Surprise! Greek Problems Were Not Solved By Kicking the Can Down the Road
Greece is looking like it's falling apart again. Or perhaps more accurately: Greece continues to fall apart and the lipstick Europe put on the pig a few years ago is wearing off and people are noticing again.
I warned about this less than a year ago:
Kevin Drum quotes Hugo Dixon on the Greek recovery:
Greece is undergoing an astonishing financial rebound. Two years ago, the country looked like it was set for a messy default and exit from the euro. Now it is on the verge of returning to the bond market with the issue of 2 billion euros of five-year paper.
There are still political risks, and the real economy is only now starting to turn. But the financial recovery is impressive. The 10-year bond yield, which hit 30 percent after the debt restructuring of two years ago, is now 6.2 percent....The changed mood in the markets is mainly down to external factors: the European Central Bank’s promise to “do whatever it takes” to save the euro two years ago; and the more recent end of investors’ love affair with emerging markets, meaning the liquidity sloshing around the global economy has been hunting for bargains in other places such as Greece.
That said, the centre-right government of Antonis Samaras has surprised observers at home and abroad by its ability to continue with the fiscal and structural reforms started by his predecessors. The most important successes have been reform of the labour market, which has restored Greece’s competiveness, and the achievement last year of a “primary” budgetary surplus before interest payments.
Color me suspicious. Both the media and investors fall for this kind of thing all the time -- the dead cat bounce masquerading as a structural improvement. I hope like hell Greece has gotten its act together, but I would not bet my own money on it.
In that same article, I expressed myself skeptical that the Greeks had done anything long-term meaningful in their labor markets. They "reformed" their labor markets in the same way the Obama administration "reformed" the VA -- a lot of impressive statements about the need for change, a few press releases and a few promised but forgotten reforms. At the time, the Left wanted desperately to believe that countries could continue to take on near-infinite amounts of debt with no consequences, and so desperately wanted to believe Greece was OK.
I have said it for four years: There are only two choices here: 1. The rest of Europe essentially pays off Greek debt for it or 2. Greece leaves the Euro. And since it is likely Greece will get itself into the same hole again some time in the future if #1 is pursued, there is really only leaving the Euro. The latter will be a mess, with rampant inflation in Greece and destruction savings, but essentially the savings have already been destroyed by irresponsible government borrowing and bank bail-ins. At least the falling value of Greek currency would make it an attractive place at for tourism if not investment and Greece could start rebuilding its economy on some sort of foundation. Instead of bailing out banks and Greek officials, Germany should let it all fall apart and spend its money on helping Greece to pick up the pieces.
By letting Greece join the Euro, the Germans essentially let their irresponsible country cousins use their American Express Platinum card, and the Greeks went on a bender with the card. The Germans can't keep paying the bill -- at some point you have to take the card away.
