Budgetary Buggery
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The Greek economy is bofo’ed (sorry, couldn’t resist).
Predicting economic doom is best done by Malthusians and other enfeebled individuals, so I hesitate to step in their pile of intellectual effluvium. Yet it is difficult to look at Greek government excess and Grecian socialist selfishness and not predict that the land that whelped Plato and his Republic is about to go bust. As always a little perspective is painful and necessary.
Anyone who dislikes math, economics or politics can instead tune into E! … or MSNBC. Their depth is the same.
Greece cranks about 2% of the European Union’s GDP, which for an island nation is an unexpected feat. However, they are well up the list of countries in the world in terms of debt as a percent of their GDP, owing 108% of what they produce in a year. The only nations more insolvent than the Greeks are places like Jamaica, Lebanon and Zimbabwe (actually, you have to add Japan, Singapore and Italy, but those countries crank out more wealth per head). The wastrel United States is about half as indebted as Greece (though that is 2009 data and does not include Obama’s spending spree, which the IMF estimates pushes the US up to 96%), which shows how the Greeks are going to Hellas in a hand basket.
The first point where this analysis gets interesting is the imperfect European Union. In a mash-up of nations with only geography as a common denominator, they managed to cobble together rules of engagement that could confuse a lawyer. Their constitution weighs in at over 65,000 words, and that excludes protocols and annexes (the United States Constitution is a parsimonious 7,600 words, including 222 years of amendments). In a vain attempt to make the EU lord, master and micromanager of every aspect of life, and in trading competing national interest against one another, the EU created an unworkable mess. This is not why Greece is heading down the economic drainpipe, but it shows one of the reasons why the EU will fail in rescuing Greece – the situation is too slippery (really, I am sorry for the puns – I blame society).
In order for Greece to not fail requires two events, one likely and the other not. The first is that they require a short-term bailout. Already Germany and the IMF (a.k.a. the United States taxpayer) are ready to bail-out Greece and keep their bonds from achieving the same valuation as the Zimbabwean $100,000,000 note (which at its terminus wouldn’t buy a Starbucks coffee, but then again neither can the average American paycheck). Other EU members, some very reluctantly, will agree to making Greece temporarily solvent. The immediate future favors Greece.
Greece’s long term outlook is slightly less optimistic than Oedipus’ eyesight (though their mutual hindsight will be very good).
The bailout stabilizes the patient. However, it does not cure the disease. Greece has agreed to enact a series of steps designed to bring their spending slightly closer to their income, weak medicine for a highly infected body politic. This includes:
* Freezing government pay, which is comical because public paychecks have risen 30% in the last four years (and if this sounds familiar to Californians, then know you are next in government bankruptcy court).
* Annual bonuses equaling two extra months of pay will be scrapped for some government workers.
* Private companies can now lay off more than 2% of their personnel (yep, the Greek government mandates the maximum flexibility a corporation has in managing their payrolls) to a whopping 4%.
* Taxes will rise, with VAT climbing to 23% along with some direct taxes on booze and cigarettes.
* There are also a collection of promises that will never be kept, including cracking down on tax evaders, changing retirement age and privatizing government operations. Being a socialist nation, the odds of any of these events occurring is as remote as Crete is to Compton.
Already evidence has erupted that Greeks won’t accept even minor adjustments. Riots resulting in death have vented like Santorini with more being planned by pestilent pinheads. Like children with billy clubs, it has proven unwise to yank the lollypop from their gobs. Though politicians will talk tough and lecture the Greek masses on austerity, they will soften the scheme as soon as any sign of EU watchfulness eases or economic revival is evident.
The whole cycle will start anew.
What makes this a long-term looser is the effect on the EU. I predict that Greece will be escorted out the Union once Greek fiscal efficacy evaporates. Proportionately speaking, this would be like the United States telling Maryland adios (and given the influx of Latin Americans into the United States, adios may become a permanent part of the American vocabulary). If the EU’s investment in Greece is lost, they have only two options: to keep pumping money into a member country that cannot manage its affairs, or cut them loose like a reprobate child who can’t keep a job.
Germans are unlikely to nurture malcontented miscreants.
So, what happens when Greece is cast adrift like Danae and Perseus? Nothing instantly. But succession has never boded well for a union – ask any man served with divorce papers. Selective unions are merely friendships whereas committed unions are marriages. A good spouse will do everything in their power to keep their mates happy and the marriage intact. Money, comfort, spare kidneys – nothing is beyond question. But this commitment dies when the marriage does, and most marital unions die from infidelity.
Likewise with the EU and the fiscally philandering Greeks.
Once Greece betrays the trust of other EU members by failing to enforce austerity and by demanding more EU lucre, trust ceases to exist and the EU will jettison Greece to an economic Hades. Germany, ill content to be the financial backstop, may contemplate leaving themselves, learning from America that generosity more often than not buys ingratitude. This or more bankruptcies will break the Euro currency. Other EU countries may accelerate the process by attempting to stay in the union while reverting back to their own currency, following Brittan’s example.
In short, the Euro will likely become a historical footnote and the belabored EU constitution shipped to an impoverished Greece for toilet paper purposes.
Yes, this is all very speculative and is flexible due to far-future fancy. But the tell is that Greeks now riot over accepting responsibility for their own mismanagement. Like children tossing tantrums for the milk they spilt, the Greeks are setting their own towns ablaze protesting that government largess will be trimmed ever so slightly. This mentality last as long as the food does, and in a bankrupt country, that does not last long.
UPDATE: Hours after posting this the EU created $1T (pretty much out of thin air) to buy-up bad debt, namely Greek bonds and other waste paper. No word on how they intend to unroll this bigger debt bomb, which is 1/16th of the entire EU GDP. But this does not bode well for the EU over a longer-term.
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