a far worse predicament 20 or 30 years from now.
No comments:
Post a Comment