The European gong show continues today with the Greek government trying to pass the needed legislation to secure the latest round of funding from the Europeans. In typical fashion, after grovelling at Merkel’s feet Sunday night for scraps to make it through the week, Tsipras then went in front of the Greek cameras and told the media he only agreed with a “knife at my neck.”
Although the Germans are encumbering the Greeks with a deal that has no hope of working and merely delays the inevitable default, I blame the Greek government for not having an alternative plan. Ultimately the Greeks need to take responsibility for themselves. They bitterly complain about the lack of respect, and the fact they are regulated to being second class European citizens.
But at the end of the day, they need to stop begging for handouts, and instead stand up and take control of their own destiny. I am not suggesting they adhere to the German demands for austerity, that makes as much sense as rescuing Tom Cruise’s wife from the clutches of Scientology only to send her to a David Koresh inspired support group.
It is amazing the Germans have absolutely no sense of irony when they make these unrealistic demands from the Greeks. An Irish economist I love to read by the name of David McWilliams had the best article about this paradox (What sort of life would Wolfgang Schäuble have had if America behaved towards Germany, the way Germany is behaving towards Greece?).
In 1948, the Americans underpinned the creation of the Deutschmark, which eliminated all German domestic debt. The Americans facilitated the set up of the Bundesbank and then, in 1953, the Americans and the British oversaw the forgiveness of 50 per cent of all German external debt.
What’s more, the Allies deemed that German debt repayments could only be paid out of the German trade surplus, could never exceed 3 per cent of GDP and, in an inspired move, American contractors in Europe were obliged to buy a certain amount of industrial goods from German manufacturers to make sure that German industry recovered and that Germany had the hard currency to pay this much reduced national debt.
Ironically, the people who benefited most from these measures were Germany’s war generation who were given the chance of a clean slate. These people, like Wolfgang Schäuble, were not lumbered with the sins of their fathers and were given a chance.
Contrast this enlightened and ultimately highly successful approach to Germany’s debts and its economy with the German treatment of Greece.
The reaction to the Greek referendum last week was not to sit up and maybe listen to the Greeks but it was to engineer a run on the Greek banks. The chief baiter of Greece has been Wolfgang Schäuble, the little German boy whose life in 1947 was saved and prospects underpinned by enlightened Americans!
The Germans and their other vacuous pom-pom cheerleaders threatened the Greeks with being forced out of the euro. People panic if their savings are threatened. Threatening your nest egg is a form of aggressive financial warfare. It is a form of psychological terror because the real fear of a bank run is that you will be the last person in the queue at the ATM and every time someone takes money out, there will be a bigger chance that when you put your card in the ATM there will be nothing left. The panic is terrifying.
Contrast this nasty abuse of the average Greek via currency threats with the fact that Americans introduced and financed a stable currency for the Germans in 1947, thus eliminating a source of anxiety for the defeated German people. These were people like Wolfgang Schäuble’s mother with her three infants.
Remember this is the euro that was supposed to be irrevocable. Now it is a conditional currency. We should remember that, and that it is conditional on a set of rules that change when Germany wants them to.
The ECB acted as the executioner in chief here by strangling the Greek banks’ access to funding. As the Greek people panicked and tried to take their savings out of the banks, the ECB refused to replace the exiting money, ensuring that the banks couldn’t re-open.
Just consider this for a minute: have you ever heard of a group of peacetime countries actively trying to wreck another country’s banking system?
Have you ever heard of a central bank actively trying to make a banking system weaker not stronger?
I am straying dangerously close to ranting about what ‘should be done’ instead of ‘what will be done.’ So before I wander too far, let’s step back to examine what this might mean for the market.
The real question is whether the Greek government will take the cowardly way out and let Tsipras push through this deal knowing he will ultimately be the fall guy when the Greek economy implodes in the coming months. Or whether they will have the courage to say enough is enough – the Greek people voted against accepting a clearly better deal in the referendum, and there is no way they can now vote for this deal. Obviously it would be so much easier to take this bold step if the Greek government had an alternative plan. I am still shocked that during this lengthy period of negotiation they did not formalize a backup. The Greek government should be trotting out the new drachmas backed by the Chinese and Russians, but instead they are regulated to accepting the draconian German conditions.
There are no adults in the Greek government, so I don’t know how to handicap what will happen. It’s like putting a bunch of drunk teens in charge of getting their father’s fancy Cadillac to the dealer safely. They might sober up and make good decisions, but they also might stop for tacos and some more beers on the way. We can no longer trust anything those fools do or say. It’s a complete crapshoot. So although many market pundits are downplaying Greek developments as no longer important, I will wait until we actually get the deal through parliament before I assume the crisis is behind us.
The markets are amazingly nonchalant about this whole affair. Don’t get me wrong, I understand about the relatively small size of the Greek economy. I know that most of the debt is held by government entities that will not be forced to sell when the default occurs. Yet I can’t help shake the feeling markets are assuming a level of competence from the politicians that simply does not exist. We are seeing bad decision after bad decision. Whether it is the Greek’s lack of a backup plan, or the Germans’ pushing through of a contractionary bailout package, no one is thinking straight. I have stopped assuming anything will make sense in Greece. The markets are optimistic it will be solved benignly, but I think they are naive about the level of idiocy amongst these European leaders.
Thanks for reading,