By Jeff Harding
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.
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 Serfdom67 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.
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