Give Greece a Going Away Present, But Go It Must
The rate at which things are deteriorating in Greece now officially exceeds the rate at which desperate Eurocrats weave new fantasies as they try to keep Greece on the euro. The just-announced bailout will be no different.
As other European governments advance their latest scheme to soak their own taxpayers and fleece holders of Greek debt—while they fail to stop crazed Greek anarchists, communists, and unionists from burning down their own cities—a voice of reason pierces the fog offering the only way forward.
Too bad no one will listen.
Hans-Werner Sinn, German supply-side economist and President of the Ifo Institute for Economic Research, lays it out in a crisp 800-word interview inSpiegel Online. I’ve read a lot of nonsense about how fantastical Rube Goldberg mechanisms can help save the euro, save the bondholders, save the bankers, save the politicians, and save the people of Greece. But it cannot be done. Here is why.
Greeks consume more than they produce. This has been going on since Germany put the whole country on the dole after the euro was created, and there is nothing Greeks have enjoyed more than living it up on the dole. They are a very proud people, though, so they don’t call it the dole. They call it government employment—and woe to any politician that takes away their “right” to a no-show job!
The Greek government, which created this free flow of money by selling idiotic bankers sovereign bonds that are never going to be repaid, continues to slide deeper into debt faster than the rate at which those debts can be serviced. The so-called “austerity” programs the Greek Parliament keeps passing at the behest of its German paymasters are only making things worse, as the already sclerotic economy implodes, along with tax collections that never amounted to much anyway, given the Greek penchant for tax evasion.
Now those same idiotic bankers, along with the French and German politicians they control, are conspiring with the Greek government to pretend they can fix the problem by forcing private bondholders to “voluntarily” swap one set of worthless bonds for another set of worthless bonds, without acknowledging a default that in a sane world would be all but inevitable.
The reason for this urgency? Private holders of these worthless bonds also hold hundreds of billions in insurance that would have to be paid to them should those bonds fail. And who are the sellers of these insurance policies? Why, the same idiotic bankers who control the French and German politicians!
The circus is now in its final act, complete with breathless announcements of eleventh-hour deals that will stave off disaster until the next eleventh-hour deal. Meanwhile, our own Timothy Geithner, Secretary of the Treasury, is doing everything in his power to keep the whole mess from blowing up before his boss stands for reelection. Après moi le deluge.
It won’t work. There is no way to keep the wheels from falling off before November. The next shoe to drop will be the refusal by some private bondholders to go along with the latest deal, followed by the Greek government passing a retroactive law trying to force them, followed by chaos on the streets and in the world markets.
It’s time for Greek leaders to end the pain and honestly face reality like the men they claim to be. Stand before the world, stand before your people, stand before the bankers, and repeat the immortal words that Otter spoke to Flounder: “You f**ked up… you trusted us! Tear up those bonds we sold you, they are worthless. Kick us out of the euro, we deserve it.” Then they need to find those old drachma plates and start over.
Once that is settled, the Greek people have to take their medicine. As Hans-Werner Sinn points out, in order to be competitive in global markets and start producing more than they consume, every Greek needs to take a 30% pay cut.
This cannot happen if pay is measured in euros. Greek labor unions will commit national suicide before they accept a pay cut. So they have to be paid in drachmas—wheelbarrows full of them, so many drachmas that union leaders can boast to their members that they are getting pay raises!
Only until the value of the drachma drops low enough for everyone in the country to actually get paid a wage commensurate with the amount of value they are producing will the situation start to stabilize.
If France, Germany, the International Monetary Fund, and the European Central Bank really want to help, they can give the Greek government one last going away present: a €100 billion gift to allow the Greek government to capitalize Greek banks long enough to bridge through the transition. In return, the EU can avert a civil war on its front steps.
There is no other way out. It will have to happen sooner or later. Prolonging the agony benefits no one—not even the politicians hoping to fake it long enough to get reelected.
Greece is dead. Long live Greece.