Mainstream Economist: Greece will leave the Euro

Miscellaneous Current Events
1

This is really a sign of changing times. Yesterday La Repubblica-Affari e Finanza run an interview with Allen Sinai, professor of economics at the Brandeis University, adviser to Lehman Brothers and former adviser to Clinton and both Bush father and son. This newspaper cannot be considered for a second “pro free market”: in fact they have been preaching for decades that regulations aren’t enough and should be increased. The credential of this economists aren’t exactly those of a firebrand libertarian. Yet some of his conclusions are strikingly “libertarian”. Here are the most important.

“Greek debt and deficit are both excessive and hopeless. Athens will be able to hold out three-four years with the help of this European Monetary Fund, which I have not much faith in, but then pressure from the ECB and widespread popular unrest will force the government to ask out of the Monetary Union. Spain and Portugal will likely follow. Italy is also at risk both because of her enormous debt and her declining flexibility, productivity and deteriorating infrastructures”

“The USA have nothing to teach to the world about monetary discipline. The debt level is alarming but even more alarming is the paralysis in Washington. The only concrete measures are an extension of the “stimulus” program, with many questions about what will happen when it will end, and some measures about unemployment.”

“China is already an economic superpower, though many still pretend not to notice, but she will outperform everybody during the next decade.”

“Japan will perhaps gain a little through high-tech exports to China but her own very serious issues will soon catch up with her.”

Another couple of news. France and Germany are still bickering over how to come to Greece’s rescue. One thing is for certain: the 30 billion euro we talked so much about in the past won’t be nowhere near enough. Athens needs 25 billion by May and 25 more by the end of the year. 50 billions is about 1/7 of Greece’s 2009 GDP. That would make Greece, a “first world” country, one of the largest aid recipient in history. By comparison the US government gives away each year about 15 billion dollar (Military Assistance Programs excluded) in foreign aid.

Now if you forgive me I have to go and refill before my fuel will pay for even more government dole!

2

Those all sound like reasonable quotes from the man. I could see the situation in Japan getting pretty gloomy within 1-2 years. The debt+deficit along with the currently low interest rates could make their bond market crash if rates were to rise.

I don’t see Greece getting out of the Euro soon, but 3-4 years sounds like a reasonable time. After one or a few bailouts, the EU would probably give up on Greece.

3

50 billion in bailouts?

All these bailouts make me want to start my own country.

4

Why leave the EU? Why would California (At least the areas that don’t grow pot) leave the USA? There is no reason to do so. The EU would have to kick the folks out just the same as the USA would have to kick California out. Both of these smaller political entities are being supported by the larger. It is the better off ones that have reason to leave. That is Germany, Norway, Luxembourg, etc who are getting tired of paying for everyone else. The same is true for the USA, the states like Montana, Alaska, Idaho, etc are becoming increasingly tired of supporting California and New York and if this stupid health care thing passes, Nebraska.

The only difference is that the USA has a giant military-intelligence-law enforcement bureaucracy to keep the wild ones in line and has used it for that exact reason in the past. The EU does not.

5

Because in the end it will be the only way out for both Athens and Berlin. The former will be caught between austerity measures to keep the ECB happy and popular unrest linked to reduced government largess, the latter will soon grow politically tired not to mention there will be other countries joining the breadline and fiscal stamina is already in short supply all over Europe. A negotiated exit from the euro will be the cleanest, most rational move for both parties.

And another thing: never overestimate the power of the State. We see the heavily armed police, the sophisticated eavesdropping systems and the overcrowded jails and stare in amazement. Yet remember what Mises said: in the end military might and police repression are no match for ideas. Any regime, even Kim Jong-Il’s, rests on approval of the people: this approval may take many forms, the most usual in the West being something halfway between resignation and hunger for dole. But when this approval evaporates there’s nothing in the world that can keep rulers in charge: look at Rezha Pahlavi. For all his incredibly brutal secret police and US trained army he was kicked out of power by a bunch of students led by a group of elderly clerics. He had lost the Mandate of Heaven and his days were numbered, no matter how many he had tortured of executed.

6

It is the only way out for Berlin. The Greeks should milk the ECB and Germany and all the other nations of the EU until the EU collapses or they refuse to keep the bailouts coming. Keep in mind that these are politicians who will sacrifice all to maintain their hold on power. So these people will give Greece anything short of causing an uprising in the less indebted countries. The best part is that the other PIGS are seeing this and increasing their debt loads to get the money instead of Greece. It is the same here in the USA. The US Federal Government will do anything short of causing a succession in the less indebted states to keep the state government of CA running. The funny part is that states like Ohio are incurring deficits to get this money as well.

As for ideas winning in the end, I agree with that. For example Zimbabwe no longer has a currency and the government is growing at slow rate since the collapse of their currency and the hand over of power from morons who ran the country previously. But in the short term all governments are more than capable of destroying tremendous wealth and productive capacity, and of mass murder.

7

Kakugo, my man, I love these European threads you toss out!

Now, about I’ve said that and I must go again: it is impossible to kick out of the EMU!!! cannot, under any circumstances, switch currency! The old Drachma, that piece of s**t, has lost all relation to the market and no one can calculate in anything bur euros.

What could happen is, at most that will be denied the right to print euros, but will of course keep running on euros. It will, in short, become a big or Kosovo. Incidentally that would cut every opportunity of the government to monetize, forcing it to retrench.

Should that happen, I say there will be civil war with the Greek Islands breaking of and proceeding to become the most developed part of Europe (of course, since they’re being settled with Albanians[;)]), while the mainland reverts to military rule (which would not be installed in the islands, and Turkey would not allow that).

Such a solution, by far the best, would discourage turkey form entering the EU, cutting every hope to gain some capital. itself would go bust in a decade.

And by far the most important result: enlargement would be stopped short! could be invited to join at most in 2018 (probably 2014) but the crisis would definitely stop that. You know those movies where the car stops just short of the cliff? That’s us!

Unfortunately none of this is going to happen as British banks have too big a stake in , and a default would bring down the British banking sector in toto. They will never allow that to happen.

While about , I wouldn’t make the situation to be so bad. After all has no social security as far as I know, hence no massive unfunded liabilities. Its shortly much more solvent than any western nation. If they could just relax SME regulation and allow monetary competition (privatizing the BoJ in the meantime), they would get going anew. In time they could even cut subsidies to those massive para-statist corporations. But Japans certainly is not short of options. The west is.

8

The fact that even the German Minister of finance, Wolfgang Schable, is openly talking about the possibility of one or more country leaving the EMU should ring many alarms all over the world. Herr Schable is well known for his peculiar and controversial ideas but this time nobody dissented with him, neither in Berlin nor in Paris nor in Strasbourg. If the EMU is to survive the present decade lots of painful sacrifices will be needed. One of these sacrifices will be allowing countries like Greece and Portugal to leave. If even the most powerful Minister of Finance in Europe is openly talking about the possibility I wouldn’t be so sceptical. Spain and Italy will be much tougher nuts to crack though.

I’ve also willingly let a potentially crippling issue out of the picture: war with Iran. Europe is bowing down to her masters in Washington and Jerusalem without caring too much about herself. Energy prices in Europe have skyrocketed since the beginning of the year and should Israel have its way they could become downright unbearable. While European oil companies are already pulling out of Iran (leaving the field open to the Chinese) it seems very few chickenhawks care about what would happen if Iran mines the Straits of Hormuz again or bomb any oilfield in the Gulf.

Finally a word about Japan: they do have a social security program in place. Not only that but while it’s technically compulsory to pay for your social security taxes there are no penalties if you decide not to pay. At the very best the government can send you a letter asking you to pay your dues but why should you?

9

History repeats itself: always a war brings down Empire. No one will miss the EU though.

What would be interesting is to venture and ask what would happen if the cross-country subsidies now in place in the EU where to disappear. I would clearly see Northern Italy and secede. Perhaps to would go. Perhaps even a city-based movement of secession could begin. Everyone who’s even been to , to make on example, always finds way more advanced than the rest of the country. It could only be a matter of time, thus, for the hapless citizen to start questioning why is that they should pay for roads to be build in some village. Seen like this, possibilities are endless.

10

Why is allowing them to leave a painful sacrifice?

From what I gather, they both need boatloads of money, and once they get it, will probably want more every year forever.

11

Because it will be a defeat for the all-powerful eurocrats and it will start the unraveling of the EU. And there will be much rejoicing. [;)]