Greece, the EU, and the euro

[unixronin]

cipherpunk pointed me at this Washington Post article rather late last night.  I was a little busy to respond at the time, but was immediately reminded of this recent analysis of the same problem from STRATFOR.  The capsule summary of the report is that after falsifying its fiscal status (with the assistance of several large US banks) in order to qualify for EU membership, Greece has continued to spend at a rate far exceeding its resources to the point that, if Greece does not receive a bailout, it is in imminent danger of defaulting on its debts.  Of course, giving Greece such a bailout opens a door no-one wants opened, not least Germany, likely the only EU member in a fiscal position to be the source of the bailout.  This puts Germany in a difficult spot between two almost equally objectionable alternatives, as well as exposing one of the underlying economic weaknesses of the EU — the ability of fiscally irresponsible member nations to drag down and destabilize the EU as a whole through its currency, with very little the EU can do about it.

(The above-cited report linked by permission of Strategic Forecasting.)

Comments

[randwolf]

(Oh, this belongs here, not over on LJ)

Some notes on this:

- Greece is not a very big part of the EU economy. See:
http://krugman.blogs.nytimes.com/2010/02/08/euro-perspective/

- France is also involved, see:
http://baselinescenario.com/2010/02/07/euro-falling-us-recovery-under-threat (also good general analysis)

- Spain, on the other hand, which did everything right, and is a pretty big part of the EU economy, is also in trouble.
http://www.nytimes.com/2010/02/15/opinion/15krugman.html

- Goldman-Sachs participated in this disaster; may even have persuaded Greece to undertake it:
http://baselinescenario.com/2010/02/14/goldman-goes-rogue-%e2%80%93-special-european-audit-to-follow/

- Somewhere (not sure where) I've seen an analysis comparing German neo-mercantilism to Chinese. It's discouraging; if neo-mercantilism is the order of the day we will see much less trade, and more hardships.

[unixronin]

Either place is fine. :)

[randwolf.livejournal.com]

Some notes on this:

- Greece is not a very big part of the EU economy. See:
http://krugman.blogs.nytimes.com/2010/02/08/euro-perspective/

- France is also involved, see:
http://baselinescenario.com/2010/02/07/euro-falling-us-recovery-under-threat (also good general analysis)

- Spain, on the other hand, which did everything right, and is a pretty big part of the EU economy, is also in trouble.
http://www.nytimes.com/2010/02/15/opinion/15krugman.html

- Goldman-Sachs participated in this disaster; may even have made it possible:
http://baselinescenario.com/2010/02/14/goldman-goes-rogue-%e2%80%93-special-european-audit-to-follow/

[unixronin.livejournal.com]

All valid points. The STRATFOR analysis makes the point, though, that while Germany could easily afford to bail out Greece, (a) it would set a ball rolling that they probably would prefer not to, and (b) there is no guarantee Greece would change its behavior unless Germany made it a condition of such a bailout that Germany would take a very large hand in Greek internal fiscal policy.

[randwolf.livejournal.com]

The Greek government has already fallen, and there are likely to be new EU regulations that forbid meddling by major banks like Goldman-Sachs and Chase. These might be enough, though of course the problem would have to be studied. But even if those changes would be sufficient, the "moral hazard" argument here is an excuse. The French and German financiers don't want to do anything: a fall in the Euro is--they think--to their advantage, and they seem willing to throw Greece and European unity under the bus to get it.

BTW, "Bond Girl" on the Greek deal (https://self-evident.org/?p=757). The Frankfurt-based Deutsche Pfandbriefe Bank (Depfa) is also entangled. Moral hazard travels it seems. Read the whole thing, especially the last sentence.

[unixronin.livejournal.com]

I have to say that the observation does not come as any particular surprise. The financial sector runs on profit-on-paper no matter what the cost to anyone else. Wall Street will rape, pillage, plunder and destroy anything if there's profit in it, and if they crash the economy or destroy an entire market sector, they really don't care as long as they come out of it smelling of roses and clutching a sheet of paper that says they made a pile of money on the deal.

Wall Street as a whole is utterly amoral, and motivated solely by greed and by not getting caught actually openly violating securities law sufficiently blatantly that the SEC is forced to do something. Moral hazard becomes moot when you have no moral compass in the first place.

Germany and Greece: More from Simon Johnson

[randwolf.livejournal.com]

"The bailout package is really just an opportunity for European banks to get out of Greek debt. The Greeks can’t really collapse until they lose access to funding, so the hope is that this prevents the problems from spreading – and the prospects of such a 'rescue' will keep bond yields down for Portugal, Spain, and others."

Read the rest (http://baselinescenario.com/2010/03/01/an-underfunded-program-for-greece). I don't think the French and Germans are going to get off as well as they hope--Goldman has undoubtedly been busy in places we don't know yet, and the political repercussions for the EU are going to be hard. Oh, my! Just realized: the Germans don't like immigration from Southern Europe? They're setting themselves up for a bunch of it.