Friday, May 18, 2012


This week's stock market results show us yet again evidence why Americans need to care what happens in Greece.  Of course, this illness (which I'm titling "Euroinflammation" and will label future posts as such) has several variations and extends well beyond the well-known Grecian Formula.  Portugal has it bad; Spain and Italy are infected.  It's all about bad economics, poor taxation enforcement, unfavorable demographics, and xenophobic protection of the nations' workforce from lower-cost (and higher-reproducing) foreigners.

That is part of the problem; the real problem is the uncertain, insecure nature of European Union and Euro monetary governance. German Premier Angela Merkel is quite happy to nominate herself to answer Dr. Kissinger's caustic question, "Who do you call when you want to speak to Europe?"  Unfortunately or not, the other countries are reluctant to confirm her nomination. They did it her way at the last--or I should say, the latest--last-ditch summit meeting to save Greece from default, disgrace, and departure from the Euro. Once again, though, that deal is coming apart.

The Greeks had to have Parliamentary elections, and the results were worse than settling nothing:  they settled any thought that the Greeks might be able to assemble a government to get them through the crisis.  Parties refusing the deal shot up in the results, enough to make it impossible for either of the "respectable", deal-respecting leading parties to have a chance to get a majority together.  Neither could the leading refusal party, but I suspect that it (Syriza) will be the beneficiary of yet another round of voting, which will be necessary since the Greek President dissolved the new Parliament, as he was constitutionally authorized to do.

Civil order in Athens is tenuous; I suspect the forces that would repudiate the deal will continue to grow; now that Greek voters have seen one rejectionist party emerge as a major force, I would expect it will attract a lot more support from responsible voters who choose national irresponsibility (the other significant rejectors are the Communists and neo-Nazis). I expect that party would eventually lead a government which will attempt to restore order by rejecting austerity and threatening to leave the Euro (unless the other Euro countries come up with a much more palatable approach than the current formula).

I'm not sure how that brinkmanship will work out, but I see one possible conclusion in the form of Greece leaving the Euro, permitting massive devaluation of the "new drachma", and then a shocking rapprochement with their traditional enemy, Turkey, something that could actually work out.  The Turks are feeling their oats, smarting from rejection by the EU (not formal, but clearly signalled), and they might see a benefit in working things out with their near neighbors, "one people separated by religion", as I've heard them say.  Remember you heard that one here first!

What will happen to Europe and the Euro, once Greece puts itself on the rack?  The debt servicing for the other weaker Euro countries will worsen dramatically, and Germany--now without France's support--will feel ever more heavily the pressure to authorize a Eurobond, a step that should have been taken months ago.  In order to preserve their shaken union, they will need to strengthen it.

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