There isn’t a word today in Robert Samuelson’s column today on how Greece, Italy, Portugal, and Spain can escape high levels of debt without Germany abandoning its mercantilist policies:
The lopsided Greek vote — 61 percent to 39 percent — to reject a rescue package from the country’s creditors has cast the impasse into a high-stakes drama over the future of Europe. Greece itself is teetering on the edge of economic collapse. Its banks are virtually insolvent, limiting depositors to meager daily withdrawals of 60 euros ($66). European leaders have given Greece a five-day ultimatum (until Sunday) to reach agreement with lenders. If no agreement emerges, a chaotic situation will get worse. The government will exhaust its skimpy supply of euros and be forced to pay either in scrip (possibly including promises — not reliable — to convert the scrip into euros) or in a national currency, the drachma.
Germany is too large an economy to be as dependent as it is on exports. It should be spending euros in Greece or Italy rather than extracting them from Greece and Italy.
Germany did not recover after World War II solely by pulling itself up by its bootstraps. It needs to remember that.
One of the realities of negotiations, at least in my business, is how dependent the other side is on you. If a bank can get 90-70-50 cents on the dollar by playing hardball with you they just might. If your company is so impaired that the lenders face zero to 30 cents on the dollar they play ball. You have the leverage and the key is to negotiate a long enough deal to get your house back in order.
I’m not impressed that Europe is really dependent on Greece, some commentary in the press to the contrary. Accordingly, I think Greece is fucked, barring strictly humanitarian considerations. Those are in short supply.