You might recall that the international press was full of jubilant news a few months ago, proclaiming that a deal for saving the tottering Greek government and economy was on the table. Actually, in Greece the government and the economy are largely the same thing, which is a big part of the problem.
The big deal was supposed to include a fresh infusion of European Union funds, plus massive forgiveness of Greek sovereign debt, in exchange for serious cuts to its out-of-control government spending. The more pessimistic observers, myself included, doubted the Greek government would be able to hold up its end of the deal.
There are unique local cultural and economic factors at work, but more importantly, there comes a moment when socialist decline and fall is no longer a choice. “Austerity” becomes politically impossible, as too much of the economy is propped up by government spending, and too much of the population is collecting government paychecks or pensions.
Greece is far past that point, and it’s going to bring the European Union down with it. The big figures of the Eurozone want to keep Greece on board. From a Reuters report about the latest, and possibly doomed, deal to bail out Greece in exchange for serious economic reforms:
“We want this accord,” French President Nicolas Sarkozy said. “Greece’s leaders have made commitments and they must respect them scrupulously … Europe is a place where everyone has their rights and duties. Time is running out, it needs to be concluded, it needs to be signed.”
He and German leader Angela Merkel held a news conference after an annual meeting of top government ministers from both countries where they kept pressure up on Greece to meet reform suggestions set out by the European Commission, European Central Bank and International Monetary Fund, known as “the troika”.
“We want Greece to stay in the euro. To say it clearly, this is the opinion of both of us,” German Chancellor Merkel said.
“But I also say — there can be no new Greece programme if agreement is not reached with the Troika … All those who bear responsibility in Greece must know — we will not deviate from this position.”
Well, the leadership of Greece is a lot more worried about their angry dependent population than the Troika, and it looks like they’re going to call the Eurozone’s bluff. From Sunday’s Financial Times:
Lucas Papademos, the Greek premier, failed to make party leaders accept harsh terms in return for a second €130bn bail-out, pushing Athens closer to a disorderly default as early as next month.
Greek television reported that Mr Papademos has set a deadline of midday on Monday for the three leaders to let him know whether they agree in principle with the proposed austerity measures, before he meets them again later in the day.
After five hours of discussions, the three leaders of Greece’s national unity government had not accepted demands by international lenders for immediate deep spending cuts and labour market reforms as part of a new medium-term package.
Mr Papademos said the political leaders had agreed on some “basic issues”, including making spending cuts this year of 1.5 percentage points of gross domestic product, or about €3bn, according to a statement from his office.
Cuts equal to 1.5 percent of GDP? Whoopee. Greece’s debt is currently 159.1 percent of GDP… and it’s been getting worse over the past few quarters. The same thing is happening in Portugal, which is almost as badly positioned as Greece, and will likely default on its debts if Greece does.
Greece’s political leaders say that making the cuts demanded by the Troika would lead to “more recession than the country can take,” as the head of the New Democracy Party put it. The cuts would include “25 per cent in private sector wages, 35 per cent in supplementary pensions and the closure of about 100 state-controlled organizations with thousands of job losses.”
Get ready to hear the same arguments when “austerity” is suggested to the insanely bloated American government. You can’t make deep cuts in our perpetually increasing federal “budget!” The Department of Redundancy Department employs thousands of people. Look at all the jobs you’ll be destroying, if you shut it down!
Prime Minister Papademos had set a deadline of noon on Monday, local time, for the rest of the governing coalition to get with the austerity program, but the deadline was abruptly erased without further explanation, with less than an hour to go. The true, final “deadline” is the big Euro meeting scheduled for March. Nervous investors around the world are wondering if it might be the last big Euro meeting.
There will be serious economic repercussions, including in America, if the Euro goes down, but it would be better to get it over with now, rather than pouring more of the world’s financial strength into doomed systems that cannot reform themselves, and therefore must be allowed to crash on their own. It’s a long shot, but maybe other dying, debt-entombed capitals around the world, including Washington, will learn something by observing the results.