One of the more bewildering and frustrating things about life is that you rarely get what you expect. You set out and strive for a certain goal with all the excitement and energy of a child. You may think you’re doing all the right things. You take all the logical steps. You make big plans…dream big dreams…
But, when it’s all said and done, you never know what you’re going to get. Often you end up with the exact opposite of what you thought you wanted. This inconvenient truth is evidenced by the contents of a box of chocolates. It is also apparent in the outcomes of grand geopolitical engineering schemes.
After the destructive nationalism of WWII, European nations desired a more integrated continent. The European Union’s original architects envisioned a united Europe where a single market, common currency, and shared economic prosperity, promoted harmony throughout Europe. But it took several generations of technocratic chiseling to erect the framework.
The Hague Congress in 1948 set the cornerstone. The European Movement International and the College of Europe, where Europe’s future leaders would live and study together, were created. Over the years, more and more treaties, unions, and communities were subsequently put into place.
Finally, in 1993, the grand agenda was realized at last. The European Union hatched to life with much optimism and delight. It was the dawn of a new day.
What Could Possibly Go Wrong?
Now Europe could rightfully reclaim its purpose at the center of the universe. Rather than build arms and destroy each other, the old nations of Europe would join arms and grow rich together. What could possibly go wrong?
For about a decade it appeared to be working flawlessly. Frogs, Franks, and Spaghetti-Twisters walked in lockstep. Political and economic union appeared to be pulling smaller, less financially sound, European nations up.
Yields on Greek debt fell to near par with German bunds. The economy boomed. The dream was coming to fruition. But, alas, it wasn’t a boom brought about by capital savings and investment. Rather it was induced by cheap credit.
For whatever reason, following the establishment of the Eurozone, lenders brains went soft in unison. Credit markets came to the implicit notion that Germany’s financial resources would back other European Union countries should there be a risk of default. Risk was greatly underappreciated.
Predictably, Greece, and other less credit worthy countries couldn’t handle the abundance of cheap credit. They borrowed and spent far more than they’ll ever be able to repay. The question of what to do about it seems to be tying Europe in knots.
Looming Greek Default is the IMF’s Problem
“If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” This remark was made years ago by 20th Century Oil billionaire, and notorious miser, J. Paul Getty. Today we revisit it.
The marvelous plot of late is that Greece owes the International Monetary Fund a €1.6 billion ($1.82 billion) payment, which is due on June 30. According to Greece’s chief negotiator, Euclid Tsakalotos, “we haven’t got the money to pay the IMF at the end of this month.” Clearly, in this case, it’s the IMF that has a problem.
For Greece a default is a natural part of their national character. Since achieving independence from the Ottoman Empire in 1832, the Greeks have excelled at repeatedly defaulting on their debt. In fact, Greece has spent nearly 50 percent of its modern independent rule in default. Hardly a politician has come to power that hasn’t overpromised and under delivered.
Greece, were it not in the EU, could humbly default on their debt or simply inflate their currency. Obviously, there would be consequences for either course of action. Yet, because Greece is part of the EU, that decision’s no longer theirs to make. Instead it is up to a bunch of technocrats in Brussels, who periodically come together with self-important pomp, to announce a solution to the Greek debt problem. Their solution generally consists of extending more credit in return for increased austerity.
This has been going on since about 2011. Unfortunately, this does nothing to solve the problem…it merely pushes it out into the future and exacerbates it. In effect, Greece is stuck in a slow motion, never ending, technical default, through the dreadful and repeated combination of austerity and more debt.
“I and the government will assume the responsibility of saying the big ‘no’ to the continuation of a disastrous policy for the Greek people,” said Greek Prime Minister Alexis Tsipras. By this time next week we’ll know if he goes through with it.
for Economic Prism