Wednesday, April 8, 2015

An American View of Greece Revisited

Almost five years ago, I interviewed my father and wrote a blog post regarding his experience of his most recent visit to Greece.  At the time, Greece was undergoing a strike where buses and trains had curtailed their services.  Economic growth had sputtered, debt had ballooned and unemployment had skyrocketed to double digits.  When I asked my Dad what he thought of James Howard Kunstler's insight that Greece might resort to communism, he responded, "As far as I'm concerned, they're really close to it, they're crazy over there."

Fast forward to today.  My father is no longer with us, passing away almost four years ago, but almost all the problems that plagued Greece then have magnified and multiplied.  Unemployment is now at 25%, as bad as it was in America during the height of the Great Depression.  Instead of communism, the extremist threat on the rise is from the far-right in the form of the fascist Golden Dawn, which took third place in parliamentary elections earlier this year.  But the biggest immediate problem is the debt.  To address the debt crisis, there had been a debt restructuring program set up by the International Monetary Fund (IMF), the Eurozone countries and the European Central Bank (ECB) which was initiated around the time I wrote my original post.  When the first restructuring obviously wasn't working, a second restructuring which carried over the bailout of the first one was ratified by all parties in February 2012.  But with the January election which brought the left wing Syriza Party to power, a new coalition government declared the old bailout agreements cancelled.  They were given until May 31 to negotiate with creditors.

How will this all play out?  The current outlook isn't very positive:

Greece is probably already defaulting on its debt. Here’s why

Avoiding a ‘hard’ default doesn’t rule out the softer forms, and there seems little reason to suppose that they won’t become visible soon.

The bad news is that Greece is already (probably) defaulting.

The good news is that it’s not going to be on you, dear taxpayer (and indirect contributor to the International Monetary Fund).

After a week of alarms, Finance Minister Yanis Varoufakis promised IMF head Christine Lagarde at the weekend (and subsequently Treasury under-secretary Nathan Sheets) that Greece won’t default on a €450 million (roughly $490) payment to the IMF on Thursday.

But avoiding a ‘hard’ default doesn’t rule out the softer forms, and there seems little reason to suppose that they won’t become visible very quickly now. Tax receipts are falling well behind schedule, the government is making ever-more aggressive raids on whatever cash is left in public-sector entities such as the state pension fund, and the European Central Bank is still refusing to let Greek banks lend more to the government in the form of Treasury bills. As such, the only way to cover a widening funding gap will be to default on other commitments — to pensioners, public employees, suppliers of goods, and services to the government. In short, all those who don’t hold the immediate power of life or death over the country and its banking system.

In what is likely to be a last throw of the dice, Prime Minister Alexis Tsipras is due to visit Moscow on Wednesday to see if Greece’s crucial veto rights over European Union sanctions on Russia can be parleyed into some hard cash in the short term.

He’s likely to be disappointed, because President Vladimir Putin has already seen his foreign exchange reserves fall by over a quarter in the last year, and he’s in no hurry to take on such an obviously acute credit risk, especially when his immediate entourage is telling him that the same reserves are needed to dig Russia’s own economy out of the hole his policies have left it in.


If Greece defaults, then what?  Former Federal Reserve chairman Alan Greenspan recently weighed in on how he foresees the shape of things to come.

Alan Greenspan: The euro is doomed

alan greenspan

Alan Greenspan has harsh words for Greece: hit the road jack.

The former Federal Reserve Chairman told the BBC that Greece's best course of action is to leave the Eurozone. But Greenspan didn't stop there. He predicts Greece's exit is the beginning of the end for the euro.

"Short of a political union, I find it very difficult to foresee the euro holding together in its current form," Greenspan told the BBC's Mark Mardell on Sunday.

Greenspan went as far as to say the world would be better off without the euro. He says the currency union is too complex unless Europe decides to have one unified governing body to call all the shots.

Greece is a good example of the uneasy strain of the currency union. The country is mired in debt that it can't figure out how to pay back. The Greek people are so fed up with all the cutback measures imposed by Eurozone leaders that they recently elected a new prime minister, Alexis Tsipras, who campaigned on a platform of fighting back.

"I don't see it being resolved without Greece leaving the Eurozone," Greenspan said. "It's just a matter of time before everyone recognizes that parting is the best strategy."

Tspiras and European leaders are in ongoing talks about Greece's bailout for the rest of 2015. There's not a lot of optimism about a good solution. Greece's stock market is tanking again and dragging down much of Europe with it.

More headwinds for the euro: Greenspan never liked the idea of the euro to begin with. When European leaders were negotiating the Euro in the mid-1990s, the desire for unity after two World Wars masked the difficulty of an economic tie, he says.

"Fundamentally, what clearly was a driving force was the fact that we had two World Wars," says Greenspan. The Euro, "was a geopolitical decision with economic wrappings."

When asked if it would be a catastrophe for the global economy if the euro broke up, Greenspan said no.

"I think the system would function. Holding the system together is putting strains on everybody," he predicted.

While it remains to be seen if Greenspan is correct about Greece leaving the Eurozone and the ultimate demise of the Euro, I find it hard to believe that such an event would not have catastrophic implications for the world.  Perhaps Greenspan doesn't view another huge global recession qualifying as a catastrophe.  Or perhaps he's not thinking clearly through the implications that if the desire to create the Eurozone in the first place was born out of the horror of two world wars, what might the geopolitical implications be in Europe if you destroyed that unifying force?

The elephant in the room where these implications are concerned is Germany.  National Geographic recently had a great article exploring the current relationship between Greece and Germany.  The short version is while Germany has the appearance of the strongest economy in the Eurozone, because they are tied to Greece through their currency, the bailout may have the effect of targeting the economic holes in Germany's armor and dragging them down with Greece.  What the article doesn't explore is how this strained relationship might be exacerbated if Greece defaults.  If, after seven years of a crippling depression, the people of Greece have become so desperate that the rhetoric of a neo-Nazi party became appealing enough for them to finish third in a snap election, could we expect a similar or worse reaction in the birthplace of the Nazis if the collapse of the Euro brought the German economy to its knees?

Greek neo-Nazi Golden Dawn

German neo-Nazi National Democratic Party (NPD)

In addition to reflecting on the death of my father, I'm also reflecting on the suicide of Michael C. Ruppert almost one year ago.  When interviewed for the documentary Collapse in 2009, he described the events unfolding in Greece as a "revolution."  As the situation threatens to grow out of control, I wonder how different things might be if Greece took his advice into account as he wrote in Crossing the Rubicon on page 593: "If you decide that you want to change things, I am telling you right now that you will change nothing until you change the way money works."  Haggling with the Troika (IMF, ECB and the European Commission) over how much debt to pay and which services to cut changes nothing.  Zigzagging from the far left to the far right changes nothing.  The only way for the Greeks to truly change their circumstances is to change the way money works.  That goes beyond the name of their currency, though their exit from the euro may be an inevitability.  It means switching from the pyramid scheme of fiat currency, fractional reserve banking and compound interest where there can be no escape from debt because under the current paradigm, money is debt.

Whether they choose to do that by having a currency rooted in energy credits, as Ruppert advocated, or having a currency rigidly tied to the gold standard; I'm not sure what would be best for them, but it should be their choice.  My hope is that the people of Greece will remain positively focused on searching for sustainable solutions.  Because if they lose focus in the search for solutions, my fear is that the dark undercurrent of fascism will become the mainstream.  The search for solutions will be subsumed by the search for scapegoats.

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