The Greek Passion

I want to answer George Will’s question, asked in his most recent column in the Washington Post. There’s a sort of Brezhnev Doctrine embraced by the EU. Once a country has joined the eurozone it can’t be allowed to leave and you’ve got to wonder why? If Greece is as lazy and spendthrift as the Germans say, why are they so eager for it to stay in the club?

I don’t think the answer is philanthropy on the part of the Germans but that there is a group of large mostly German, Dutch, and Luxembourger banks that have made a pretty cozy business model out of extending credit to countries like Greece and Portugal that is obviously beyond those countries’ ability to pay, secure in the belief that the countries will never leave the euro and that the European central banks will always bail them out.

Most of Mr. Will’s column is devoted to the horrors of socialism but he might devote a little more time to writing some columns about crony capitalism or, maybe, state capitalism. The solution to Greece’s problem is at hand: let Greece go back to the drachma. It will renegotiate its loans on a better basis or default and you will be able to hear the sound of of collapsing European banks in Reykjavik. But Greece will have the ability to start living within its means which it does not as long as it’s on the euro.

Update

It’s gratifying to me to see that Barry Ritholtz is on my side:

Let Greece go.

Hey Greece — if anyone is listening — just default on the debt and start anew. The rest of Europe has caused the country and everyone else enough agita: just let Greece leave the euro zone in peace. Sure, it will be a long torturous process, but at least Greece — and maybe the euro region — will start moving in the right direction.

In case anyone forgot: Greece never should have been in the euro zone in the first place. Based on the formal entry requirements, it never met the membership standards. With a little help from the Wall Street magicians it lied and cheated its way in, disguising its debt levels and fiscal health. As Spiegel wrote five years ago, “Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules.” Greece should have been given the treatment a teenage drinker would get after being discovered in a bar: tossed out and not allowed in until meeting the entry qualifications.

Regardless, it is now in Greece’s own best interests to show itself the door. There should be no doubt, as Martin Wolf points out in the Financial Times, that like most divorces, this one will be acrimonious. But the sooner it starts, the sooner Greece can begin the process of starting an economic recovery.

I haven’t researched it but I suspect that Goldman-Sachs did not act alone.