It is almost bizarre to note that the Guardian is carrying a story this morning that says Greece's debt is unpayable whatever happens now.
This fact has been obvious for some time. Greece has rising debt that is well above any internationally recognised sustainable level and because of falling income, imposed on it by the EU and IMF, has not the remotest chance of paying that debt off.
You can blame Greece for that. And some of the blame is undoubtedly its to bear.
You can also blame the banks who made so many of the loans to Greece in the heady days after the Eurozone was created very much more. They assumed they could lend to Greece without risk because monetary union meant they could never lose.
The sad fact is that they have, by and large, been proved to be right. Commercial banks did suffer some losses on Greek debt but then offloaded the rest of their reckless lending to public institutors, mainly the ECB. That is why so much of the Greek bailout funding has not gone to Greece: a large part has ended up with banks, a fact widely ignored by the media.
But the point remains that what is left is unserviceable without radical reform of the Greek economy that permits it to grow again, and that reform is not possible unless existing debt is written off. That's because without that write off all the money needed to invest for growth will instead go in debt servicing.
Long ago the reality of this type of crisis was recognised in the commercial insolvency world. What Greece is in is best described as a classic receivership situation where there is a surviving activity well worth preserving (it's a country, after all) but where any chance of it prospering is prevented by debt burdens that are the consequence of past mistakes. In the commercial and personal world, and even for some forms of local government, we pragmatically allow such restructuring because whilst no one wants to see non-payment of debt we prefer that to no payment at all and the continuation of a struggling entity always tottering on the brink of potential failure.
We need to recognise than that if Greece was a company a pre-packaged insolvency would probably solve most of its problems, in days. It is time we did the same for countries. But don't hold your breath because bankers object to this, largely because the guarantee that countries won't fail is what they think underpins their own risk, and the last thing they want to do is accept responsibility for that.
So Greece must suffer when glaringly obviously a better solution can be and should be found. In the commercial world you might call that professional incompetence. Internationally it's just callous. But no one is listening.
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My grandson is just beginning to take an interest in politics, until now he has shared the opinion of his peers in that it was a waste of time to engage. As the easiest person of the ‘old order’ to approach he asked me for an explanation of the Greek situation. I described it as fairly as I could even taking time to comment on the views of the ECB and IMF and I really tried to avoid promoting my own ‘jaundiced’ view. After I had finished he said “So its like Wonga then.” I wanted to tell him it’s more complicated than that but it’s not is it?
Not really
He’s right
And good that he’s aware of the risks of Wonga
My children are too
I hope you are not suggesting the banks should take a hit for their irresponsibility? That could mean a reduction in bonuses!
“well above any internationally recognised sustainable level”
The conventional recognised measurement of the state of a country’s public finances are annual deficit and overall debt to GDP. These are justified as useful metrics as GDP represents the ‘tax base’ of the country.
This alas is not the case as it includes imputations which are untaxable. Few countries have licenced prostitution and drugs trades which generate taxation but these are in GDP. And in Greece in particular evasion and the ‘gray’ economy are huge.
By the conventional measure Greece’s debt was thought to be sustainable, hence the bailouts of 2010 and 2012. It still is if we compare Greece to Japan.
Imv some clever economists need to find a new way of measuring a country’s overspending problem and then the solution would have been obvious 5+ years ago to everybody and not just the aftertimers.
The problem with your article is that you are using “Greece” as a substantive noun. This stops you from seeing the internal divisions inside Greece and every other EU country.
You were right in your last blog when you said you had a problem with the economic order which “especially [in] the neo-feudal form … outsources risk to the state whilst capturing reward for the few that is now in vogue”.
What we are seeing is classic Stamokap Theory.
The whole thing looks like ‘economic warfare’ gone mad but I am only an observer not an expert of any sort