Duly Noted – Financing Failure

Duly Noted

Your teachers have bored you with ancient Greece through the rehash of her history. After a long time-gap, Greece is re-emerging as a topic. Those that follow global news know, modern Greece (little connects it to ancient times) is in trouble. Responsible are the political class and the blokes that voted to empower gorillas. Sounds harsh? It is only realistic although some tell us that reality can be banished by throwing money after consensual lies. The upshot is a story with a message that goes beyond the moment and the country.

Regardless of incantations that excuse the unforgivable, people are responsible for those they choose to elect. This holds true regardless of whether they “knew it”, could have known it, or whether they were “duped”. Had they wanted, the Greeks could have been informed about their choices made on the way to bankruptcy. Once ruin was achieved, they chose a nationalist-socialist conglomerate to represent them. Doing that was their right. It is also the right of those that gave Athens blood transfusions, to draw conclusions. This means that the Greeks are responsible for what had been done in their name. The same applies to the bill for the refuge from reality their new governors promise.

Here a mitigating – but not excusing – detail must be brought up. The European Union (EU) has greased the slide upon which the Greeks rode to disaster while skeptics warned of funding Socialist entities. These are predestined to fail even if they pretend to defy the laws of economics while producing little and spending much.

If you decide that, being unaffected, you must be warned of a skeleton that is about, knock on your door. The EU-zone’s affairs, the methods by which it commits suicide, are linked to the global economy. Europe’s crash will know no unaffected bystanders.

Now to the basic facts of the ignored case: By joining the Euro-zone by falsifying its data, Greece acquired a currency whose value was determined by high performing economies. Expensive imported goods and the credit to acquire them became bargains. Credit, under terms determined by trustworthy EU members, was cheap and encouraged deficits. The reckoning came once accelerating expenditures – fueled by governments that used foreign funds to buy local votes – netted insolvency. The EU was dedicated to solve problems by ignoring them to protect its reputation. For a while, it fed Greece by circumventing its own rules and accepted Greek government bonds as collateral. Finally, however, Europe was forced to act.

More credits were extended; the debt of a country of eleven million is now about 350 billion US Dollars. An earlier “haircut” cancelled much of the debt in exchange for austerity measures; Greece was to collect taxes, cut government, and live within her means. The deal, “you reform for which we give you money” was to be supervised by the donors. Discreet silence hid the fact that the low output country had no chance to repay a growing debt that, even officially, continued to grow, eventually reaching 270% of GDP.

As this happened, people began to resent that the good life, to which they had become accustomed, was gone. Prospects dimmed as, being unable to compete by devaluing her currency, Greece competed against more productive nations to which a dear Euro had tied it. Purchasing power declined, local goods became expensive, salaries and jobs were cut, and credit suddenly became expensive.

The Greeks reacted to their misery by toppling the old, alternating, left-right parties they once gratefully supported in exchange for benefits. Unable to understand the source of the crisis, the new mandate went to a leftists-rightist conglomerate.

The result, a socialist-nationalist victory, is a situation that is sufficiently tragic to become comical.

In exchange for 170 billion and a halving of the debt to foreign creditors, Greece promised “discipline”. An organ called the “troika” was to vouch for compliance. Admittedly, compensating for the unearned good life’s costs, incurred earlier, was harsh. Even so, there were positive results expressed by some growth and a more or less balanced budget – ignoring artificially lowered interest rates.

Obviously, those that led the effort to rectify past sins became unpopular. Recent elections brought the victory of the left-right nationalists. A Marxist Promissor-in-Chief, won with a pleasing sounding program. Its gist: (a) we do not pay, (b) we rehire all public servants, (c) we end austerity and (d) we will not submit to “slavery” by “international capital” and the EU.

This financial temper tantrum comes at a moment when, as usual, the coffers are empty. A hasty trip to Europe by the new Premier, the Minister of Finance and the Minister of Defense resulted. And while Russia’s military began to show interest in the Hellenes, mainly, “Europe” had been accessed as it has money.

Athens has learned from Moscow’s Public Relations regarding its war in the Ukraine that few dare to call what it is. The lesson becomes a “how to” on handling Europe’s sheep in ill-fitting predator camouflage. Already in their attire, designed to provoke, the Greeks indicated that even if broke, they are proudly so. Right, they had spent the funds of others. It is part of an offensive defense that the aggressive approach puts the burden of an impending economic collapse upon the EU.

What is the bumbling EU to do to rein in the Greeks? So far, beyond whispers that obligations must be met before more gifts are given, there has been only one act of courage. The defiance; a necktie for the demonstratively underdressed minister of finance who likes to appear as a hairless mutant of Che Guevara.

Essentially, Greece refuses supervision as she claims that any financial oversight is “colonialism”. Unilaterally, the Troika has been dismissed by the new crew. This seems impertinent but it is inconsequential, as the terms of the 2012 bailout were not kept. Now the new governors proclaimed, “how much of the bail-out (deal) do we accept? Zero percent”. Add here; further borrowing is necessary to pay the interest on the debt.

Instead of reforms, Greece has ruled out “compromises” and courted confrontation with its paymaster, Germany, by re-raising the reparations issue settled decades ago. Furthermore, red lines against reforms to restore financial sanity were drawn and new credits were demanded. Is it a surprise that Finance Minister Varoufakis found no support in Europe for his plans? However, he angered some Euro-zone partners by threatening that the currency would collapse if Greece were evicted.

On another front, Premier Tsipras, told how to abandon the agreed upon reforms with the EU and the IMF. He will reinstate bonuses, cancel a property tax, rehire redundant bureaucrats and raise wages to pre-crisis levels. “Translated” this means: “I take your money if you give me something for the favor”.

Athens threatens that the EU and the € will collapse if “Grexit” materializes. Added is a threat of funding from Russia already fighting a war with the West. Will resistance to extortion by the Greeks be more determined than opposition to treaty violations in Europe’s east? A further open question is how other wobbly economies will react to donations that reward Greece for her bankruptcy. Italy, Spain, Portugal and France are in disarray; parties that are copying Syriza’s rise. These entities need gifts to continue on the same path that got them into trouble. While there is no lack of applicants needing support, the supply of aspirants that are willing to burn money is somewhat limited.

Both the global economy and the order of Europe will become unhinged once the limited supply of aid and the unlimited demand for handouts, give birth to a radical idea. It is that, pray tell, why should the successful be punished for their achievement by having to reward under-performance?

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