If Only Greece Would Unbind Prometheus From The Euro
Prometheus (as in the beautiful statue at Rockefeller Centre) was a champion of mankind who managed to steal fire from Zeus and gave the gift to mortal man. To punish him Zeus lashed him to a rock where everyday a giant eagle descended to peck away at his liver, only for it to grow back and be eaten away again the next day…day after day after day.
To my mind as Greek political leaders try yet again to find an agreement on austerity measures, clearing the way for a possible deal to cut the nation’s debt and win its 2nd rescue in 2 years it is as though the Euro Zone is once again being lashed to a rock … pretty soon we will have an eagle swoop again and peck away to open the wound that is Greece. The dismal debt denial, quick fix cycle is turning once again.
Does no one within the bunker of Euro Zone High Command actually get it that Greece is BUST!!?? Guess that’s a no…
Discussions between the Greek government and the troika were completed on Thursday, February 9th 2012 and the PM has said that politicians have agreed with the result of those negotiations. BUT…he didn’t give any details…so we are not really any the wiser.
Of course it sets up a stage for Greek Finance Minister Evangelos Venizelos to present a fig leaf of cross party political unity at the emergency meeting of Euro Zone Finance Ministers this evening to discuss the EUR130Bn (= $173Bn) lifeline and a debt swap that will demand loss of 70% for investors. All voluntary mind you. That happy band of brother creditors met in Paris yesterday to chew over a deal that will see them not just swallow a 70% loss on their holdings but also be handed 30 year paper structured on a 3.6% coupon. One pile of worthless junk swapped another longer dated pile of junk. Such investment decisions are surely sackable offences. Guess if one still holds Greek debt, then you are the fool in the crowd. One also has to know what will become of the Greek debt held at the ECB…is the public sector also going to take a cut?
Just when one may think we have emptied the pot of things to say about Greece, a little nugget from the dismal science can be unearthed. This time it stems from the writings Adam Smith, the father of modern economics.
“…Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow citizens…”
Greece went last night to the high court of the Euro Zone, with a patchwork agreement in its briefcase, with public strikes and disorder on the street, hoping that its neighbours in the Euro Zone would simply dip into the treasure chest and offer up another urn brimming with liquidity. Not so fast…
European Fin Mins declined to deliver a rescue package of EUR130Bn for their troubled sovereign neighbour. In short the Euro Bloc has exhausted its tollerance for promises made and promises broken. There has been so much talk of applied austerity and yet nothing like enough has been implemented by either Papendreou or Papademos. Greece contracted by 5.7% in 2011 and will at roughly the same mark this year, so any prospect that Debt:GDP ratios can fall from 160% in 2011 to 120% by 2020 belongs in the realm of mythology. I could say it is like Groundhog Day…except that was comical…this is just tragic, toxic and terrifying.
In typical Euro Zone fashion last nights emergency meeting has been closed with a call for another emergency meeting on February 15th. We have used words such as “final”, “emergency” or “critical” so frequently that their coinage is now devalued.
So the debate goes back to the Greek government…there will be hours wasted and many words issued this weekend as all sides take issue with the austerity programme. Sure, no nation can grow by austerity alone…but the clear case is that Greece has no scope for state intervention. the government has to heed the word of Greek wealth creators as represented by the Hellenic Chamber of Commerce. Taxes must be cut because as work by Laffer has shown, low taxes, lower pointless regulation can release the genie of creativity.
To continue with my earlier Greek mythological assertion just imagine if Greece created a state that encouraged “The Unbound Prometheus” to use the title of the book by Davis S Landes. Sadly, the man who stole fire from the Gods to give it man cannot be let loose inside the Euro. Greece needs to have the flexibility of a 40% devaluation if by 2020 it is to be an economy that boasts any kind of comparative advantage.
As it stands we are going to take this time wasting scenario to the wire because without the aid, come March 20th the game will be up and Greece will default. It has to pay EUR14.5Bn. One can find little optimism as Fitch have declared that Greece will default even with the aid package such is the scale of the fiscal black hole.
One has to say that the Greek nation appears to be at the point of capitulation as it is staring the reality of nationwide, general strikes and protest against reductions in wages, pensions and government expenditure. This is the time, surely when Greek politicians and the people have to decide if they wish to remain in the Euro.
Academic work by Reinhart and Rogoff has shown that as debt rises above 90% of GDP so GDP growth is dragged lower on average by 1%. Remenber as I said above, Greece contracted by 5.7% last year and this year will be no better. The tax take is down as small businesses have folded so forget 120% by 2020, as GDP collapses the level of debt to GDP will actually be nearer 140%.
Still clearly brighter, more informed Euro Zone brains know better than this simple, humble observer. Pah…I think not…this crock pot will have more serpents slithering through the Euro Zone undergrowth than formed the hair on Medusa’s head.
At least in the Gorgon’s defence, when Medusa was dead…she stayed dead unlike the current Greek monster.
Stephen Pope MarketMind