Saturday, May 19, 2012

"Greece's Problems are Europe's Problems"

Alexis Tsipras is a 37 year old politician in Greece who is surging to the top of Greek political polls with the message that Greece should not be forced into austerity. I agree with that, but I don't agree with Mr. Tsipras's broader argument.

Tsipras believes that it is perfectly okay for the Greek government to make absurd promises to its citizens and provide no means of paying for those promises. He must have been watching the successful American politicians and following their lead. Tsipras believes that the rest of Europe should underwrite the lifestyle that Greece thinks it deserves and he intends to "call their bluff." Right.

 I suspect that German citizens do not share Tsipras's sanguine view of having other folks pick up the tab, since German citizens are the "other folks." So, what will happen? That's pretty easy to see by simply following the fortunes of Angela Merkel's party in the elections that are going on in various parts of Germany. German citizens are shouting a loud "no" to the bailout program that is basically funded by German citizens. "No more bailouts" is the message coming from the German electorate.

So Tsipras is simply setting the stage for a Greek default, which has been a long time in coming. The Eurozone member countries have wasted hundreds of billions of Euros in the delusion that Greece, given austerity and time, would be able to deal with its enormous indebtedness. We have Sarcocy and Merkel (and Obama and Geitner) to thank for this waste of resources.

 Now comes reality. Greece is not going to live with austerity and they are not going to pay their debts. So there. That's basically Tsipras's message. It has always been the case that Greece would ultimately have to default. There has never been a viable alternative to a Greek default. Never. The only question is whether the default will be an orderly one or a chaotic one, accompanied by civil and political unrest.

The Sarcozy-Merkel illusion has increased the odds that the outcome will be chaotic and Mr. Tsipras's rise to prominence virtually guarantees chaos. A "controlled bankruptcy" was always the right solution. Such a solution would have kept Greece in the Eurozone and likely kept Greece's far left and far right political parties in the closet. But, no. Politicians always think they have a fix for the unfixable.

So now, the worst of all outcomes is likely. Egged on by Obama and Geithner, the European leaders were convinced that there was a "European solution" to Greece's problems. There is no European solution. There is only a Greek solution.

The underlying problem is the unwillingness of political leaders to face reality and to tell their citizens the truth about the seriousness of the problems and the costs of the polticial programs that they are advancing. It is easy to promise things that can never be paid for. That's how you win elections in Europe and in the US. But, eventually the piper must be paid. California, Illinois, and New York are next. You will soon be hearing that "California's problems are America's problems." Don't buy into that one.