Greece: No Hope at All

Brussels is rejoicing with unseemly relish at yesterday’s vote in the Greek parliament, approving the austerity plan.  But they rejoice too soon.

Today the parliament will vote on implementation measures.  This too may go through.  But the big questions are: (1) Can Greece deliver on the measures? and (2) Even if it does, will they do any good?  The answers, I believe, are No and No.

We have already seen the depth of feeling in Greece, and it’s understandable given the huge sacrifices which the Greek people are called upon to make, and the grinding internal deflation they would face.  As the awful reality starts to bite, Greece will simply become ungovernable.  The extraordinary measures are simply undeliverable in a free society.  Some Greeks are already saying that default could be no worse than the austerity on offer, so they may as well get on with it, and provoke a crisis.

Part of the (proposed) solution involves selling Greek assets.  Yet yesterday a Greek emissary in London was told in no uncertain terms by leading figures in the City that Greece today is looking like a deeply unattractive place to invest.  The best they can hope for is fire-sale prices.  Perhaps they expect Britain to return the Elgin Marbles to Athens so that Greece can sell them to the Chinese, or to the Gulbenkian.

But even if they were to succeed in delivering the austerity package, they cannot deliver a rescue.  Greece is so deep into the debt trap, the austerity package so vertiginous, that even with austerity, GDP and tax revenues will go down.  The debt will never be repaid.  There is no way out.  They are (in William Hague’s phrase) in a burning building with the doors locked.

As many commentators have noted, we must not confuse a liquidity crisis with a solvency crisis.  Temporary emergency loans can tide over a country or company facing a liquidity crisis.  But extra debt can do nothing in a solvency crisis but delay the inevitable, while making matters worse.  Greece is insolvent.  Busted.  Bankrupt.  But until European leaders recognise that, and respond to it, we shall not see any resolution of the trauma.  And China should take note of this before it does any more grandstanding about “standing by the eurozone”.

Surely European leaders know this?  I believe that they do, but dare not say so.  All they are doing is kicking the can down the road.  They’re buying time.  Buying time for what?  Perhaps to allow European banks more time to consolidate and strengthen their balance sheets, so as better to survive the inevitable Greek default.  Perhaps also to transfer more of the risk from the banks to the tax-payer.

Either way, it will get worse before it gets better.

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7 Responses to Greece: No Hope at All

  1. matthu says:

    Just wondering how exactly the banks go about transferring the risk from themselves to the taxpayer – and what the individual taxpayer can do to shield themselves from taking on this additional risk?

    • matthu says:

      Okay – having just listened to Daniel Hannan I can answer my own question. The more we delay, the more we prop up the Greek debt with public money, the more we transfer the risk from banks onto ourselves. We can’t avoid this – but we can presumably avoid it happening again by getting out of Europe. Wake up!

  2. matthu says:

    Okay – so if it was an illegal act for the EU to bail the Greeks out – why can’t anybody be taken to court for this? We have a massive, illegal transfer of wealth from the taxpayer to the banks, from the poor to the rich – and nobody goes to jail? What does it take?

    • Sad but true: the only Court competent to adjudicate on the Treaties (and breaches of them) is the ECJ. And it is more concerned with EU integration than with justice. The judges would find some way to justify the unjustifiable.

  3. James A. Hutchinson says:

    Get out of the restrictive , corrupt EU . Let the basketcase that is Greece default and return to basics and the Drachma . Putting money into a bottomless pit , the EU , will be the death of this country in the long run . Get out of Europe whilst we still can .
    As for the comment by matthu ” why can’t anyone be taken to court over this illegal act of bailing out Grecce .” We are talking about the EU here . They make the rules up as they go along and break them with impunity ! Only Britain , it would seem , are fools enough to play by the EU rules .

  4. FaustiesBlog says:

    The Greeks are right. The ‘ordinary’ Greek will suffer whether or not Greece (or more correctly, German and French banks) is bailed out.

    The only real losers, should Greece default, will be the bankers. That’s why they’ve had to accept a haircut – they recognise that at least they’ll get something out of it, rather than nothing at all.

    Better that they get nothing at all. End the farce which transfers what little wealth the Greek people have to the outrageously rich bankers.

  5. Sadly, Roger has portrayed a sad scenario – which is the current state of Greek society. Could it get worse? Yes, and quite blatantly, the politicians are to blame. As so often, they are more interested in party politics and short-term benefits, than actually taking the decisive action – which is required, in order to improve society in the long-term. To a greater or lesser extent, this problem is common to all EU member countries.

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