Divorce Greece in haste, repent at leisure – Martin Wolf – FT.com

This story by Martin Wolf is currently the most-read in the FT today. It’s a recommended read. Check it out!

via Divorce Greece in haste, repent at leisure – Martin Wolf – FT.com.

The article takes a balanced viewpoint, citing major errors by both sides, the creditors and Greece’s government.

Personally, I agree that big German and French banks should have taken write-downs years ago. Similarly, whilst reforms are overdue in Greece, they should not push more people into poverty and starving – Greeks are entitled to a minimum social net.

The point of the article is that pushing Greece into default and a Grexit will cause massive hardship and ongoing problems for both sides.

It is interesting to look at lessons from Argentina‘s painful default. The wealthy were able to protect their wealth. The poor were given handouts by the government as patronage – it was the middle classes who lost everything. I fear that it is the middle classes in Greece who now have most at risk. The left-wing Greek government is looking to the patronage of the poor.

Greece deserves better, both from its creditors and its from the current left-wing government.

Thoughts?

 

One response

  1. Greece is going to cause what Dr Alf calls “ongoing problems”, both for itself, and the rest of us whether it stays in the Euro or comes out.

    The risk we are told is that Italy, Spain, Portugal and Ireland would want to leave the Euro, if Greece was allowed to leave it. Then the Euro would collapse and the EU project would have failed, possibly leading to more European wars and other unspecified calamities, including Greece allying itself with Vladimir Putin, or being bailed out by him or the prospect of a Chinese naval base in the Mediterranean.

    China already has a Greek island, which it bought after the last Greek bailout, and Russia already has a Greek naval base to replace the one they will lose in Syria after Assad eventually quits and goes into exile. Russia already has to cope with intensified sanctions and a falling Ruble, so it lacks the money to do anything much for Greece other than offer it tea and sympathy.

    So these particular dangers from Grexit are in the scheme of things and after sober reflection, most unlikely and represent a degree of scaremongering.

    The bigger reality is that if Greece is bailed out further, then these countries might well demand similar treatment, although having visited both Ireland and Italy several times in recent years, I could see no appetite for leaving the Euro, grabbing bailouts and refusing to repay them.

    With Portugal, which Professor Michael Porter of Harvard has been personally advising on competitiveness and economic growth for years, I see a country which is too laid back for its own good but nevertheless a country which will at least try to pay its way and can leverage its natural connections in Brazil to develop exports.

    Spain, which is physically much larger and is rich in natural resources and has links to the Spanish speaking world, is similarly well positioned and does not have the Greek tradition of wholesale tax avoidance.

    These ongoing problems are to my mind fairly easily balanced but in the long run the costs of keeping Greece in the Euro means a permanent tax on the rest of us, with further bailouts stretching well into the future for our children, grandchildren and successive generations.

    Why?

    Because Greece has not and does not demonstrate any desire to repay the £330 billion gbp, which it has already been lent and has no incentive whatsoever to reform its economy based on its actions since 1945, some 70 years ago.

    Yes, mistakes were made by both sides, and the present brinkmanship by Tsipras is not “a warning shot” as it has been described in some quarters but the equivalent of someone running up a massive bank overdraft and credit card debt and then defiantly telling the bank to “fly a kite”. The response would be the unleashing of the bank’s recovery department, without too much public sympathy for the debtor.

    Greece is not Argentina which is bursting with mineral wealth, at least not yet, so it has always had to earn its way in the world since its ancient past when, like Great Britain from the 17th to the 19th century, it was able to live off the fruits of conquest and empire. It has failed to do so for as long as I can remember and probably before that.

    During the years of German resurgence and a strong Mark, tourists from that country filled the pockets of Greek hoteliers, restaurant-owners, boat owners and market traders, and to an extent the small farmers who supplied these establishments with food. At that time, there was no talk about “beastly Germans” nor additional reparations for the damage caused by Germans during World War II.

    Dr Alf worries about the poor of Greece but most particularly the middle classes as the rich always end up not paying the price. What he says is true but the rich in every age and under every circumstance are able to rebuild their fortunes because they have connections, former customers and a different mental attitude to the rest of the population. The poor always have and always will be with us but we will not alleviate their condition by simply giving them money – they have to be taught to make a better fist of the situation in which they find themselves. Greece’s middle classes will in many cases have to migrate elsewhere; already Australia has more Greeks in Melbourne than it does in Thessalonika and probably there are more Greeks in America than there are in Greece.

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