Wednesday, August 26, 2015

Meanwhile, Back in Greece

We continue to view Greece as a kind of real world live experiment that can show us on a small scale how the problem of  overwhelming sovereign debt will be dealt with. Since the world has a big problem with overwhelming sovereign debt, any clues we can get as to how this will be resolved are appreciated. CNBC runs this article on the latest developments in Greece. Below are some quotes and then a few added comments.


"Europe spent months trying to crush Alexis Tsipras. But now that Greece's leftist prime minister has called a snap election and is seeking a mandate for the tough new bailout program he negotiated with his country's creditors, Europe, oddly enough, may find itself invested in his success.

Greece never fails to surprise, and Mr. Tsipras's turbulent eight-month tenure has proved he is rarely predictable. But the man many European leaders once regarded as a populist wrecking ball is now presenting himself as a figure who can deliver pragmatism and stability — and carry out the sort of austerity program he once inveighed angrily against."
. . . . 
"The latest twist by Mr. Tsipras was met with cautious optimism on Friday by some European commentators even as his surprise move again tossed Greece into political turmoil. On Friday, a faction of hard-line leftists split from Mr. Tsipras's Syriza party and formed a new party, vowing to resist austerity and possibly even lead Greece out of the eurozone."     . . . . 
"Some economists also warned that the uncertainty surrounding the elections, including the possibility that the proposed Sept. 20 election could be pushed back, could revive the sort of public anxiety that earlier this year destabilized the broader economy and spurred a run on Greek banks."
. . . . .
"Yet mistrust for Mr. Tsipras is deep among German officials, and some lawmakers were suspicious that the Greek leader might use a new election to revoke the bailout program he signed last month. "Mr. Tsipras must not be allowed to deviate from the path of reform with such a maneuver," Manfred Weber, the head of the center-right European People's Party, told the tabloid Bild."
. . . . . .
"But Angelos Handris (Greek citizen), 55, who manages a street kiosk near central Athens, bemoaned the election as "the last thing we need," and sharply criticized Syriza. "They promised the world, they messed up, they closed the banks, and now they want to drag us to elections," said Mr. Handris, a supporter of the conservative New Democracy Party."
My added comments: The situation in Greece continues to be a hot mess even as it appears that they are crawling towards some kind of agreement. The article above clearly illustrates how hard it is to get all the various factions to work together on any type of solution. Keep in mind the IMF is still balking at joining in and wants to see both sides give in some more before they will agree to any more lending. All these problems and conflicts just for Greece.
We can magnify and multiply these same kinds of problems many times over at the global level. Just imagine how hard it will be to get global agreement to any proposed solutions that may be offered to another global financial crisis. The competing powerful special interests at that level are enormous. 
What we have seen in Greece was that the people elected a government to stand up to the creditors they viewed as too oppressive. The government did that which led to direct conflict. Both sides dug in and the creditors were quite happy to use hard ball tactics (cutting off the people from their own money in the bank). Once the crisis become real to people, they quickly caved in and allowed the government to agree to the very program they had sworn they would never agree to.
Beyond all this, the "solution" does not really fix the problem or even admit to it (that Greece's debt is too large to ever be paid off in relation to the size of its economy). The IMF is willing to admit this, but the proposed solution from the EU does not.
If Greece is a real world live experiment as to how things will go at the global level if we get another major financial crisis worse than 2008, expect some difficult times ahead. For other examples of how hard it is to get global cooperation, read our Part I and Part II articles on this topic.

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