There is one central point in Lawrence Summers’s Washington Post op-ed on an orderly Greek exit (“Grexit”) from the euro and is that nothing is ever the bankers’ fault:
Greek Prime Minister Alexis Tsipras needs to do what is necessary to make reaching an agreement politically feasible for his fellow Europeans. That means dropping ideological rhetoric about a new European approach and recognizing that Greece’s problems are significantly of its own making, and making clear that he is absolutely committed to doing what is necessary to stay in the euro zone. He needs to be clear that he will accept further value-added tax and pension reforms to achieve primary surplus targets this year and next but that he expects a clear recognition that if Greece does its part, debt will be written off on a large scale.
German Chancellor Angela Merkel and European authorities must do what is necessary to make policy adjustments politically tenable in Greece. That means acknowledging that the vast majority of the financial support given to Greece has gone to pay back banks rather than to support the Greek budget. They must agree on debt relief and recognize the degree of adjustment in Greek spending that has taken place: with nearly 30 percent of government workers laid off. It also means announcing their intention to accelerate economic growth throughout Europe.
For every borrower there must be a lender. If Greece’s borrowing is irresponsible than so was the lending by German banks. For every country whose economic policy depends primarily on the positive effects of a common currency on exports there must be others who will suffer from those effects.
For Greece’s problems to be solved Germans must come to the realization that German prosperity has grown from what they have viewed as Greek profligacy. The Germans didn’t pull themselves up by their bootstraps following World War II. They received massive assistance from the U. S. and Britain, particularly the U. S. Now it’s their turn to assist Greece.
I don’t believe the Germans will renounce their present political and economic beliefs and, consequently, I don’t believe there will be an orderly Grexit. It will be messy.
The loans to Greece are spread across the EU countries, and while the smaller ones have a smaller burden than Germany, they are in worse shape. Greece is going to default on the loans, but like the politicians and the pensions, today’s lenders will reap the fees and leave the problems for tomorrow’s bond holders.
The big money guys and gals are not stupid, but the Republicans, conservatives, and libertarians are useful idiots. If they actually had to lend responsibly, they would never be able to amass their fortunes.
An honest person would never lend Greece or an individual like Greece another penny, and anybody with more than two brain cells would know this.
The majority of Greece’s loans are held by the banks of three countries: Germany, Netherlands, and Luxembourg.
There are loan guarantees the other EU countries have made. Mish goes into the numbers about halfway through the post.
Greece Declares Troika Debt Illegitimate, Odious, Illegal; German Official Calls Greek Leaders “Clowns”; Expulsion From EU?
A Spanish commenter compared the current Greek drama to Lost: a plot without direction, and a finish that will not please anyone.
“For Greece’s problems to be solved Germans must come to the realization that German prosperity has grown from what they have viewed as Greek profligacy. ”
Hmmm. So do Florida real estate developers, builders, retailers etc who benefit from IL public sector workers buying homes, condos, furniture, food etc down there owe it to IL to bail out the states pension system?
If Germany had remained on the deutschmark while Greece stayed on the drachma, when Germans sold goods to Greece they would have been paid in drachmai. The only things those drachmai would have been good for is either purchasing Greek goods or exchanging them for deutschmarks. And they’d get fewer and fewer deutschmarks for those drachmai. Over time the prices for German goods would rise to the point that Greeks couldn’t afford them.
The euro on the other hand can be used back in good old Deutschland for paying your taxes or your grocery bills. And the Greeks are stuck.
A fool and his money are quickly parted.
If the Germans thought it was a good idea to lend their hard earned money to the Greeks without any due diligence, they are getting what they paid for. The can consider this an expensive lesson.
I would suggest that anybody who intends to lend money should do a little checking. If that is too much trouble, oh well.
It is funny how businessmen are the smartest people in the whole wide world, but somehow they can be tricked into believing that lending money to uncreditworthy first time home buyers is the best investment.
I can respect Jamie Dimon. At least, he knows it is bullshit, but then, he made his billions the old fashioned way. He hustled the dumb-assed suckers who bought the bullshit he peddles.
Grabber’s book on debt had some flaws, but one point he made very effectively is that throughout history. both the borrower and creditor have borne the risks of loans. The phenomenon of having the lender bear all of the risks is relatively recent. There is no way the German and French banks (et al) should have made those loans. They should face some consequences.
Steve
Greece should have left the Euro long ago. The attempts to “manage” the situation have only extended the misery.
David Stockman has a looong post about Greek debt + Central Banks + bonds / bond markets + the kitchen sink: Alexis Tsipras—-Angel Of Mercy Or “Trusty†Of The Central Bankers’ Debt Prison? (Did I mention it was long?) It is worth reading to the end.
He starts in Greece, and he jumps back to the US. He moves back in time to the Reagan years, and it turns out he got Reagan to raise taxes. He goes through the bond market signaling, and then he jumps back to Greece. In Greece, you can apply the same logic to Chicago to understand how and why the pensions got into the mess they are in.
Tasty, Stockman’s piece is a “book,” rather than an article! One thing for sure, he has a flare for eye-catching wording, and spares the use of pleasantries in discussing the market.