As noted in the Journal article, analysts for the banking firm of BNP Paribas were crystal clear about Greece’s fiscal difficulties:
The official line that Greece has a liquidity problem and not a solvency problem is showing its cracks, putting into question the whole framework of financial support.
And that framework, which was transformed from the original European Union concept of making markets freer to the by-now-obvious concept of a dictatorship by fiat of unelected officials, is looking more than a little wobbly. When there are protestations by the unelected elite that any speculation that Greece might leave the unholy union was extremely premature, one knows that something is amiss. French Prime Minister François Fillon assured the EU of the need for “unfailing solidarity,” while German Chancellor Angela Merkel insisted that the idea of Greece leaving the union “has never been considered in earnest.” Eurogroup President Jean-Claude Juncker confirmed: “We are not discussing the exit of Greece from the euro area; this is a stupid idea and an avenue we would never take.”
Finland’s True Finns Party’s recent success in tipping the balance of power in that government away from the EU is only the tip of the iceberg. As noted by Bruce Walker in The New American:
The mood within the different nations of the Union is increasingly lugubrious. The Greeks, Portuguese, and Spanish are beginning to view the strictures on their national sovereignty as not worth the dubious benefits of union.
The options facing Greece are very limited. Raising taxes didn’t work, as noted above. When measured as a percent of GDP, the taxes the Greek government collected were 40.0 percent of GDP in 2007, while it collected only 39.1 percent in 2010. And the GDP was 5.2 percent lower in 2010.
In simple language, the so-called austerity measures, based upon faulty Keynesian ideology, failed. As Louis Woodhill noted in Forbes magazine,
Austerity is always self-defeating, because tax hikes suppress economic growth, and economic growth is the only thing that really matters to government finances.
And so, if austerity doesn’t work, and the EU is reluctant to give Greece a mulligan, and the bond market is closed to the Greeks to sell their debt, what is left?
The most sensible thing would be to slash taxes, reduce government interference in the marketplace, and lay off substantial numbers of government workers. In other words, allow the free market to breathe. But in today’s statist world, such suggestions will have to wait for significantly greater pain to be inflicted before being seriously considered.
What if Greece were to leave the EU and go back to the way things were: drachmas instead of euros, and self-government without EU interference? This isn’t likely, either, according to Woodhill, as the new currency would rapidly be inflated to zero, the Greek economy would go underground (the black market, or free market would flourish, using euros) and revenues to the government would essentially fall to zero. While this would provide the “cleansing” needed to start over, the pain would be dreadful.
What about default? This would likely be forced upon Greece unless a bailout of some kind is arranged. Default would cost bond holders dearly, many of them banks with close ties to the eurozone and the IMF. Any “restructuring” of Greek debt is essentially the same thing as default, only on the installment plan. If such restructuring is severe enough, the European Central Bank (ECB) would most likely come to the rescue.
The only way out for Greece, and others in the European community facing similar problems, is to vote out those favoring the union, and reinstall national sovereignty. This will take years, but if the pain is severe enough, it remains the single viable option for freedom.
Photo: The main building of the Bank of Greece in Athens.