by Dmitry Orlov
Club Orlov (July 07 2015)
“Those whom the gods wish to destroy they first make mad” goes a quote wrongly attributed to Euripides. It seems to describe the current state of affairs with regard to the unfolding Greek imbroglio. It is a Greek tragedy all right: we have the various Eurocrats—elected, unelected, and soon-to-be-unelected—stumbling about the stage spewing forth fanciful nonsense, and we have the choir of the Greek electorate loudly announcing to the world what fanciful nonsense this is by means of a referendum.
As most of you probably know, Greece is saddled with more debt than it can possibly hope to ever repay. Documents recently released by the International Monetary Fund conceded this point. A lot of this bad debt was incurred in order to pay back German and French banks for previous bad debt. The debt was bad to begin with, because it was made based on very faulty projections of Greece’s potential for economic growth. The lenders behaved irresponsibly in offering the loans in the first place, and they deserve to lose their money.
However, Greece’s creditors refuse to consider declaring all of this bad debt null and void—not because of anything having to do with Greece, which is small enough to be forgiven much of its bad debt without causing major damage, but because of Spain, Italy and others, which, if similarly forgiven, would blow up the finances of the entire European Union. Thus, it is rather obvious that Greece is being punished to keep other countries in line. Collective punishment of a country—in the form of extracting payments for onerous debt incurred under false pretences—is bad enough; but collective punishment of one country to have it serve as a warning to others is beyond the pale.
Add to this a double-helping of double standards. The IMF won’t lend to Greece because it requires some assurance of repayment; but it will continue to lend to the Ukraine, which is in default and collapsing rapidly, without any such assurances because, you see, the decision is a political one. The European Central Bank no longer accepts Greek bonds as collateral because, you see, it considers them to be junk; but it will continue to suck in all sorts of other financial garbage and use it to spew forth Euros without comment, keeping other European countries on financial life support simply because they aren’t Greece. The German government insists on Greek repayment, considering this stance to be highly moral, ignoring the fact that Germany is the defaultiest country in all of Europe. If Germany were not repeatedly forgiven its debt it would be much poorer, and in much worse shape, than Greece.
The brazen hypocrisy of all this cannot but have a destabilizing effect on Europe’s politics, with the political centre cratering and being replaced with radical left-right coalitions. Note how quickly France’s right-wing presidential front-runner Marine Le Pen applauded the result of the Greek referendum organized by Greece’s left-wing government. The disgust with officialdom that pervades the European Union is beginning to transcend political boundaries, making for strange bedfellows.
In the end, finance—at any level—has to be about rules and numbers, or it becomes about nonsense. Break enough of your own rules, and your money turns to garbage, because in a world where money is debt and debt is garbage, money is garbage. But there is a proven method for solving this problem and moving on: it’s called national bankruptcy. Greece is bankrupt; if its resolution brings on the bankruptcy of Spain, Italy and others, and if that in turn bankrupts the entire Eurozone, then that’s exactly what must happen.
But something else might happen instead. The Eurocrats are already appalled by the Greek show of democracy, and will work hard to derail any such democratic effort in the future using all of the means of political and economic manipulation at their disposal—all simply to muddle along for a bit longer, making the end-game, when it finally comes, all the more painful. I am sure that the Eurocrats plan to follow model of the British Civil Service, which reached its maximum staffing level right when the British Empire ceased to exist. Let’s look for ways to not help them do this.