Greek Tragedy: How Far They Have Fallen
A LITTLE HISTORY
The Greeks have bequeathed the world so many treasures; Plato, Aristotle, fledgling democracy. There are great orator Pericles, philosopher-historian Herodotus, Peloponnesian chronicler and General Thucydides. Aeschylus, Sophocles Euripides plays are timeless. And my favorite is the incomparable Greek mythology. After all, didn’t Freud choose Oedipus over Hamlet.
McClendon Must Be Stopped Christopher HelmanForbes Staff
SITUATION TODAY
Now fast forward a couple of millennia and some centuries. What an indignity for Greece to be reduced to practically beggar status with such a rich and textured history. After inconclusive elections earlier this month June 17 sets the stage for a momentous decision. To leave or to stay, that is the question. In the (far) “left” corner stands SYRIZA party, the anti-austerity, anti-bailout, anti-Euro party. The (little bit) “right” corner holds the pro-bailout New Democracy party along with their towel men pro-bailout socialists PASOK. Not surprisingly, as the election approaches both parties have ameliorated some positions thus converging on certain issues. SYRIZA, now wants to stay in the Euro without attendant austerity. Let’s call this the “free lunch” irresponsible whiny child position. A May 26 poll indeed shows 82% of Greeks want to keep the single currency while concurrently a majority either wants to ditch austerity completely or renegotiate its terms.
New Democracy leader Antonis Samaras warned that “if Greece unilaterally rejects the bailout deal it will be isolated for years …. It will have no food, no drugs, no fuel. It will have to live with permanent power cuts.” SYRIZA responded that ”(the bailout) would mean new wage and pension cuts, new public sector firings, soaring unemployment and shuttered shops.” There is a lot of truth in both of these diametric positions.
As a sideshow, peripheral communists and anarchists argue over not whether to but when to have a revolution. What’s there to revolt over……The shards of a failed society…..As if some armed uprising could instill the heroic atavistic traits of a bygone era?
There are two questions. What happens to Greece and the Greek people if it leaves the Euro and what happens to the Rest of the World if there is an exit? Will there be the much talked about contagion. More particularly, will there be a run on Spanish banks, and Italian banks and Portuguese banks. I vote unambiguously no. If there is even a tiny whiff of Greece abrogating austerity my prognostication is that ECB president Mario Dragi will issue a “keep calm” resolution guaranteeing all bank deposits with microphone pointed directly toward Spain, Italy, and Portugal. The benefits are too great for these countries not to stay in Euro. Primarily much lower borrowing costs as well as cross border free trade. Currently Spain and Italy have a ten year borrow rate of around 6%. Remove the Eurozone blanket and those rates would probably increase to double digits overnight; placing an insurmountable debt service burden for both countries.
SOME STATISTICS
So should Greece leave the Euro? Let’s look at some statistics. In 2008 Greek GDP peaked at $348.7 billion while 2012 GDP is projected at $271 billion. That would be over a 22% contraction in four years with almost 9% of that in 2012 alone. No wonder Greeks are austerity weary. Greece got their first bailout of $147 billion in May of 2010 and the ink is barely dry on a $170 billion package granted in late February of this year. Debt to GDP is a staggering 178% translating to an external debt of $547 billion. Looked at another way it is a little under $51,000 per capita. And this is after debt forgiveness and lowering of many bond coupon rates. And if the 2012 GDP projection pans out then Debt to GDP will approach 200%. Net, Net, Net, Greece is insolvent or just dead broke. Over the medium term of three to five years I don’t think Greece can live up to the austerity plan even if they wanted to.
If Greece voluntarily exits the Euro the iterations are too numerous to detail but here is a simple scenario. There will be some world stock market volatility as well as flight to the dollar so treasuries will probably rally yet further as the dollar strengthens against the Euro. The single most important issue (mentioned earlier) is for the ECB to calm the banking system by guaranteeing deposits in Euro denominated currency. Greece will be shunned to large extent by the credit markets. Would you lend money to them? Initially it will be hard for Greece to trade as the new Drachma will have little credibility. Slowly and surely with a depreciated currency Greece exports should be in great demand and tourism should skyrocket. It will be very painful for Greek people in or out of the Euro. Assuming a tranquil banking system, which is a big if, the effect on the rest of the world will be minimal. Greece is an economy less than 2% the size of both the US and Europe. Greece imports are only around $60 billion and the US is not among their top eight trading partners. There may be some parallels to Greece and the Argentine default/devaluation of 2001. Most economic metrics, after the initial shock and pain, were higher three or four years after that crisis than before. It all adds up that devaluation and exit are the only option. Staying in the Euro is analogous to Chinese water torture, only delaying the inevitable. Better to devalue now and grow through exports and tourism than hope for more laons from euro-core.
ABOUT THE CULTURE
How did it get to this? It is ethos gone bad. What does it say about a culture when a majority of the population approves of negating a bailout contract inked barely three months ago….A culture that wants to continually nurse off the European breast but refuses to amend profligate habits….A gimmee something for nothing culture….A culture where tax avoidance is the national pastime…..A culture that won’t reform work laws to allow mobility of labor. The oxymoron here is that if workers could be fired then the fear is unemployment would go up. Well, guess what, if a business can’t fire then it won’t hire because hiring becomes akin to having a dependent child for life that never leaves his bedroom. Greece is a country with a bloated public sector, an inefficient labor force, a people stilted by a bureaucratic system that over generations has snuffed out creativity and entrepreneurial spirit. So to my way of thinking, for the Greek people, it is irrelevant whether they leave or stay or come or go. Greece has degenerated into a rotted, decayed, and sclerotic wasteland. True redesign of attitude, value systems and hence society is their only hope…a new ethos. Can it happen……Maybe but statistically unlikely.
323 B.C. was the apogee as Alexander the Great’s conquests had created a Greek empire that stretched east from the Ionian Sea to the Himalayas. His untimely death at a mere 32 years of age marked the end of the “Classical” period and beginning of the long steep precipitous decline for Greece….a country now 2,300 years past its prime. So maybe this isn’t the same people who gave us Zeus, Hera, the Trojan War and the Iliad and the Odyssey, credited as the world’s first novels. We’re in Act III now. That’s the “Tragedy” part. That’s when Sophocles has Oedipus gouge his eyes out or we learn of the gruesome double suicides in “Antigone”. The May 26 poll now gives the New Democracy, pro-bailout party a slight edge. Stay tuned.
http://www.forbes.com/sites/richardfinger/2012/05/29/greek-tragedy-how-far-they-have-fallen/
apologies for exploding head gaskets...
