This Forum has long taken the position that the European economic policy towards
Greece and its
massive external debt has been what is termed the march towards non-lethal
is what was said in this space about one year ago.
FRIDAY, MAY 20, 2011
Non-Fatal Suicide (def): A set of actions, policy decisions, strategies and positions taken by a business, regulatory agency or government which are so self-destructive that they would cause the demise of a lesser organization, but only inflicts huge but non-fatal harm to an organization that is strong enough to withstand the self-destructive behavior.
The European Community seems determined to take a series of steps, which if fully implemented would lead to severe destruction of the value of that entity. If current policy is carried out it could well earn a chapter of its own if Barbara Tuchman ever updates her classic work on the self destructive actions of nations, The March of Folly.
And here is what is being said now after a Greek election that has paralyzed the country and raised the possibility, if not the outright certainty that Greece will renege on its bargain with Europe and not engage in further austerity.
“Germans are now predominantly of the opinion that they would be better off if
Greece left the euro zone,” said Carsten Hefeker,
a professor of economics and an expert on the euro at the .
“If the country really is continuing on the path they are taking now, it would
be hard to justify keeping them in. How do you deal with a country that says we
don’t want to keep any of the commitments we have made?” University of Siegen
The problem of course is that Greek sovereign debt and Greek private debt to creditors outside of
is denominated in Euro’s. Exactly how
this can be resolved with an exit of Greece
from the Euro is not clear, nor is it clear that Greece
can exit the Euro without devastating consequence to the rest of Europe.
With the so-called troika of lenders — the European Union, the European Central Bank and the International Monetary Fund — demanding budget savings of $15 billion by the end of June, the issue seems likely to come to a head soon. . . .One possibility, analysts said, would be for the troika to pay
enough to keep government services running, withholding the rest until the
political situation clears up. In what some consider the most likely
possibility, the creditors would agree to renegotiate the terms of the bailout
and the new Greek government would go along. Greece
But there is also the possibility that the troika will finally refuse to hand over any money whatsoever, something the I.M.F. did a decade ago in Argentina, when Buenos Aires failed to meet its bailout terms.
As for those double top secret talks, well actually they are not very secret.
“Preparations are quietly being made for the contingency if Greece decides that it’s better off with its own currency,” said Heribert Dieter, an expert on international financial markets at the German Institute for International and Security Affairs.
Most Greek debt is now held by the troika, easing the threat to the banks, and rescue mechanisms are in place to ease speculative pressure on other members of the euro zone. “Those measures could be used temporarily to take speculative pressure away from
Mr. Dieter said. “These are the two candidates that may need to be sheltered
for weeks, maybe months, but not years.” Spain
While leaders in
Berlin continued to support
publicly the official line that member states would be able to solve their own
problems, lower-level staff members increasingly discussed among themselves
what would happen if
and other countries had to leave the euro zone. Greece
“Nothing is in writing,” said Guntram B. Wolff, deputy director at Bruegel, a research group based in
“but people really are clearly and openly talking about this.” Brussels
The more publicity that is given to contingency plans for the partial breakup of the Euro, the more likely that will happen. If so it will be a fantastic complicated mess. And yes, had the leaders in
listening to people like Paul Krugman the crisis could have been
avoided. But then if they were smart
enough to have done that they would have been smart enough to avoid the crisis
in the first place.