Georgios Papandreou's
decision to go to the Greek people for a decision on how the country
will move forward marks the point in history around which global
affairs will be decided for the next several years. Assuming that he
is allowed to hold it of course.
The great consternation of
the Eurocrats and the Europhiles stems from the fact that the United
States of Europe was never intended to be a democracy. The
architects of the European Union intended the Eurozone to be the
first Noocracy, where the well educated, well trained, and well
connected Eurocrats would make the decisions for everyone. The
unwashed masses simply did not and do not know what is in their own
best interest.
Noocracy, like communism, is
a pipe dream doomed to fail because it fails to account for human
nature. Citizens will not be content to be told that they have
rights, they will actually expect to exercise those rights.
So the Greek decision to go
to the people is an appalling gamble to the Eurocrats. The truth is,
like I said months ago, it is a necessary step that must be taken
before a resolution to the problem can be reached.
Greece does not have a
budget problem. This is why the EU throwing money at the Greeks for
the past 2 years has not had any effect on the problem.
What Greece has is a social
problem, that creates a political problem, that manifests itself as a
fiscal problem. None of the bailouts offered to Greece have ever
addressed the issue of the social problem in Greece.
What is the social problem
in Greece? It is the sense of entitlement. It is the acceptance of
cheating on ones taxes. It is the belief that the state is a
bottomless fountain of economic well being. The social problem in
Greece is that the people of Greece have never really changed their
way of thinking when they transitioned from a military dictatorship
to a democracy. The Greek people still view their government as a
separate entity from themselves, not as a manifestation of their
collective will.
The social problem that must
be addressed is that the Greek people must accept that they, not
their government, not the other countries of the EU, but the Greek
people themselves are responsible for the situation they find
themselves in. The referendum, however it turn out, will force the
people of Greece to start accepting responsibility for their
situation.
The political problem that
the Greek social problem has created is a culture of corruption,
cronyism, and incompetence. The Greek government even prior to its'
subsumation to the European Commission was ineffective. The Greek
people didn't care because they didn't feel responsible for the
government, they were just hoping to get their cut of the pie.
Once the Greek people start
seeing the Greek government as belonging to them, then the foundation
can be laid to fix the political problems inside the government. The
Greek people will no longer look at their fellow countryman in envy
because he got a government job that does not require him, or her, to
do any work, or even show up for work. In the new Greece this will
become an insult to the people and they will demand accountability
from their law makers.
This will not happen
overnight. You do not change a cultural mentality on a dime. But
the referendum, whatever the results, will force the Greek people to
accept the consequences of their decision and that responsibility
will weigh heavily on their consciousness. The responsibility will
change who they are as a people. This is not a bad thing, it is a
necessary step to resolve the fiscal problem.
If through byzantine
political manipulation, from inside and/or outside Greece, the
referendum is derailed, then the current mess of never ending crises
will continue. The underlying cause for why the first 10 bailout
plans have failed is because they all anticipated an economic growth
rate for the Greek economy that could only be achieved with 'buy in'
from the Greek people. The Greek people have never bought in to the
crisis plans and consequently the Greek economy has continuously
shrunk. Without economic growth, there is no prospect for Greece
being able to meet its' obligations.
Last weeks rescue plan, with
'voluntary' 50% haircuts for bond holders, envisioned Greece having
modest economic growth for the rest of the decade and therefore being
able to stabilize its' debt at 120% of GDP. What part of debt at
120% of GDP is sustainable? How was Greece going to achieve modest
economic growth when the austerity already introduced was producing
negative 5% growth and the plan called for even greater austerity?
The numbers simply don't make sense for Greece. They do make sense
for Germany however.
What do I think the outcome
will be?
If the leaders of the EU are
respectful of the right of the Greeks to decide, I think the Greeks
will decisively choose to stay in the Euro. If the EU leaders
continue to act threatening and petulantly towards the Greeks, I
think all bets are off.
The best choice, or perhaps
more correctly the least bad choice, for the Greeks is to leave the
Euro and go through a hard default. This would be an extremely
painful adjustment for Greece and the Greek people. Most people
would lose their life savings in the transition, pensioners would
suffer the most perhaps because they have constrained ability to
continue working or to find work. Generally, the first year or
eighteen months after the default would be a gut wrenching
experience. Then it would be over, and if the Greek people take
responsibility for their government, things will get better quickly
from there.
Greece leaving the Euro is
the worst possible choice for the more prosperous countries of the
Eurozone. Hence the vitriolic response of EU leaders to the Greek
referendum. Germany, France, and the other EU countries want to
continue muddling through until they can fix their banking systems
(which they still haven't started doing, three years into the
financial crisis). The EU leaders hope that if they can just keep
kicking the can down the road long enough, then global economic
growth will solve their problems for them. Unfortunately, the
failure of the EU leaders to solve their own problems is threatening
to take the global economy down with them.
If the Greeks choose to stay
in the Euro, then you still have to deal with the problem of how the
Greek economy is going to manage modest economic growth. Although I
believe that the Greeks taking responsibility for their fate will
ultimately lead to better government and economic growth, it will not
happen within the time frame mandated by the European Commission.
Consequently, I see no prospect for the Greek economy to achieve
modest economic growth in order to stabilize its' debt within the
framework of the Euro.
Voting to stay in the Euro
would be the least bad choice for the Germans, but I do not see it
being very helpful for the Greeks. Ultimately, staying in the Euro
will require an endless stream of bailouts with no hope for the
economic growth that is actually needed to solve the problem.
Staying in the Euro is probably a vote for 10 years of economic hard
times and political humiliation, followed by a decision to leave the
Euro and default. I doubt that the Germans would take the 10 years
to fix their banking system, meaning the result will be the same,
we're really only talking about when.
The Greek referendum, if it
is held, will mark the point at which the Euro changes forever.
Whether it is for the better or for the worse will depend upon your
point of view. The good news is that it will be decisive. It will
provide clarity for everyone. The bad news is that those governments
who have been whistling past the graveyard won't be able to stay in
the shadows anymore. The search lights of the capital markets will
be seeking them out and we will find out which of them are actually
naked and unarmed.
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