There is no real solution for Greece. They are bankrupt and their economic foundation is rotten. They have bred a society that wants generous benefits on the one hand, and on the other, cynical producers who don’t want to pay taxes. They are similar to Eastern Bloc countries post-Soviet collapse. They need a similar revolution to shake off the socialists and forge a new government based on free market principles. They need a complete reformation of their economy. Anything else will just delay the inevitable. The eurozone would be better off by jettisoning Greece and letting them fail. The money spent to save them will be wasted. One can only hope against hope that they will re-emerge without their social burdens and with a free market economy. Otherwise, and probable, will be a prolonged depression for Greece.
I haven’t been writing much about the eurozone, and especially Greece, lately because I don’t think I have much more to say than I already have, other than to report what “progress” has been made. Which is to say, none. And which is what I had expected.
Here is what I wrote last October about Greece: “The Problem With Socialism“:
Now they are faced with chaos because the powerful unions are the beneficiaries of the socialists’ policies. They are overpaid, underworked, and have their nests feathered by their fellow Greeks when they retire. They are way over the tipping point I mentioned earlier this month whereby you have a powerful voting bloc voting benefits for themselves. And they are flexing their muscles, literally. (“In Greece’s second city of Thessaloniki, protesters smashed the facades of about 10 shops that defied the strike to remain open, as well as five banks and cash machines.”)
It is almost following the script that Friedrich von Hayek wrote in The Road To Serfdom 67 years ago. The next step for the cradle of democracy will be martial law. At some point elections will be “temporarily” suspended in order to “stabilize the economy.”
There is no real solution for Greece. They are bankrupt and their economic foundation is rotten. They have bred a society that wants generous benefits on the one hand, and on the other, cynical producers who don’t want to pay taxes. They are similar to Eastern Bloc countries post-Soviet collapse. My guess is that they need a similar revolution to shake off the socialists and forge a new government based on free market principles. Perhaps they could look to Estonia, Lithuania, or the Czech Republic as an example.
The policies demanded by the Troika to bail them out won’t work. They need a complete reformation of their economy. Anything else will just delay the inevitable. The eurozone would be better off by jettisoning Greece and letting them fail. The money spent to save them will be wasted. One can only hope that they will re-emerge without their social burdens and with a free market economy.
Now that their elections have failed, voters will go to the polls again. My guess is that they will support the leftist-nationalists who offer an easy solution to their problems. Which is to say they will probably reject austerity measures which were conditions to a bailout. They will probably then drop out of the eurozone, default on sovereign debt, forcing Greek companies to also default on their bank debt, and then start printing drachmas to cover their deficits.
There will be, initially, cheering in the streets with lots of red flags. Euros will be exchanged for drachmas by the foolish (note that earlier this week there were bank runs as depositors safeguarded their savings under their collective mattresses). There will be laws forbidding the ownership of euros. They will attempt to refloat the economy by making good their obligations to unions and civil services workers. That will involve printing drachmas. Of course there will be no credit from abroad for anyone, government or corporation. Who in their right mind would borrow or lend euros in the expectation of future economic profits denominated in a devaluing drachma? Once inflation gets going, it would be hard for debtors to keep up.
Things will perk up for a while as the new drachmas pour into the economy. But that will shortly give way to price inflation and stagnation. New governments will form composed of various leftist parties and then be voted out. That won’t help: like futile King Canute, the laws of economics will assert themselves. Higher inflation, lower productivity, price and wage controls, and import tariffs will result in a collapsing economy. Poverty will plague the country. Considering Greece’s history, there is always the possibility of a military coup. Think “Argentina” and you will see the same path for Greece.
The impact to the eurozone will be mixed. The Germans will celebrate. The French will despair. Spain, Italy, and Portugal will quail. The Big Banks will take the hit but their governments will stand by them with increased liquidity. What will be on everyone’s mind is: who’s next?
The eurozone was born to fail. It will remain a problem child. As long as individual countries are allowed to run large deficits the system cannot work. Yet there is great reluctance by all countries to give up fiscal sovereignty. And in fact it would be foolish for them to do so. There is only one possible political “solution”, and it is a bad one. The Germans won’t like it. Print money.