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Europe Keeps Lying While Greece Continues To Sink

We’ve lost track of the number of definitive, this-time-we-mean-it, final fix to the Greek mess coming out of Europe.  The most recent bailout package announced for Greece comes—as usual—just in time, for the umpteenth time, to avert a debt default in March with a rescue package of €130 billion. The deal leaves bondholders taking an even larger cut than the 50 percent agreed in October, requiring a 53.5 percent sacrifice on creditors’ principal.

At Via Meadia we weep no tears for the bondholders; you make stupid loans, you lose your dough. Making mistakes and paying the price: it is how people learn. If losing it all on Greek bonds wipes out the capital of some French and German banks, let French and German taxpayers clean up the mess.  Don’t disguise all this as a noble bailout of Greece undertaken in a spirit of European solidarity and humanitarian compassion.

The IMF is apparently satisfied because Greek debt is supposedly approaching a projected debt ratio of 120 percent by 2020, down from 164 percent before the deal but nobody really believes that anywhere on Planet Earth. Greece is in unknown territory, and projections of future growth and revenue are nothing more than guesses.  Nobody has any clue what Greece’s GDP will be in 2020, and the surprises look much more likely to be unpleasant than happy. Europe has been playing “Let’s Pretend” so long with the Greek mess that some of the players have forgotten what truth is.

Can we say it now? European leaders are not up to the job. As a group, they lack the talent, intelligence and vision Europe needs. Anybody can stumble into a crisis, and anybody can make a few mistakes, including big ones, when the crisis first hits. But the mix of national selfishness, political cowardice, wishful thinking and sheer intellectual dishonesty with which leading European governments and institutions have dealt with the failure of monetary union staggers belief.

Stephen Pope, quoted in the FT, put it well: “We are no longer kicking a can down the road, what’s left cannot be called a can . . . it is just a mangled piece of tin . . . corrupted in shape and corrupted in nature.”

From 1890 to 1945 Europe got almost everything wrong. From 1945 to 1990 it some very big things mostly right. There is more and more reason now to fear that stupid is back, and these days when Via Meadia thinks about Europe the words of another Pope, Alexander, come to mind:

“Thy hand, great Anarch! lets the curtain fall,
And Universal Darkness buries all.”

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  • Rhodium Heart

    What I don’t understand is how this whole mess has so far avoided collapsing into itself. What is not sustainable is not sustained. How and why is the seemingly unsustainable Greek steal-n-borrow based economy sustaining itself?

  • dearieme

    The Germans make wonderful soldiers and appalling strategists. The Germans are in charge.

  • Corlyss

    “What I don’t understand is how this whole mess has so far avoided collapsing into itself.”

    The unintiated thought everything was fine in June 1914 too. It’s going to take more public pain for the obvious to become unavoidable. Europe has probably already passed the tipping point and is now in free fall, when it seems like they are simply defying gravity.

  • Jacksonian Libertarian

    I’ve been saying all along that the EU and Euro are going to fly apart just like the Soviet Union and Warsaw Pact. The EU and Euro were imposed on the nations involved from the top, just as the Soviet Union and Warsaw Pact were forced together, if less violently. Different Languages, different cultures, regional differences in resources and historical grudges are all working against union. But the major reason it’s going to fail is because it is economically uncompetitive. The EU has been steadily losing World GDP market share, falling further and further behind, just as the Soviet Union and Warsaw Pact did before they collapsed. The US on the other hand has maintained its World GDP market share. The Europeans are beginning to realize that the promises of economic advantages with a common market and a common currency were all lies. And if the EU and Euro didn’t gain them anything, then getting rid of them will not cost them anything, and will likely free their hands to try something which might gain them an advantage.

  • Toni

    A serious question: what if the best solution is the collapse of the euro? Enough Europeans remember pre-euro life that the smart and swift can re-adopt former currencies so as to minimize the effect on intra-European trade.

    Greece can inflate the drachma to their hearts’ content. French Socialists can fail with their franc. Germans, the Dutch, Brits and I bet the Poles and some other countries will do fine.

    Put in more formal terms: Countries serious about getting their fiscal houses in order and creating job-friendly economies will do so. The rest will sink or swim, depending on how fast their voters adapt to reality.

    There’s some metaphor — pulling off a Band-Aid? — that’s relevant here. I mean the EU adjusting to reality swiftly rather than dragging it out over years…and years…and…

  • Kris

    “Europe Keeps Lying While Greece Continues To Sink”

    And vice versa.

  • Eurydice

    @Kris #6 – The thing is that lying worked so well for 10 years that they’re still puzzled as to why nobody believes them anymore.

    Everything has been a pretense – that giving up currency wasn’t giving up sovereignty, that giving up sovereignty wouldn’t change their risk profiles and turn them from countries into municipalities, that these changed risk profiles wouldn’t require additional scrutiny of their banking systems, and so on.

    The biggest lie of all was allowing themselves and the world to believe that every country would have the same risk profile just because it had the same currency. The implied assurance (which was often close to explicit) that the EU would back all of its members kept investors believing that any cracks in the system would be repaired immediately and with firm resolve.

    So, presto! Low interest rates for everybody. Imagine if Greece had had to pay interest rates appropriate for its economic situation – the internal rot would still be there, but the enormous loans wouldn’t. Of course, then France and Germany wouldn’t have been able to sell Greece all that defense equipment in lieu of having the EU acknowledge its borders, but that’s a whole other pretense.

  • EvilBuzzard

    Europe organized to fail. The EU has enough power to screw things up; but not quite enough to fix things once they’ve engineered a successful train wreck. They will either break up and let the old nations reassume all their old powers, or they will centralize. Right now, they remind me of the US under The Articles of Confederation.

  • Kris

    Eurydice@6: In the words of a long-dead European: “Truth? What is truth?” There’s a reason a certain someone is know as the Prince of Lies.

    [The author of this comment certainly does not wish to impose religious beliefs on anyone. The preceding passage is thus to be read symbolically.]

    [To avoid any misunderstandings, I agree with Eurydice.]

    [There is at least one highly relevant post (which I cannot currently find) by Richard Fernandez. Anyone care to post a link?]

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