November 6th, 2011
The Eurozone is a mess. Mathematics, common sense, recognition of a changed reality, and, yes, democracy have all taken a back seat to a deep-seated, ego-related loyalty to a broken idea from the 20th century. This is one of a number of situations today where legacy thinking from the last century is propping up institutions and ways of looking at the world that will soon dissolve in the face of new forces and ways of thought of the 21st century.
In January, I started to say that we should stop calling it the “Greek Debt Crisis” and start talking about it being the potential death rattle of the Euro. In August, I suggested a 30%-60% chance the Euro would collapse. A couple of weeks ago, when the “Euro solution” was widely trumpeted in the media, people who knew of my view of the situation sent me links about it. Not so fast, I said. This is not the final answer; it is a temporary delay of inevitable further mass meetings of politicians to try to save face. There was no solution there, just an agreement to move forward and hope to arrive at one.
I have long suggested that the Eurozone should allow Greece to become the third-world country it seems to want to become. When was the last time the terms “innovation,” “strong work ethic,” or “growth economy” were accurately used in the same sentence as “Greece”? In a country where 10% of the work force is employed by the government, where tax avoidance is an embedded cultural practice, where the 3-hour lunch is common in spite of a 24/7 global economy, what were the Europeans thinking? They weren’t.
Each time Greek debt repayment guidelines and economic metrics have been set forth, they have always turned out to be no longer valid. Greece is in a downward economic spiral, and there is clearly no way the massive amount of accumulated debt can be repaid in the foreseeable future. The Greek people know this. There is no question the Greeks lied to get into the Eurozone, lied about their government budgets, and then lied about their ability to make rapid changes to their economy to repay the debt they received through their deception and the greed of the European banks.
The answer has been clear for months. To avoid the real threat of a financial contagion that spreads to Italy and Spain, the plutocrats spending hours negotiating should have done the obvious: They should have stated that since Greece was clearly in violation of all terms so far negotiated, they were being jettisoned from the Eurozone; AND, they should have indicated that the dramatic increase in funds to prop up the region was being redeployed to erect a firewall around Italy and Spain. Cut the losses, stop contagion in its tracks, and get on with fortifying the banking system.
The Greek government, with loud demonstrations and strikes a weekly occurrence, briefly floated the idea that the Greeks should vote on whether to accept the onerous terms of debt repayment – which will ultimately destroy their economy in the name of protecting the banks – or returning to the drachma and suffering some short-term severe pain for long-term growth and independence, what do you think they would have done? Why shouldn’t the Greeks vote for self-rule, rather than imposed rule of other countries primarily interested in preserving their banks? So once again, the can has been kicked down the road, the markets swoon in reaction, and we are left with a situation that will only worsen and drag out the misery.
The old guard – in age and thinking – that architected the Eurozone would not accept reality. More than two years ago internal IMF reports said that Greece was effectively bankrupt. Instead of dealing with that reality then and there, they made all worship at the altar of devotion to the Euro above all else. Now two years later there is more indebtedness that has had the effect of both spiraling the Greek economy into severe recession and also putting the banks of Europe – and therefore the global economy- at great risk.
What we are seeing here is the legacy thinking of the 20th century keeping European leaders from facing the financial realities of the 21st century. What sounded like a noble idea – unifying a continent to better compete with the United States and the emerging China – was born from a late-20th century world view. That is still valid. The problem was thinking the next step – a single currency – would be manageable. Rules for membership and debt levels were legislated and then universally ignored for the sake of the vision of an ever-growing Eurozone. By not seeing clearly, by not enforcing the rules set forth, the leaders of the Eurozone find themselves in an untenable situation. They can hold on to a vision that no longer works and force the entire Eurozone into a half-decade of no-growth due to massive deleveraging, or they can move swiftly to jettison Greece, shore up Italy and Spain, accept downgraded credit ratings for a couple of years, and emerge in 2013 with something that could in fact be a powerful economic and financial force.
Sometimes dire situations necessitate humor. While this clip is humorous, the numbers are basically accurate. Truth in humor.