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Archive for July 7th, 2015
Printing Money A Different Way
Tuesday, July 7th, 2015What Next Greece? What Next Euro? What Next EU?
Tuesday, July 7th, 2015The answer to all three questions is that nobody has a clue. This is because there is so much wrong with both the institutions and dynamics involved that nothing can work without causing a whole new set of problems. Today we will list a few basic principles at the heart of the of the matter.
1 Setting up the Euro without a fiscal government and a treasury led by a finance minister was a disaster. Letting Greece join was a calamity.
2 The Greek political class is mostly a bunch of lying cheats who have cooked the books and bought votes with borrowed money whilst hiding the true state of the Greek economy until it collapsed.
3 Greece is a dysfunctional state which has no effective tax collection service and a moneyed class who think that dodging out of paying their taxes is okay.
4 The Tsipras government is the first since the Colonels were overthrown that is honest both with its creditors and its voters.
5 If Greece is pushed out of the Euro or falls out because a situation now out of control runs amok, while a new drachma would resolve the internal liquidity crisis, it would make it difficult or almost impossible to import food, energy and raw materials, because the currency would be hugely devalued in international trading. It might even be near worthless.
6 If Greece stays in the Euro by being lent more money to pay existing loans without a major write down of its debts, the problem will head to the next crisis. Each one is worse than the last. It should have been accepted five years ago that Greece was bust and a proper plan put into effect to rebuild its economy. As it is austerity has delivered no improvement, has shrunk the Greek economy by 25%, 30% of Greeks are unemployed (50% of young people) and as the referendum demonstrates, the social limit of financial policy has been breached.
7 It is wrong to punish the ordinary Greek people for the sins of their morally threadbare leaders with whom Euroland was happy to do business whilst knowing all along that things were not right. Those who lent money failed due diligence and must take the consequences of of big haircut. If they don’t they are likely to lose their heads as well.
8 There is a powerful case for Greece to leave the Euro, but it has to be orderly and controlled. The IMF would have to support the drachma, ideally with loans to purchase gold for the Greek central bank to underpin the currency and give it trading value.
9 If Greece stays in the Euro, the ECB will have to print money to restock Greek banks. This must be printing, not lending. It can buy Greek debt for PR purposes, but it knows better than most that Greek debt is tantamount to worthless.
10 Germany will have to agree to whatever is done, but if it continues with its hair shirt and rather cruel rectitude, things will go from very bad indeed, which is where they are now, to ever so much worse.
11 Germany should take a long hard look in the mirror. It should take into account that it has become rich and powerful, not just because it is hard working, practical and efficient, but because it has been given the incalculable blessing of a euro which has been valued much lower over the years than the deutschmark, allowing Germany to export on a scale which would otherwise have been impossible. It has thus become a surplus nation but that cash has come from the debtor nations such as, yes, Greece. Essentially now, Germany is having to give a good deal of it, most of it even, back. Like the spoils of war. Oops I should not have said that. But I have. But then 75% of my blood is German, so I can be direct.