Thursday, February 25, 2010

Greece and the EU in Denial


If you are an avid follower of financal news like us then you are no doubt aware of the Greek debt crisis.  In fact, you pretty much cannot avoid it.  We make no predictions on whether Greece will eventually receive a bailout but we are amazed at how quickly the situation has devolved into farce.  For entertainment purposes, let's take a look at some excerpts from recent articles written by the always excellent Ambrose Evans Pritchard:

"If one member of the eurozone were to step out for any reason, this would be a collapse of the entire system," said Carl Heinz Daube, director of the Finanzagentur.  "It is very hard to clarify to a man on the street why one country should step in to help another country," he told the Euromoney bond congress in London. 

So explain it Mr. Daube.  The entire system could certainly collapse if Greece is allowed to fail, but what does that tell you?  If one tiny part of the system can cause the whole thing to collapse, doesn't that imply that the system is terminally designed?  What if the next country that runs into trouble is several times the size of Greece?  It seems that the architects of the EU and Euro should take some responsibility for the current situation, no?

Germany's regulator BaFin fears that the Greek crisis risks setting off "downward spiral" across Southern Europe, posing a system risk to the financial system. It said German banks hold €522bn of state bonds from the region. 

So Greece needs to be bailed out because the German banks were foolish enough to lend them money.  Why should the German people pay for the mistakes made by the banks?  Nobody forced the German banks to throw money at Greece.

Moritz Kaemer, head of Europe ratings at Standard & Poor's, told the forum that "a sovereign default is not going to happen in the euro zone. Greece is still comfortably an investment grade." 

It is good to have such wonderful assurance of calm from the people who missed the housing bubble, the banking crisis and indeed every financial crisis of the last thirty years.  The rating agencies couldn't assess risk if their life depended on it and lucky for them, it doesn't.

Mr Kraemer said it would take Greece 33 years to reduce debt to the already high level of 100pc of GDP even if it manages to consolidate at the rate of the last growth cycle – in boom times that may not be repeated.

So in other words, Greece cannot possibly avoid default if market forces are allowed to work.  What a bunch of nonsensical double-talk when juxtaposed with the earlier statement.

Public and private sector unions joined forces to bring the country to a standstill for 24 hours, halting flights, trains, and shipping, and shutting schools and hospitals.

I am not quite sure what the people of Greece hope to accomplish by destroying their already fragile economy.  Sure, they are angry that their salaries and benefits are being cut but what are they proposing?  They simply don't have the money to pay for their expenses and the world is finally getting tired of accepting their debt.

Theodoros Pangalos, deputy prime minister, said Germany had no right to reproach Greece for anything after it devastated the country under the Nazi occupation, which left 300,000 dead. "They took away the gold that was in the Bank of Greece, and they never gave it back. They shouldn't complain so much about stealing and not being very specific about economic dealings," he told the BBC. 

It is good to see that Greek politicians can be just as big of idiots as American ones.  Clearly events that took place before TV broadcasts began have no relevance today.  Nobody forced the Greeks to join the EU or to adopt the Euro just a decade ago.  If they did not like the terms then they should not have joined.

Twisting the knife further, he said the current crop of EU leaders were of "very poor quality" and had botched this month's crisis summit in Brussels. "The people who are managing the fortunes of Europe were not up to the task," he said. 

Yes, it is the politicians of other countries fault that they cannot bail out your country faster.  Shame on them for letting you get yourselves into this situation.

Portuguese unions have called a general strike for early March. Spanish unions held marches in Madrid and Barcelona on Tuesday over pensions, but turnout was low.

The Portuguese and Spanish are obviously jealous of all of the attention that the Greeks have been getting so they are preparing publicity stunts.  Nice move.

The EU has always found ways to master crises over the last 60 years, and will most likely do so again, but this one feels different to EU veterans.

Sixty years of prosperity is a nice track record but what was it that happened just prior to that period of time?  I seem to remember some minor incidents.

Closing Remarks
What you have here is a total lack of recognition of any sort of responsibility by any party involved.  Nobody in the EU, the banks, the rating agencies, the Greek government or the Greek people want to own up to the fact that they contributed to the current situation.  In short, they are all in denial.  Thus, the situation will continue to get worse until the parties involved stand up and say "I helped get us into this situation and I will stop contributing to it."  Bailout or no bailout, temporary reprieve or not, this story will last as long as the finger pointing continues.
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