A highly amusing article from Business Insider UK about the Greek Debt Crisis and how the EU deliberately engineered the crisis by taking over the debt owed to private banks onto the shoulders of European tax payers.
It is an even greater reason why the Greeks should junk the debt and leave the Euro.
Below is also my Comment article that The Argus, a local Brighton/Sussex paper prints each week.
REUTERS/Stefanos Rapines A man casting his ballot at a polling station at the village of Anogeia in the island of Crete, Greece, on Sunday. Greeks voted overwhelmingly against accepting a bailout proposal from Greece’s creditors.
The vote is huge lesson for conservatives and anyone else who thinks this is about a dilettante government of left-wing idealists who think they can flout the law while staging some kind of Che Guevara-esque dream:
This is what capitalism is really about.
From the beginning, Merkel and the EU have operated from the position that because Greece took on debt, Greece now needs to pay it back. That position assumed — bizarrely, in hindsight — that debt works only one way: If you lend someone money, that money is repaid.
But that is NOT how free markets work.
Debt is not a guarantee of future payments in full. Rather, it is a risk that creditors take, in hopes of maybe being paid tomorrow.
The key word there is “risk.”
If you’re willing to take the risk, you’ll get a premium — in the form of interest.
But the downside of that risk is that you lose your money. And Greece just called Germany’s bluff.
The IMF loaned Greece 1.5 billion euros, due back in June, and Greece isn’t paying it back. Greece has another 3.5 billion due to the ECB in July
, and that looks really doubtful right now.
More astonishing still is that Merkel et al knew
Greece could not pay back this debt before these negotiations started. The IMF’s own assessment of Greek debt
, published just a few days ago, states: “Coming on top of the very high existing debt, these new financing needs render the debt dynamics unsustainable …”
“Unsustainable”! Germany’s own bankers knew Greece couldn’t pay this back. And yet Merkel persisted.
Take a look at Greek gross domestic product. To pay back debt, you have to have a growing economy. That’s a basic law of economics. It’s how credit cards work. It’s how mortgages work. And it is how sovereign/central-bank debt works. But Greece’s economy was never in a position to benefit from debt, because it has been shrinking for years:
The ECB president “blew up,” according to one attendee. “Trichet said, ‘We are an economic and monetary union, and there must be no debt restructuring!'” this person recalled. “He was shouting.”
And so there was no restructuring agreed for Greece. The country paid off its immediate debts to the private financial sector — investment banks, basically — and replacement debt was laid onto European taxpayers. The government agreed to a package of harsh government spending cuts and structural reforms in exchange for loans totalling €110 billion over three years.
Trichet made a colossal, elementary mistake. The right place for risky debt by definition is in the private markets, such as Goldman. The entire point of private debt investment is that those creditors are prepared for a haircut. The risk absolutely should not be borne by central banks that rely on taxpayer money for bailouts.
Had Trichet made the opposite decision — and left the Greek debt with Goldman et al — then Sunday’s vote would be a footnote rather than a headline in history. “Goldman Sachs takes a bath on Greek debt.” Who cares? Goldman shareholders and clients, surely. But it would not have triggered a crisis at the heart of the EU.
Italy, Spain, and Portugal are now watching Greece closely and thinking, hey, maybe we can get out of this mess, too.
Conservatives who hate paying taxes and urge small businesses to pursue tax-avoidance strategies take note: Your dream just came true in Greece.
If Greece were more socialist — more like Germany, with its giant corporations that have massive unionised workforces paying taxes off their payrolls — then tax collection would be a lot higher in Greece.
Greece is now most likely an international pariah on the debt markets. It may have to start printing its own devalued drachma currency. It will have no access to credit. Sure, olive oil, feta, and raki will suddenly become incredibly cheap commodities on the export markets. Tourism in Greece is about to become awesome. But mostly it will be awful. Unemployment will increase as Greece’s economy implodes.
But the awfulness will be Greece’s alone. Greece is now on its own path. It is deciding its own fate.
There is something admirable about that.