Wednesday, November 2, 2011

Update - A Greek Tragedy of Their Own Making

The effects of the decision by Greek Prime Minister Papandreou to take the latest Euro-Greek bailout deal to a public referendum vote continue to reverberate across not only Europe, but across global financial markets.  Press within the Eurozone (EU) no longer reflects the optimism that was prevelent when the bailout agreement was reached and announced October 27-28.  Instead, the press reflects not only on the pessimism around the future of the EU and the Euro because of the decision of the Greek government, but also uses terms that reflect their fear of the collapse and resulting economic chaos. 

The Greek government is clearly looking at this for their own benefit and not towards either the big European Union picture or that of what is really best for the Greek people.  The decision announced today in Greece where the Chiefs of the Army, Navy, and Air Force are being replaced by other senior officers can be seen as a move to ensure that the Greek military remains behind and controlled by the civilian government.  The Greek parliament appears to be moving towards holding a vote of confidence on the current Greek government, but with Papandreou's party holding a clear majority of seats, it's a strong likelihood that he will survive this to continue towards the path of the referendum vote.

One of the big questions around the referendum remains just how the question will be asked towards the Greek voters.  Will the question be based on the specifics of the EU bailout package and drive towards the voter acceptance of the required additional austerity measures?  Or will the question be far more simpler and direct - do the Greek people wish to remain part of the European Union and therefore tied to the Euro and EU economic decisions including the bailout?  The latter seems far more likely.

Under either form, the results are far from certain towards passage of the referendum.  As Niles Gardiner notes in a commentary today,  the cirmcumstances of the Greek challenge results from the mismanagement of the Greeks of their own affair, but that this also represents the major challenges around the concept of the Eurorpean Union.

From its inception, the 17-country single European currency has been an inherently political project, designed to artificially unite a diverse group of nations stretching across southern, central and northern Europe. It has in practice served to artificially push down interest rates in traditionally high-rate countries, leading to excessive borrowing and the current debt crisis.

The Euro is a spectacularly misguided attempt at a currency union in a sea of nation-states with different national interests, languages and stages of economic advancement. It was always doomed to fail in its current form; Great Britain, Sweden and Denmark were wise to keep out when it was first launched back in 1999.
 A 'No' vote will not just result in the default of Greece on its default obligation.  It will also reflect a vote towards the concept of the EU and a single currency.  We'll likely see, beyond the economic crisis, a political crisis as other EU members face pressure for their own referendums.  Some of these, like from Spain or Italy, will be based on the question of being held accountable by the EU for future bailouts and being tied to a common currency.  Others, though, will come from the frustration that many central and northern European nations have as being the one's who have to bail out the irresponsible nations.  They are tiring of the need to sacrifice their treasure to save those who have been utterly irresponsible in their own fiscal responsibilities.  (Sounds a lot like those in this country who are paying taxes and are frustrated by the other half who pay no taxes and get funds from the government.)

Increasing the pressure on everyone, is the decision made by the International Monetary Fund today to stop providing any cash to the Greek government until the referendum is held and passes with a 'Yes' vote.  This serves not only to put additional fiscal and political pressure on the Greek government, but will also increase the animosity within the Greek populace towards the EU and the monetary organizations. 

Throughout all of this, what is going to get lost is the root of the problem.  This goes beyond the folly of the EU / single currency model.  It resides specifically around the folly of a progressive / socialistic entitlement society and the fact that at some point (which we've reached in Greece) where, as Margaret Thatcher noted, these states run out of spending someone else's money.  When the system is fiscally bankrupt, blame must be attached to the system that created that bankruptcy.

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