This analysis, from Stratfor, argues that Greece has become a failed state. The argument is that Greece cannot survive in the modern era without a steady supply of foreign capital. No military power of any consequence needs Greece anymore, in the way that the Americans need Pakistan and are supporting that nation.
So if the Euro is to survive, Greece has to be ejected from the Eurozone. Greece would immediately default on its debts and not just the sort of technical default that the Teapartiers tired to bring about last Summer in the U.S. This would be a real "no shit, you ain't never getting repaid" default and it would require trillions of Euros to bail out the European banks in order to prevent the entire European (and global) economy from collapsing.
But nobody is going to stand up before the German people and explain to them that they have to pay the equivalent of a war's costs in order to keep the Euro afloat, for the costs of ejecting the financial cancer of the Greek economy would be borne largely by the Germans. So things are going to have to get much worse before they get better.
The British, along with the other European nations that have not joined the Eurozone, must be feeling somewhat smug right now.
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Friday, September 30, 2011
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Some insightful pieces on the European financial situation...
ReplyDeletefrom July:
http://www.lrb.co.uk/v33/n14/john-lanchester/once-greece-goes
and September:
http://www.lrb.co.uk/v33/n17/john-lanchester/the-non-scenic-route-to-the-place-were-going-anyway
I'm stuff cash under the mattress.......
Thing about the Greek situation is that if you look at the actual fundamentals of the Greek economy, they aren't actually as bad as everybody's saying. The level of debt held by Greece is actually less than many other European nations. The problem Greece has is twofold: 1) deflation, and 2) speculation. They're in a deflationary cycle similar to 1929 because the ECB insists upon holding inflation at under 2% EU-wide, even though this means the economies at the periphery of the Euro are going to be in active deflation, and speculation has driven up their borrowing costs far beyond what the underlying fundamentals would indicate is appropriate.
ReplyDeleteBut Greece *is* going to exit the Euro, for much the same reason that the United States exited the gold standard in the 1930's (which similarly had the effect of forcing deflation upon the US) -- because the alternative is a bloody revolution. They already have nightly riots and the economy is shuddering to a halt. If the Greek government maintains its policy of enforcing the dictates of deflation upon the Greek public, Greece really *will* be a failed state, because nothing short of imposing a brutal dictatorship will keep the Greek people from taking those politicians and doing a Mussolini on them from the nearest tree.
Regarding the German banks, that is all going to make the ECB's "tight money" policies look all the stupider. But as long as the ECB continues behaving as if their main purpose is to keep inflation in Germany low rather than to protect the Euro, that's how it's going to go down... in flames. Hopefully not literally.
- Badtux the Economics Penguin
German politicians are hardwired to avoid inflation at all costs. And if the cost of low inflation in German is that Greece, Italy, Portugal, Spain and Ireland are in flames and the European economy nosedives, the Germans will take that over a risk of inflation getting out of control.
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