After the recent market-lifting joyous news of Important People reaching Important Agreements about the future of the Eurozone, I set my doomsday clock for March. The big news that had everyone so excited amounted to little more than the announcement that an even more awesome meeting would be held in March.
Meanwhile, the cancers killing Europe continued to metastasize. At this point, it looks like the only way to save Italy is for the European Central Bank to buy it, and they haven’t got the money. Things are even worse in Greece, a smaller but even more hopeless tumor. Today’s New York Times has the latest grim news, in which the doomsday month of March receives a mention:
As Greece and its lenders prepare for another week of tense negotiations, European officials now say that the task is less to help the country through its troubles than to avoid the sort of uncontrolled default that many experts fear could threaten the global financial system.
Officials from the so-called troika of foreign lenders to Greece — the European Central Bank, European Union and International Monetary Fund — have come to believe that the country has neither the ability nor the will to carry out the broad economic reforms it has promised in exchange for aid, people familiar with the talks say, and they say they are even prepared to withhold the next installment of aid in March.
(Emphasis mine.) Which is exactly what I thought when the previous hollow joyous news was released. Greece isn’t going to do what needs to be done in order to make its broken government solvent. The Greeks won’t be any more enthusiastic to get with the program if it comes from Brussels instead of Athens. The future of this dying nation depends on options that should have been taken 20 years ago. The ministers of the Eurozone have been reduced to pretending those options still exist. Decline is a choice… until the day comes that it isn’t.
What’s the big holdup in these “tense negotiations?”
Adding to the anxieties in financial markets, talks broke down Friday between the Greek government and private lenders over a plan to reduce Greece’s debt by $130 billion, a “voluntary” default that the troika has demanded before extending more aid. Those negotiations, aimed at forcing hedge funds and other private holders of Greek debt to accept large losses in order to make the country’s debt load more manageable, will resume Wednesday amid rising concerns about the consequences of failure.
The markets have taken into account a voluntary default by Greece, most experts say. But financial experts fear the possibility of an “involuntary” default if the negotiators are unable to reach an agreement. That could unleash violent market reactions that could conceivably produce another market cataclysm like the 2008 bankruptcy of Lehman Brothers and throw the world into another recession.
Fanning those fears is a growing conviction among the Greek political establishment and the country’s lenders that the old dynamic — with Greece pretending to make structural changes and its lenders pretending to save it from default — has become untenable, people close to the talks say.
See? Macro-economics through make-believe, in which everyone haggles over a big pile of money that doesn’t actually exist. The Greek government wants to rob its investors blind with a “$130 billion voluntary default,” and the investors have decided they don’t feel like surrendering their wallets.
Facing them across the “negotiating table” is a government the Times describes as “stocked not with technocrats, but with politicians gunning for national elections as soon as March.” I hear my doomsday clock ticking again. There’s nothing surprising, or unique to Greece, about this state of affairs. Implement austerity measures or the nation dies… but every individual politician knows that if he’s the one who implements those measures, he’s a dead man walking in the next election. The Greek people are already furious about their situation, while the capital that could sustain their broken socialist system for a little while longer has been fleeing the country:
Greece’s dire economic condition can hardly be overstated. After two years of tax increases and wage cuts, Greek civil servants have seen their income shrink by 40 percent since 2010, and private-sector workers have suffered as well. More than $75 billion has left the country as people move their savings abroad. Some 68,000 businesses closed in 2010, and another 53,000 — out of 300,000 still active — are said to be close to bankruptcy, according to a report issued in the fall by the Greek Co-Federation of Chambers of Commerce.
“It’s an implosion — it’s an endless sequence of implosions from bad to worse, to worse, to worse,” said Yanis Varoufakis, an economics professor at the University of Athens and commentator on the Greek economy. “There’s nothing to stop the Greek economy losing 60 percent of its G.D.P., given the path it is at.”
And you’re not going to see a wave of private investors voluntarily lining up to invest in Greece, when they know they’ll just be purchasing a seat at the next “voluntary default” armed robbery by the desperate government.
The Greeks are not eager to cut their life support by dropping out of the Eurozone, but if Europe doesn’t cut them loose, the impending collapse of Greece could bring a tottering Euro to ruin. This would have dire consequences for the United States, even if we don’t throw a boatload of our own imaginary money at them in a bailout package. American businesses have a lot of big customers in Europe.
How bad are things over there? You might have heard that Standard & Poor’s downgraded the credit rating of France last week. Do you know how many Eurozone nations retain a AAA credit rating from S&P? Four. It’s down to Germany, Luxembourg, Finland, and the Netherlands. And two of the shakiest Euro nations, Italy and Spain, just got downgraded again. We are watching the death of nations play out before our eyes, and for the first time in modern history, they will not die by violence, but rather by indulgence. Europe is literally being consumed by unsustainable socialism.
What comes at the very end may well include a good deal of violence, both internal and external. After all, Europe’s longtime protector, the United States, is also far beyond broke, and as always, the first serious spending cuts we contemplate are coming out of the military. What happens when downgraded Europe has to pull money out of those suicidal social welfare programs to shoulder more of its own defense?
Stay tuned for more exciting developments in March.