Jul 6th 2015

Greece Has Reached Its Threshold of Pain

by Daniel Wagner

Daniel Wagner is CEO of Country Risk Solutions, a Connecticut-based cross-border risk advisory firm and author of the book Managing Country Risk. CRS provides a range of services related to the management of cross-border risk. He is also Senior Advisor with Gnarus Advisors.

It should not have come as a surprise that the majority of Greek voters opted not to accept more externally-imposed austerity, by voting “no” in Sunday’s referendum. The election pollsters once again were proven wrong. It was not a close race with those Greeks who wanted to stay in the Euro and add more to the country’s obviously untenable debt burden. The majority of Greeks have now said they would rather leave the Euro and repudiate their external debt rather than endure possibly decades more of painful austerity. Every country has a threshold of pain, and Greece has reached it.

Greece has often lagged behind its European brethren in a host of indicators, but none serves to signify the depth of its pain since 2008 better than its GDP vis-à-vis the PIIGS, France and Germany (as noted below). While all these other countries rebounded since 2009, Greece’s GDP continued to plummet until 2011, and has struggled to catch up ever since. As is noted in the second chart that follows, if Greece’s GDP is compared to the performance of the USA following the Great Depression, it has fared worse for far longer. Greek GDP per capita fell nearly 20% from $26,900 in 2010 to $21,700 in 2014 in current US dollars. That’s 20% in just four years.

Comparison of Selected European GDP: 2003-2013



Some 45% of Greek pensioners are now living below the poverty line. Their pensions, which amount to no more than €665 per month, have been cut 44-48% since 2010. The Greek suicide rate jumped 35 percent during the peak of the crisis in 2011 and 2012 (Greece’s suicide rate used to be the lowest in Europe). Adult unemployment exceeds 25%, and youth unemployment has reached more than 60 percent. Approximately 55 percent of those unemployed are under 35.


As Greek Prime Minister Alexis Tsipras recently said in an interview with Italian newspaper Corriere della Sera, “In five years in Greece, we have cut pensions by 44 percent, reduced private sector pay by 32 percent, destroyed the job market, smashed the welfare state, bled employees and the middle class dry with taxes, and reached one and a half million unemployed in a country with an active population of six million.” By any measure, this is simply unsustainable. Apart from war time, no developed country in the world has endured, nor continues to endure this kind of sustained pain. Faced with similar conditions, voters in many other developed countries would undoubtedly vote similarly.

Responsibility for Greece’s (and now the EU’s) dilemma rests with all parties – Greece, the ECB, the IMF, and the banks. Greece certainly bears a large share of the blame, with its bloated bureaucracy and fiscal negligence, which persisted for decades. Each party is now so busy pointing fingers at everyone else they appear to have lost any sense of introspection (if they ever had it to begin with). It took all of them get into this mess, and it will take all of them to get out of it. This means that all the parties must be willing bear their fair share of blame and pain if there is to be a solution to Greece’s, and Europe’s, debt problems.

European governments wanted so badly for the Euro and EU to be created that they looked the other way when any of them were clearly not eligible to become (and stay) members under the budget deficit guidelines, but were allowed to do so anyway. They are all now paying the price. The EU and Euro ‘experiments’ are, in the end, textbook cases of market failure, because ‘the market’ did not work. Some member countries simply lied to get in, there weren’t adequate regulatory mechanisms in place to ensure that the EU’s own debt guidelines were adhered to, and there were no immediate consequences if they were not.

Europe’s (and the world’s) banking system is crumbling under the weight of its own hubris, largesse, and irresponsible lending. Given that Greece’s debt can clearly never be repaid, lenders should get their head around the reality that it must be largely written off – and the sooner the better. The same will likely prove to be true for the other Highly Indebted European Countries. It should be abundantly clear to everyone by now that throwing more money into a black hole (Greece) hasn’t worked, and isn’t going to work.

So, what happens now? An orderly unwinding of Greece’s and Europe’s debt is possible. If it could be done in the U.S., when a third of all savings and loans associations failed in the 1980s and 1990s, something similar can be done in Europe. Doing so will clearly be painful, and the European tax payer will undoubtedly be left holding much of the bag. But they are doing so now, with no end in sight. It is time to stare reality in the face, admit that the EU economic and financial experiment has been a failure, that the debt burden created by the EU is unsustainable, and that there is little point in delaying the inevitable.

Clearly, Greece needs to figure out a way to grow, but this will not occur before the Greek people endure substantially more pain. At least, in their mind, it will be on their own terms (to some extent). The troika must now consider how to keep Greece at the negotiating table, given the new landscape, while giving Greece the ability to say that it is negotiating on its own terms. The troika must also think about how to keep the anti-austerity movement from prompting another referendum, with the possibility that another Heavily Indebted European Country may spin out of the EU’s orbit.

What is crystal clear is that piling more debt upon more debt — so that the lenders can loan more money to pay themselves interest payments – is not going to work. There is certainly an argument to be made that the lending/austerity path should never have been taken in the first place at the outset of the Great Recession, given how unrealistic it always was that the astounding sums of money lent were never going to be repaid. That realization has finally arrived at Europe’s doorstep. This house of cards may be about to fall.



Daniel Wagner is CEO of Country Risk Solutions and author of "Managing Country Risk", please see below for link to Amazon. For Country Risk Solutions' web site, please click here.

You can follow Daniel Wagner on Twitter: www.twitter.com/countryriskmgmt


TO FOLLOW WHAT'S NEW ON FACTS & ARTS, PLEASE CLICK HERE!





 


This article is brought to you by the author who owns the copyright to the text.

Should you want to support the author’s creative work you can use the PayPal “Donate” button below.

Your donation is a transaction between you and the author. The proceeds go directly to the author’s PayPal account in full less PayPal’s commission.

Facts & Arts neither receives information about you, nor of your donation, nor does Facts & Arts receive a commission.

Facts & Arts does not pay the author, nor takes paid by the author, for the posting of the author's material on Facts & Arts. Facts & Arts finances its operations by selling advertising space.

 

 

Browse articles by author

More Current Affairs

Dec 14th 2019
EXTRACT: "Conspiracy theories about sinister Jewish power have a long history. The Protocols of the Elders of Zion, a Russian forgery published in 1903, popularized the notion that Jewish bankers and financiers were secretly pulling the strings to dominate the world. Henry Ford was one of the more prominent people who believed this nonsense."
Dec 13th 2019
EXTRACT: "In previous British elections, to say that trust was the main issue would have meant simply that trust is the trump card – whichever leader or party could secure most trust would win. Now, the emerging question about trust is whether it even matters anymore."
Dec 5th 2019
EXTRACT: "Europe must fend for itself for the first time since the end of World War II. Yet after so many years of strategic dependence the US, Europe is unprepared – not just materially but psychologically – for today’s harsh geopolitical realities. Nowhere is this truer than in Germany."
Nov 23rd 2019
Extdact: "The kind of gratitude expressed by Vindman and my grandfather is not something that would naturally occur to a person who can take his or her nationality for granted, or whose nationality is beyond questioning by others. Some who have never felt the sharp end of discrimination might even find it mildly offensive. Why should anyone be grateful for belonging to a particular nation? Pride, perhaps, but gratitude? In fact, patriotism based on gratitude might be the strongest form there is."
Nov 20th 2019
Extract: "Moody’s, one of the big three credit rating agencies, is not upbeat about the prospects for the world’s debt in 2020 – to put it mildly. If we were to try to capture the agency’s view of where we are heading on a palette of colours, we would be pointing at black – pitch black."
Nov 17th 2019
Extract: "Digital money is already a key battleground in finance, with technology firms, payment processing companies, and banks all vying to become the gateway into the burgeoning platform-based economy. The prizes that await the winners could be huge. In China, Alipay and WeChat Pay already control more than 90% of all mobile payments. And in the last three years, the four largest listed payment firms – Visa, Mastercard, Amex, and PayPal – have increased in value by more than the FAANGs (Facebook, Apple, Amazon, Netflix, and Google)."
Nov 14th 2019
Extract: "Trump, who understands almost nothing about governing, made a major mistake in attacking career public officials from the outset of his presidency. He underestimated – or just couldn’t fathom – the honor of people who could earn more in the private sector but believe in public service. And he made matters worse for himself as well as for the government by creating a shadow group – headed by the strangely out-of-control Rudy Giuliani, once a much-admired mayor of New York City, and now a freelance troublemaker serving as Trump’s personal attorney – to impose the president’s Ukraine policy over that of “the bureaucrats.” "
Nov 4th 2019
Extract: "Trump displays repeated and persistent behaviours consistent with narcissistic personality disorder and antisocial personality disorder. These behaviours include craving for adulation, lack of empathy, aggression and vindictiveness towards opponents, addiction to lying, and blatant disregard for rules and conventions, among others." The concern is that leaders with these two disorders may be incapable of putting the interests of the country ahead of their own personal interests. Their compulsive lying may make rational action impossible and their impulsiveness may make them incapable of the forethought and planning necessary to lead the country. They lack empathy and are often motivated by rage and revenge, and could make quick decisions that could have profoundly dangerous consequences for democracy.
Oct 31st 2019
EXTRACT: "......let’s see what happens when we have less money for all the things we want to do as a country and as individuals. Promises and predictions regarding Brexit will soon be tested against reality. When they are, I wouldn’t want to be one of Johnson’s Brexiteers."
Oct 21st 2019
EXTRACT: "Were Israel to be attacked with the same precision and sophistication as the strike on Saudi Arabia, the Middle East would be plunged into war on a scale beyond anything it has experienced so far. Sadly (but happily for Russian President Vladimir Putin), that is the reality of a world in which the US has abandoned any pretense of global leadership."
Oct 20th 2019
EXTRACT: "Europe also stands to lose from Trump’s abandonment of the Kurds. If, in the ongoing chaos, the thousands of ISIS prisoners held by the Kurdish-led Syrian Democratic Forces escape – as some already have – America’s estranged European allies will suffer. Yet Trump is unconcerned. “Well, they are going to be escaping to Europe, that’s where they want to go,” he remarked casually at a press conference. “They want to go back to their homes." "
Oct 15th 2019
EXTRACT: "Assuming the House ultimately votes to impeach Trump, the fact remains that there are far fewer votes in the Senate than will be needed to convict him and remove him from office. But the willingness of Congress – including the Senate – to continue tolerating his dangerous conduct in office, including threats to US national security, is now truly in question."
Oct 7th 2019
EXTRACT: "The problem didn't start with the election of Donald Trump. Nor did it begin with the Democrats launching an impeachment inquiry against Trump. This is a developing crisis that has been growing like a cancer within our polity for at least the past 25 years. Its main symptoms are a lack of civility in our political discourse, a "take no prisoners" mindset, and a denial of the very legitimacy of "the other side." Trump didn't create this crisis; he was the result of it.   When Newt Gingrich took the helm of Congress in 1995, unlike previous Republican leaders, he embarked on a campaign not only to obstruct the efforts of then President Clinton, but to destroy him. Congress launched a series of investigations accusing Clinton of everything from corruption to obstruction of justice – with hints of even more nefarious plots to assassinate those who might pose a problem to his presidency.  "
Oct 4th 2019
EXTRACT: "As the story spreads, it grows darker. Meanwhile, Trump is trying to learn the identity of the whistleblower (who is protected by law), which could expose that person to great danger. And he is accusing some people – including Adam Schiff, the chair of the House Intelligence Committee – of treason. My sense is that Trump fears the tough, focused Schiff. Trump has ominously noted that traitors used to be shot or hanged. And he hasn’t helped himself with members of either party by declaring, in one of his hundreds of febrile tweets, that forcing him from office could lead to a “civil war.” Trump has taken the United States somewhere it’s never been before. His presidency may not survive it."
Sep 24th 2019
EXTRACT: "But regardless of whether the Ukraine scandal remains front-page news, it will haunt the US intelligence community, which has been Trump’s bête noire since the day he took office. Trump has relentlessly attacked US intelligence agencies, cozied up to Russian President Vladimir Putin, and divulged secrets to foreign officials, potentially burning high-value sources. This behavior had already raised serious concerns about whether Trump can be trusted to receive sensitive intelligence at all. Now, intelligence leaders must ask themselves how far they are willing to go in toeing the White House line."
Sep 21st 2019
EXTRACT: "As Lobaczewski pointed out, pathological leaders tend to attract other people with psychological disorders. At the same time, empathetic and fair-minded people gradually fall away. They are either ostracised or step aside voluntarily, appalled by the growing pathology around them.......As a result, over time pathocracies become more entrenched and extreme. You can see this process in the Nazi takeover of the German government in the 1930s, when Germany moved from democracy to pathocracy in less than two years.......In the US, there has clearly been a movement towards pathocracy under Trump. As Lobaczewski’s theory predicts, the old guard of more moderate White House officials – the “adults in the room” – has fallen away. The president is now surrounded by individuals who share his authoritarian tendencies and lack of empathy and morality. Fortunately, to some extent, the democratic institutions of the US have managed to provide some push back."
Sep 16th 2019
EXTRACT: "If the Supreme Court does agree with the Divisional Court that the question is political rather than legal, it will take the UK constitution into quite peculiar territory. Prime ministers will be the new kings and queens. They will be free to suspend parliament at will, and for as long as they wish, without any judicial interference. Parliament will meet not out of constitutional necessity but in the service of the government’s interests – namely, to pass its legislation and to maintain appearances, rather than to hold it to account."
Sep 12th 2019
Extract: "The Republican Party has lashed its fate to an increasingly unhinged leader. Though three other presidential hopefuls for 2020 now stand in Trump’s way, none can defeat him. But they can damage his reelection effort, which is why the Republican Party has been scrapping some primaries and caucuses. How well Trump does in November next year may well depend on how his fragile ego withstands the coming months."
Sep 2nd 2019
EXTRACTS: "Most people think of revolutions as sudden earthquakes or volcanic eruptions that come without warning and sweep away an entire political system. But historians, political scientists, and even the odd politician know that the reality is very different: revolutions happen when systems hollow themselves out, or simply rot from within. Revolutionaries can then brush aside established norms of behavior, or even of truth, as trivialities that should not impede the popular will............ Only time will tell whether we are currently witnessing the hollowing out of British democracy. But Prime Minister Boris Johnson may well have crossed some invisible Rubicon by.......... Whatever happens now, British parliamentary democracy may never be the same again. It will certainly never again be the model that so many people around the world once admired."
Aug 29th 2019
EXTRACT: "Events such as prorogations and dissolutions happen when countries face difficult times. Therefore, because of the disastrous effects of Brexit: sterling in freefall; a recession looming on the horizon and Britain’s international standing at its lowest ebb since Suez, it is no surprise that the country is in this position now. The worrying thing is that using the monarchical power of prorogation does not solve problems – it has a history of turning them into frightening and often violent crises. There is a worrying relationship between the use of such powers and a complete breakdown in government."