So as Wayne Swan awoke this morning to continue selling the 2012-13 budget, did anyone overseas care? Well, not about our budget.
Greece is now dominating the headlines, the talk around the tea urns and coffee houses of Europe and the US, not to mention the various trading desks in banks and brokers around the world. Fear and loathing is back in vogue as the eurozone crisis returns for a third year, full blown and starring again the recalcitrant Greeks who are refusing to accept any responsibility. They are preferring (as voters have across Europe in the past two years) to blame politicians and not themselves. Ignoring the fact that they the voters put those governments into power and supported their policies for years (France, Greece, the UK, Spain and Italy, for example).
What confronted the Treasurer though contained a sliver of good news, an Australian dollar weakening towards parity: it was about $US1.0070 just after 11am, down more than a cent in the past day or so and looking like it could end up in the mid to high 90s if Greece continues to cause everyone to sweat for a third year running. A weaker dollar will be good news for the government, for our terms of trade and for swathes of industry, from exports to retailers, not to mention the banks, but it would also tell us that there are some very troubled times ahead.
Spain also grabbed some headlines by taking a crucial first step to fill the black holes in its banking system by bailing out one of its biggest banks, and Germany’s economy is healthier than previously thought with industrial production rising sharply in March and the IMF forecasting a jump in growth in the second half, meaning there’s every chance the economy will escape the recession now gripping much of the 17-country eurozone.
But it is poor, broken, dysfunctional Greece that had again commanded the attention of markets and got the Reserve Bank again worried, not to mention other central banks.
Greece will need cash in June, just as voters look like being forced to return to the polls for a second time. The European Central Banks, Germany and the International Monetary Fund are the only groups that can save Greece. But its politicians, especially the new left-wing groups, are busily insulting them and trying to repudiate the two bailouts and the new loans.
That is now a very real possibility with Greece’s left-wing parties, which did well in Sunday’s election, trying to form a government and busy rejecting the bailouts in a fit of typical Grecian bravado. In a fit of pique they have declared as illegal the two bailouts of the country. They said they would renegotiate the rescues, that’s if they win power and can form a government. The reality seems to be that the left will fail and Greece will probably have a second election on June 17 (stick that in your diaries) to try and get a reasonable result.
And if that doesn’t work, there are warnings of an Armageddon-like situation confronting the EU and eurozone, with Greece defaulting soon after the poll and leaving the euro in the northern summer (or sooner should the left-wing parties conjure up a government).
The upshot for Australia is that if all works, that extra $7 billion we will give to the International Monetary Fund to boost Europe’s so-called firewall, is looking like it could be called upon in the next year. That could be to save Greece, again, or it could be to defend the eurozone from collapse as a departing Greece plunges the world financial system into GFC Mark 2.
Greek Premier Lucas Papademos will leave office next week, making way for a caretaker administration. That means further reforms, including finalising a new €11.5 billion medium-term austerity package, will be stalled until a new government is in place. The stalemate puts at risk the timetable for disbursement of Greece’s next loan tranche from its second €174 billion bailout. The chances of those cuts happening have diminished markedly this week. And, despite a recent transfer of €3.5 billion to cover financial emergencies, the country faces being unable to meet pension, salary and debt commitments next month.
The rhetoric from the Greek left is sadly familiar, illogical and very Greek. Alexis Tsipras, the leader of the left-wing group, Syriza, which finished second in Sunday’s poll, heads a group that includes self- employed business people who object to being exposed to competition, unemployed graduates who don’t want to emigrate to find work, other middle-class voters who object to paying more tax and paying their fair share of the cost of Greece’s boom. There are ex-communists, Maoists, Trotskyists, socialists and greens.
Tsipras says, that if he becomes prime minister (so far he’s not making headway in his attempts to form a government) he wants to cancel the severe budget-cutting measures forced on Greece by the two bailouts. Laws that cut pensions and salaries and those that “cancel basic workers’ rights” must be annulled as well.
He called for state control of the banks, which “remain in the hands of the managers who bankrupted the system,” he said. And that’s the silliest idea of all, or is it the moratorium on all debt repayments? So one of the measures he wants to annul is the €50 billion included in the second bailout to recapitalise Greece’s banks. The moratorium on debt repayments would presumably apply to loans from the European Central Bank to Greek banks.
So would the ECB continue providing loans to these banks if the Greek government seized them and the banks failed to be recapitalised? There are an estimated €70-90 billion now in banks outside Greece that has been sent offshore in the past two years as the situation has worsened. Will that money return if Greece defaults? It will and those with their money offshore (anyone in the new left-wing parties?) will make a killing. Of course, that’s assuming the ECB and EU and IMF would allow the money to return.
And having seized the banks and stopped paying loans, who would lend money to Greece so the country can import oil, pharmaceuticals and all those other things the country doesn’t produce, but needs to continue existing. Once imports collapse, Greece fails to function. The new government would no doubt promise new funds, but where would the money come from? Greece could “make” it or coerce the central bank into some sort of monetary easing, but that would spark a surge in inflation and further damage the economy and especially those voters who supported Syriza.
No wonder the markets are wobbly. The weakening Australian dollar may help save us, for a second time in four years, from another GFC, just as it did in 2008-09, helped by the cash splash and big rate cuts from the Reserve Bank. Last night we got a little bit of cash splashing, we have already had 1% of rate cuts since last November and the RBA has always been more worried about Europe than many local economists have been.
There’s obviously no point in arguing with Glen Dyer, about government control of banks being the “silliest idea of all”. The recent years should have taught us that governments not controlling the banks was the silliest idea of all. But it is academic, because the people are having their say now, and the bottom line is, they don’t want to die. They don’t accept that finances are more important than human life. The barbarians are at the bankers’ gates. Change should be inevitable, unless Europe turns to dictatorship, Pinochet-style. But that’s always been the free market way, hasn’t it?
The Greeks, more than any other population group in Europe, really do not understand the position they have put themselves in. Like all prodigals who have reached the end of the line, they cannot bring themselves to admit that all the options are just terrible, but some are more terrible than others.
The best possible thing for Europe is to build a firewall around Greece and let the Greeks find out what happens when a country is allowed to fall into the economic abyss. This will focus the minds of everyone else in the union considering following them.
And Greeks make terrific migrants. I should know. I’m married to one
When Argentina defaulted the world did not collapse for Argentina. Why will it happen for Greece?
Greece’s financial problems were not caused by the self- employed business people, unemployed graduates who don’t want to emigrate, middle-class voters who object to paying the cost of Greece’s boom (what boom?), ex-communists, Maoists, Trotskyists, socialists or greens condemned by Mr Dyer. It was caused by banks recklessly lending money to successive Greek governments while fully aware the national accounts were fraudulent. The EU also knew the accounts were inaccurate but because it was profitable at the time they all ignored the moral hazard.
Now the moral hazard has come back to bite them the banks and EU do not give a fig for the Greek people but care only about limiting their own losses.
If Syriza can form a government that shifts the cost of fixing the mess away from the little people and back to the institutions that caused it, then good on them.
Is the Parthenon going to fall over? I do not think so.
When Argentina defaults it devalued its currency and experienced a prolonged period of growth.
And a technical question Mr Dyer, to where should those perfidious unemployed Greek graduates migrate to find work? America? London? And if they came to Australia, with what visa would they come?
And no Nicholas, it wasn’t ‘just’ the banks’ wreckless lending to dishonest governments in Greece. Dishonest conduct in relation to tax paying is as Greek as souvlaki. Too many people work for the government on wages and conditions that were better than the Germans got, as were the retirement pensions and the age at which were entitled to get them. And those who work in the other industry, tourism, all too often regard the foreigners with contempt It is really enlightening to go to Greece as a tourist native speaker, without letting on you understand the lingo. The kind of nationalistic conceit that comes through is in completly inverse proportion to anything they have actually achieved in post-classical times.
And while it is easy to feel deep sympathy for what is becoming of them, in some ways it is hard.
I was going to begin this response with a tokenistic gnashing of teeth, but then realised there would be no point in doing so. Why would I bother? For Glenn and friends, the recent vote, and the potential of a left wing coalition government (which is, for anyone with a working knowledge of Greek politics, the electoral system and recent history, extremely unlikely) is anathema. We cannot have citizens of any country voting against the current financial and political system and its by-products (austerity, privatisation, and the obliteration of the social contract). After all, they aren’t economists or journalists, so what would they know?
The points about people emigrating, moving on and accepting the inherent logic of their economic masters is tired, bellicose rhetoric. The article should not surprise – it smacks of someone stuck in the pre-GFC economic reality, where sunshine, spin and economic rationalism were rampant. Trying to apply that reality to today’s world is never going to work. The world has changed. Unfortunately for Glenn, returning to those halcyon pre 2007 days when we were all so much happier seems to be the overriding objective. Of course, Glenn isn’t the only one that has tried to use economic orthodoxy to deal with events post 2007. But doing so only leads to failure. We have had endless analyses by Keynesians, pre and post, and even a few Chicago School groupies about the world post 2007. But I digress. What Glenn fails to understand, is why the Greeks and others (say Icelanders) reject the same economic recipe that has not worked in the past. Perhaps that is explained by the economic prism Glenn views the world through, or a lack of knowledge of the frustrations and fears of ordinary Greeks.
With that in mind, I thought I might try to explain why Greek citizens do not accept the economic orthodoxy. Let us begin with the proposition that Greek citizens have not forgotten how they got into this crisis. They blame the actions of international banks and incompetent politicians (foreign and domestic). But they don’t stop there. They point the finger of blame at the operation of a financial and political system at the national, supra-national and international level that prided itself on recklessly following neoliberalism and damn the consequences. Now that that approach has failed, Greek citizens aren’t interested in shouldering the blame. They blame local politicians for delivering the apocalypse. Specifically, they hate the way the Greek political elite, with the tacit acceptance or willful blindness of the EU and European governments, operated and the way they capitulated to the EU and the Sarko-Merkel austerity agenda. They feel that the bailout packages are not in the national interest.
The Greek elections are a watershed moment in the crisis that began five years ago in New York and which has percolated ever since across oceans. Greek voters have vented their anger at having lost the equity in their homes, their insurance and pension coverage and, for some, their jobs. Families have fractured and that most painful of separations, emigration has begun again. Faced with these realities, Greeks have decided that they are not going to allow the austerity measures to be implemented. They fear that implementing them will tear apart the social and familial fabric that had slowly been re-stitched in a country still scarred by its civil war and military junta rule. What had previously been opposition through strikes and civil disobedience has now become electoral opposition. The Greeks have voted and thrown out the incumbent political parties.
They, like many others around the world, are no longer listening Glenn. They reject anachronistic measures that were suited to the world we had in the 1980s and 1990s in which no one questioned the veracity or usefulness of the shock tactics of the World Bank and the IMF. Many Greeks simply do not believe that the measures concocted by European leaders will work, so they want to forego the pain.
Greek voters exercised their democratic right. They’ve essentially said ‘we aren’t interested in what you’re selling so (to borrow some Australian parlance) rack off’. That is good enough for Greece and it should also be good enough for you, Glenn. The Greek political parties have listened and those that were opposed to the status quo, the left wing parties, have become more powerful than at any point in modern Greek history. They of course also aren’t listening to your economic orthodoxy. Of course, other European voters will also have a chance in the next year or so to extract their pound of flesh.
As for the emigration quip, well, some of us don’t want to leave our home country whether it is for the pull of a mining boom or escape from economic crisis. The Greeks have stayed. They’ve voted. Now, the equity and financial markets will have to wait. That shouldn’t be too big an impost. After all, they started it.