Time for Greece’s free ride to end
Unruly students in Quebec are no different from the Greeks. Both have enjoyed free rides for years, both are being asked to pay their share of the tab and both are refusing to do so.
The backdrop to both situations, and likely more to come, is the Great Markdown, or the irreversible decline in living standards in developed countries due to mismanagement by democracies, debts, demographics and the success of emerging economies.
The second and third mortgages on the world’s “rich” nations means tax hikes and spending cuts in varying degrees. The protesting students and the Greeks are deadbeats, willing to go to any lengths to get out from under their share of the burden.
Obviously, the degree of discomfort is wildly variant. The Greeks are going to fall behind the Romanians in living standards in short order while the Quebec students are making a fuss over a pittance.
That makes the students, in a sense, even more irresponsible. They are protesting over inconsequential amounts that few will directly shoulder and that will, even after increases, remain the lowest fees in Canada. They are spoiled brats, fronted by kids who actually believe their “tuition crisis” is noble. Premier Charest is correct in shutting them down.
But the party called Greece is over and the messy Greek election result has led credible Europeans, such as the editorial board of news magazine Der Spiegel and EU officials in Brussels, to discuss and quantify the cost of Greece’s exit from the eurozone. The consensus is this is inevitable and desirable.
The European Commission and the European Central Bank are working on scenarios in case Greece leaves the eurozone, EU trade commissioner Karel De Gucht told newspapers. “A year and a half ago there maybe was a risk of a domino effect. But today … a Greek exit does not mean the end of the euro, as some claim.”
In fact, an exit by Greece will enhance the future success of the eurozone by lifting the cloud, the Germans say. “It would also make the eurozone more attractive to new members, such as Poland, with its strong economy. Foreign Minister Radoslaw Sikorski has already signalled Warsaw’s desire to join the eurozone,” wrote Der Spiegel.
Another benefit is that the burden of helping the Greeks will shift to the 27 member European Union from the 17-member eurozone. An EU fund exists to help struggling nations, such as Latvia dipped into, and Greece will do the same if it leaves.
The election will be a referendum on the euro, but if Greeks continue the run on their banks there will be no choice but to exit. Greek banks have lost up to 30% of their deposits since the trouble began in 2010 and estimates are that wealthy Greeks have transferred hundreds of billions of euros to German banks.
As deposits are withdrawn, banks cannot borrow to compensate except from the European Central Bank.They have already received $127-billion this way in exchange for collateral but there’s no collateral left. The ECB cannot do much more because it is on the hook for Italy and Spain. So the total loss if it leaves is $127-billion to the other 16 Eurozone members.
If Greeks vote the same way in the new election next month, the new regime will have to shut its borders and banks to prevent euros or assets from leaving; print drachmas and establish an exchange rate from euros to drachmas. Anyone owing large sums in euros will be forced to declare bankruptcy and the country may need martial law.
The IMF estimates a decline in economic output of more than 10% for the first year after the return of the drachma. But after that, the IMF says, the Greek economy will grow faster than it would without the devaluation. “The turbulence could last one or two years,” it said.
Agriculture and tourism will lead the economy but imports from other European countries will crater, along with those from the U.S. or China, harming their economies too.
Patience has run out with the dysfunctional Greeks and the departure of Athens will help the long-term health of the euro and Europe. As one German politician pointed out: “Greece has already received more money than was paid out under the Marshall Plan. The Greeks must treat the measures as an opportunity, or else they don’t stand a chance.”