May 1, 2010

Grecian formula, follow-up

A glimpse into our own future…?

Greece has agreed with the International Monetary Fund and the European Union to take additional austerity measures expected to yield “around €23 billion” ($30 billion) as a precondition for financial assistance, a Greek official familiar with the talks on aid said.

“We have basically agreed, and as it stands now announcements will come during the weekend,” said the official, adding that the final details on the package will be completed on Friday.

The austerity measures, which will range from pension overhauls to wage cuts, come at the end of two weeks of talks between the Greek government and a visiting “troika” of negotiators from the IMF, the European Central Bank and the European Commission.

“There was not much room for us to negotiate,” the Greek official said. “This is the way the IMF works—if you want the money, you go by their terms. ”

However, Greek labor unions vowed to fight further cuts in spending and entitlements. Union actions such as strikes and protests aren’t expected to derail government overhauls. But political commentators say labor unrest, combined with Greece’s slow-moving bureaucracy, might cause roadblocks that delay the implementation of austerity policies.


Among the measures expected is the abolition of bonuses paid to civil servants each year, which could produce an estimated €1.4 billion in savings. Other measures include raising the top rate of value-added tax to between 23% and 24% from 21% now, and cutting pension benefits for some high-income retirees, the Greek official close to the talks said.

The takeaway here is two-fold: the growth of public unions will ultimately devastate an economy; and commensurate with such growth is the tenacity with which public union employees will attempt to hold on to their benefits — regardless of how that may impact the overall economy of a nation (or, in our case, a state economy like California’s).


Europe is what people want, or fear, it to be. A Trojan Horse for a welfare state or the free market. “Hostility to taxes and social spending” defines Brussels, as a lefty blogger in Paris wrote this week—presumably when the EU isn’t busy trying to manage competition and expand social protections. There’s an element of truth in all of that. In good times, these contradictory visions coexisted in this large and complex union.

Greece forces Europe to choose. Implicit in the bailout is that “solidarity” overrides fiscal sanity—or crudely put, that the rich countries, Germany above all, are to pick up the tab for the misdeeds of the Greeks today and maybe the Spanish and Portuguese tomorrow. A decade ago, Germany would only ask where to send the check. This time Berlin put its foot down—at least hard enough to bring the IMF in, against the wishes of the French and the European Central Bank.

Even should Greece get its billions, Europe must still deal with a new sort of Germany. Chancellor Angela Merkel was a lone skeptical voice on the bailout in EU councils, an unusual position for a German leader. She had her public behind her. Germans no longer feel obliged to pay for the sins of their forefathers by bankrolling Europe. But the responsible side of the German character also looks in horror at the spendthrift ways of the Mediterraneans. Other northerners share their unease and were happy to hide behind the initial Merkel nein.

This may at the same time be a last nail in the coffin of the Franco-German alliance. Once the cornerstone of the postwar European order, it sputtered this past decade. Ms. Merkel never got on with President Sarkozy, yet in recent weeks Berlin and Paris openly bickered over their own economic policies, never mind the Greek bailout. Europe has few good leadership options. No one at the EU in Brussels stepped up. Ms. Merkel is the natural candidate, but by temperament she prefers to lead from the back.

Charles Grant, the founder of the Center for European Reform, is a perennial fount of intelligently argued and realistic euro-optimism. “The EU is falling to pieces,” he now says. “The long-term effects of this crisis will be with us for many years.”

Southern Europe’s economies look condemned to depressed (or negative) growth, difficult measures to rein in public debt, and street unrest and strikes. The social mayhem in Greece offers a preview. And Athens resists the hard measures that Ireland, Hungary and Latvia took to dig their way out of similar troubles.

The political ructions will continue to be felt across the EU. The divisions exposed in recent months, and the end of the Paris-Berlin axis, make any talk of a “deeper union” to govern the euro a pipe dream.

The parallels here to the US and its current financial crises should be immediately apparent — with the federal government playing the role of Brussels, and the Tea Party movement acting the role of Germany (the civic uprising serving as a proxy “state” until actual states begin to take fiscal action, with Arizona and Texas already making some noise).

The strains on the EU from a divergence of thought over the proper governance of the union itself represent the preconditions for the kind of soft civil war I have been predicting could happen here in the US; what happens, the question is, should a state like California simply fail? — and other states, who have governed in such a way that their own local economies are robust, having not fallen prey to the easy lure of profligate spending to secure votes, simply refuse to bail out the failing states by agreeing to, eg., federally-imposed VAT tax plans, etc., that will ultimately slow the economy and cripple the entrepreneurial spirit that has served this country so well?

As Terry H writes in his email alerting me to these articles, “beneficiaries of Greek welfare state will not quietly disappear, but the state has lost access to money and has also forfeited the ability to create wealth in large part due to the creation of an expansive welfare state. A huge collision between perception and reality is taking place. What sort of *lesson* will be drawn from this remains to be seen.

To which I’d add, how many Americans have reached the point where they are no longer interested in teaching lessons so much as they are refusing to fund the places wherein those lessons continue to go unlearned…?

Posted by Jeff G. @ 9:48am
Comments Off on Grecian formula, follow-up |

Comments (0)

  1. “Even should Greece get its billions”

    It’s not Greece that gets the money. It’s Greece’s creditors.

  2. To which I’d add, how many Americans have reached the point where they are no longer interested in teaching lessons so much as they are refusing to fund the places wherein those lessons continue to go unlearned.

    Is this mutually exclusive? There’s a saying in IT: “There’re two kinds of computer users; those that back ou their data, and those that will.” The idea is that many people require having had that negative experience in order to learn the essential lesson. By increasing the pain by denying funds, just maybe the lesson will take hold.

  3. By increasing the pain by denying funds, just maybe the lesson will take hold.

    Sure. But the question is, how many people care about that any more?

    It’s the turn to realism I’m highlighting. I see a parallel with my own site: in certain instances, I’m not even trying any longer to persuade or teach — because I’ve recognized that certain opponents are committed to ignoring and or demonizing, and have no desire to debate.

  4. The hunger for entitlements sure has its price – even if Greece gets the aid to pay its short term debts, overall, hundreds of billions are outstanding and unlikely to be repaid. Bill Emmott in The Times:

    The message is that yet more promises of emergency loans to Greece, from the International Monetary Fund and the European Union, are beside the point. Loans, whether the €45 billion already agreed or the rumoured €100 billion-plus soon to come, are just palliatives. They do not stop the virus from spreading. The only way to do that is to cut the euro’s Greek leg off: in other words, to expel it from the single currency.*

    This radical surgery is being demanded for more members of Club Med – Spain is next up for the operating table.  Ambrose Evans-Pritchard in the Daily Telegraph*:


    S&P cut Spanish debt one notch to AA with a negative outlook, warning that the fall-out from the housing bust will keep the country trapped in near slump until 2016. It said private sector debt of 178pc of GDP was a major concern.

    Next up, Portugal and Italy. Goodbye EMU? Even the US picking up the tab for European security from the Cold War to the present hasn’t allowed the cradle-to-the-grave Eurosocialist model to sustain itself. Could well be a lesson in there, somewhere.

  5. I was highly skeptical when the Euro was created, because I could not believe that Germany would forever support financially weaker countries. It took longer than I thought it would to start unraveling.

  6. “The EU is falling to pieces,”

    Never fear, they’ll all be equal pieces = jettisoned parasites – ‘cept for the raaacists, of course. Which reminds me, damn, how I do hate dem Californians, and almost as much as dem Californians everywhere hate oil slicks! Plus, they all done earned enough money anyway.

    A raaacist’s prayer: God save me from Obama’s “success”. All others, nishi, take numbers.

  7. The EU is falling to pieces

    You won’t catch me out with a giant tube of Superglue.

  8. The question is whether Pooty-Poot can manage to snap up the low hanging fruit. I’m pretty sure we won’t try to stop him.

  9. EU is a bureaucracy seeking to create a shell of government to hide inside.

    In the US we have a government becoming a hollow shell shielding an all powerful bureaucracy (Czars) from accountability.

  10. The similarities are certainly more stark each day, aren’t they, geoffb? Which is why it’s time not only to point out the similarities in structure, but to show the end effects in practice in advance of our inevitably following suit.

  11. Back in the good old days of the drachma, I got caught short in the National Museum in Athens, and in typical Hellenic fashion, there was no toilet paper in the equally typically squalid public loo in the museum. Searching frantically for some paper, I remembered the paper in my wallet – three 100 drachma notes were pressed into service. Truly appropriate use for the currency, I always thought.

  12. To which I’d add, how many Americans have reached the point where they are no longer interested in teaching lessons so much as they are refusing to fund the places wherein those lessons continue to go unlearned…?

    Are you coming to the big gravity protest? That Newton was such a racist.

  13. “I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts, and beer.”
    -Abraham Lincoln

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