Can we stop it,
please, with the Greek debt panic? Can we stop pretending that this crisis is
something it isn’t, or that it involves principles it doesn’t, or that there is
no alternative other than more pain on the streets of Athens?
Greece’s gross debts
add up to around $320 billion in nominal value, according to the International
Monetary Fund. That’s big compared to the Greek economy, but tiny compared to
the world outside. It’s less than 3% of the entire eurozone economy, which is
about $13.5 trillion. So even if Greece refused to pay one more nickel of its
debts - an outcome no one is suggesting - the eurozone could make up the
difference with about eight days’ output ... or an hour’s money-printing by the
ECB.
And the real value of
the Greek national debt is even less than this nominal sum. That’s because the
markets have already adjusted themselves sensibly to the situation. According
to the National Bank of Greece, shorter-term government bonds are already
trading at about 85 cents on the euro, while longer-term bonds are down to
between 65 and 50 cents on the euro.
According to
calculations by Felix Brill, chief economist at investment firm Wellershoff
& Partners in Zurich, Switzerland, publicly traded Greek government bonds
are trading at an average of 70 cents on the euro. So, in real terms, a big
chunk of that Greek debt has already been written off. Crisis? What crisis?
Second, the idea that
a partial Greek debt default would somehow represent an earthquake in the world
of finance, or endanger the eurozone, or be an improvident reward for the
reckless and the feckless, is nonsense.
Nobody forced German
and other bankers to buy Greek government bonds at absurd prices during the
bubble. Nobody forced banks to lend money to the Greek government on nearly the
same terms as they lent to, say, and the German or Dutch governments.
And nobody forced the
international honchos at the International Monetary Fund, European Central Bank
or European Commission to take over those obligations from the banks a few
years ago as a “bailout.”
The Greek economy is
smaller than that of Louisiana. If a small U.S. state had to renegotiate
muni-bond coupons, would it cause a U.S. financial collapse? Would it break up
the dollar?
As for the principals
involved, there’s a well-known saying in Hollywood: “It’s not ‘show friends’,
it’s ‘show business.’” These are not personal debts or moral obligations. They
are financial contracts. The bankers bought those bonds as a business
proposition. It didn’t work out. Too bad. Do we scream whenever a borrower enters
Chapter 11?
The people who were
improvident were not the Greeks so much as the foolish people who lent them
money on overly generous returns. The market has since re-imposed some
discipline.
I had to laugh when
Alexis Tsipras, the new Greek prime minister, suggested Germany owed Greece a
lot of money for World War II atrocities. Yes, he was playing a cheap populist
card. But there was a smart point inside it. If Germany after World War II had
been hampered by repaying the world all its past debts, including all the money
it owed everyone for Hitler, it would never have recovered.
Indeed, as German
Chancellor Angela Merkel knows full well, that was tried before - with the
German Weimar Republic after World War I. The result: Germany was still
shipping money overseas to pay debts while the country was spiraling deeper and
deeper into economic crisis during the 1920s and early 1930s. Eventually the
Germans turned away from the mainstream parties that had locked them into this
downward spiral and sought a radical alternative.
The situation in
Greece today is comparably as bad as that in Germany in 1933. A debt default
would probably make things better. It could hardly make them worse.
The official Greek
unemployment rate is about 20%. According to official data, fewer than half of
all Greeks ages 15 to 64 actually work for a living.
Yes, that includes
many people who are studying, raising children, have taken early retirement or
are otherwise off the payrolls by their own choice. But it also includes many
who are out of work involuntarily. There are 1 million more pairs of idle hands
than there were at the tail end of the boom, in 2007-2008.
And not only has the
Greek economy missed out on six or seven years of growth, but, according to
International Monetary Fund data, it is actually 15% smaller than it was then.
That is the real deficit — the gap between what the countries could be
producing and isn’t producing. Roads not built, roofs not repaired, computer
programs not written, classes not taught, crops not planted, income not earned,
money not saved.
Oh, and it means
German washing machines and cars not bought. You cannot improve the situation
by withdrawing money from circulation and sending it to Germany. Default and
get on with it, please.
