Greek Drama Has Lessons for the Western World

As Greek prime minister George Papendreou submitted his resignation to the president on Saturday, there were no cheers of exaltation rising from the streets of Greek cities.  Instead, there was only a palpable sense of dread, as the future looked  more grimly uncertain than ever. 

Papendreou, the scion of the country’s most prominent political family- whose father and grandfather had both served as prime ministers - became the latest victim of  the sentient notion that  Europe would be a harbinger of a new era for mankind – a place where conciliation would replace confrontation and where amity would replace division.

But the Greek political class on Saturday demonstrated that the new Europe would be a far more divided place than any European leader could have imagined sixteen years ago following the signing of the Maatricht Treaty.  One can only gasp in wonder as a country roiled by a one trillion euro debt and confronted with the snarling contempt of other major European countries, could not bring itself to recognize that without a unified voice which accepts the austerity plan imposed upon it by the European Union, the entire country could be engulfed in an economic cataclysm that would make German stagflation of the 1920s look like a Saturday afternoon game of Monopoly.

For what had collapsed by Saturday night in Athens was not only the prime minister’s center-right coalition but  the very idea of a unified Greek nation, one that believed that as a people and a country it possessed a common destiny and common purpose.  The failure of the two major parties to forge an alliance to stave off the worst financial crisis in the country’s history, is a telling sign of what will become of other European countries as they pass through exactly the same crisis in the coming twelve months. It is very difficult to fathom how a democratic country, faced with such unflinching and demanding partners - who control the very monetary lifelines necessary to keep their economy alive, could be so conflicted on what is the only possible course for it to take. 

But this is the face of the New Europe.  Given to years of lassitude, the Greeks, and most Europeans have no stomach for austerity.  Profligacy, social welfare, neoptism, corruption and a vibrant, fairly open black market, has produced a country where people don’t work much, retire young and take long vacations. 

The Greek model actually describes the bulk of Europe, where the work ethic has given way to the pleasure ethic and the lambent idea that government can always be counted on to bail out failed enterprises.  But what happens when the government has no money to bail out anybody and the source that it must rely on – namely foreign investment, remains skittish and uncertain about the country’s future?  What happens when no one – not the European Union, not the United States and not China - is prepared to say we believe in your future and we will continue to fund your debt?

What then happens is a complete collapse of confidence and a fatalism that grips everyone from the prime minister to the local fruit vendor.   That is what was on display in the streets of Athens on Saturday night.  No matter what happens with the dissolution of the government or new elections in the not-too-distant future, the crushing weight  of debt will be the overriding, ever present concern of whomever takes over the running of the Greek Republic.  

The Greeks have good reason to wonder who will ultimately control their fate.  Angeliki Martaki, a retiree quoted in the Los Angeles Times on Friday, summed up what many ordinary Europeans must be feeling about their future:  “All the Euro has bought us has been pain.  At least with the drachma, we were what we were: Greek.  Now, I don’t know what we are and who is in charge of our national destiny.”

I heard the same sentiments expressed to me in villages in England and coffee shops in Madrid.   A collapse of national purpose; the absence of great leaders who can rouse the population to work and save; the lack of a pervasive national sentiment boldly declaring” we are all in this together.”  Instead, as countries such as Italy, Spain and Portugal progressively unravel, the citizens of these once great, independent countries will find themselves having to fend for themselves, with no one but the Gods to hear their cries of pain.

That idea – that soon there actually may be no one willling or able to come to the rescue - is a lesson that every citizen in the West should take to heart.

The Index of Economic Freedom

This week the Wall Street Journal and Heritage Foundation jointly released the 2010 Index of Economic Freedom which measures ten components of economic freedom – from business freedom to trade freedom to monetary and investment freedom, emerging with an index for each country.  As was expected, Hong Kong, Singapore, Australia and New Zealand  top  the chart with ratings in the mid to high 80s.    What is always sobering about the figures, however, are the countries that consistently wallow near the bottom:  Iran, Democratic Republic of Congo, Libya, Burma, Venezuela, Eritrea, Cuba, Zimbabwe and North Korea – all take up the last ten places.   It is no accident that the least politically free countries on earth are also the least economically advanced.

As the Wall Street Journal eloquently stated in an editorial yesterday, the dignity of a human being in our modern world is very much dependent on his ability to control his own destiny.  That is tied to the dominion he is able to exert over his property and his livelihood.  The 20th Century exampled disastrous experiments in controlled economies which did not allow for the kind of individualism which spurs economic growth.  The remnants of those failed experiments can now be viewed in the catastrophic economies of places such as Cuba, Burma and Zimbabawe.

And less you feel that the economic volcano that is  China offers a rebuttal to the argument, note that it sits in a middling 135th position on the list, with an index just over 50.  No one should be surprised that this burgeoning economy will eventually feel increasing pressure from its prosperous citizens who will demand more control over their private property and more say in how government regulates their lives.  It is an inevitable consequence of strong economic growth, reflected as long as ago as July,1789 when the French middle class demanded and took for themselves exactly the same power at the beginning of the French Revolution.

A Greek Tragedy

Germany’s decision yesterday to impose tough measures in order to bring the Greek economy into line, was one more statement about the difficulties Europe is finding in cementing its Union.

Since the Greek economy began to tank in October, the other members of the European Union have expressed extreme nervousness about what this might mean for the future of the Euro.  For if the Greeks default on their debt, the Euro’s value will plummet, taking with it the economies of many weaker member states and having a decisive impact on the economies of the stronger nations. For default could have a debilitating effect, sparking sharp swings in the euro and investor panic in other hard-hit nations.

Greece is one sick baby.  The Greek national debt, put at €300 billion ($413.6 billion), is larger than the country’s economy, with some estimates predicting it will reach 120% of gross domestic product by the end of 2010. The country’s deficit — how much more it spends than it takes in — is 12.7 percent which is almost four times what is allowed by the strict Euro-zone rules.

Desperate to stave off economic collapse, the Greeks have looked to their European partners for a plan to emerge from potential   bankruptcy.

Although Greece saw a long economic boom during the 2000s, analysts say successive governments failed to tackle an inefficient public sector in which wages and benefits ballooned. When the Socialist government came to power in October, its leaders discovered that their predecessors had doctored Greek financial data and that the deficit actually was 12.7 percent of the gross domestic product, double earlier figures. The realization sparked downgrades by rating agencies that triggered the sell-off in Greek bonds, as well as a sharp drop in the euro.

Add to this severe institutional problems – such as the fact that a third of the country doesn’t pay tax and a quarter of the economy operates under the table and you have a recipe for economic catastrophe.  Corruption, venality of office, an over loaded and under-worked bureaucracy and the fact that there is no history of accommodation between the political class and labor unions at all, have all added to the sense of hopelessness.

Greece is already in major breach of euro-zone rules on deficit management and with the financial markets betting the country will default on its debts, this reflects badly on the credibility of the euro. There are also fears that financial doubts will infect other nations of lesser economic worth.  These smaller economies  – Portugal,  Italy, Ireland , Greece and Spain (dubbed  somewhat colorfully as the PIIGS)  are coming under increasing scrutiny.  If Europe needs to resort to rescue packages involving bodies such as the International Monetary Fund, it would further damage the euro’s reputation and could lead to its  substantial fall against other key currencies.

The Greeks, laboring under high 6% interest rates for international loans need to meet governmental obligations, have pleaded with their other member states to provide them with cheaper money so that the road ahead is not so difficult.  But Germany, with Europe’s strongest economy, is having none of it.

With so much at stake, why are the Germans being so hard nosed?

Its quite simple really.  It refuses to pay for other members’ irresponsibility.    According to a joint statement on the EU Web site, in the event of a Greek default and failing to access funds in the foreign bond market , a “majority” of the euro zone States would have to contribute an amount based on their Gross Domestic Product (GDP) and population.

This means Germany will be the main contributor, followed by France. Although the announcement did not mention any specific figure, a senior European official quoted by Reuters said that the potential package may be worth around 20 billion euro (US$26.8 billion).

Perhaps that is why Germany’s Chancellor, Angela Merkel, this week made it clear that in the event of a Greek  default, the International Monetary Fund would be required to participate in a Greek bailout.  With an economy almost twice the size of its nearest competitor, Germany has the muscle to force its European partners to squeal “yavol.”

The decision to involve the IMF in Europe’s first real test of its faith in its currency’s sustainability, has got many E.U. enthusiasts gulping with uncertainty.   Germany’s apparent reluctance to play ball, they feel, is an expression of a lack of confidence of the regional economic hegemon in the Euro’s future.  And if it has so little confidence in the Euro, how does it feel then about the European Union itself?

There has always been a problem of maintaining a common currency among a diverse group of countries.  When the Euro was introduced in 1999, many skeptics asked how it would be possible to uphold the currency’s value  and stability without a firm united fiscal policy or overall budgetary framework.    With each of the participating countries  permitted to determine their own economic future, what was to happen when one of the countries defaulted on its debts?

Well that scenario was deferred for nearly a decade as the euro displayed extraordinary strength, buoyed by a robust continent-wide housing boom and  investor  confidence.   When Greece, for example, dumped its own currency, it gained unprecedented footing in financial markets. With Greek debt backed by the powerful euro, Athens raised billions from foreign pension funds and global banks at interest rates nearly as low as those offered to Germany. Flush with easy money, government spending soared and the economy boomed.

But the global recession has pummeled the continent with a force of a tidal wave, revealing, in its wake,  some of the true institutional susceptibilities of the entire European enterprise.

Part of those problems relate to fertility rates and rapidly aging populations.   The inability of many European countries to produce a work force to meet the needs of growing economies is exacerbated by the weight of pensions that the state is required to dole out to its retirees.

No wonder public sector unions  strikes are occurring all over the country.

The government also has drawn criticism from university students who now doubt that there will be enough jobs for them. Angry posters fill the walls of the entry hall at Athens University’s economics department.   Students there are skeptical that the government will be able to jump-start Greece’s economy.

Valia Floridis, 21, for instance, is looking for work abroad. She says many young Greeks feel they have no future here.

“It depends on their dreams. If they just want to have a job and salary to eat and sleep and live without prospects, it’s OK. But if you want more, if you want something great, if you have big dreams.”

To date, the Greek prime minister, Georgios Papandreou, has stated that Greece does not need any immediate financial aid.   But he admits that it does need the confidence of its partners, for without such a display of continental solidarity, it will lose access to the cheaper money it needs to finance its short and long term obligations.

The situation of this Mediterranean country has many declaring it an isolated case of a country gone wrong.   Yet no one should mistake the tragedy playing out in Athens as a peculiarly Greek one. This playbook gives us an alarming view of the true state of Europe’s finances, with smaller countries and their huge debts threatening to drag the large,  richer ones into a whirlpool of financial collapse.

Blame it on the over ambitiousness of the Euro enthusiasts,  but back in 1999 the likely truth is that the continent, without some kind of political union which provided an overall budgetary framework, was not yet ready for a united currency.   As the succeeding Portuguese, Irish Italian and Spanish crises may  begin to make clear,  countries with much to protect may begin to resist the demand to bolster weaker economies in their continental partnership.

In such a case,  sovereignty will almost certainly trump both ideology and sentiment as northern European countries, fearing a spiraling vortex of economic collapses,  slowly begin to reduce their commitment to the union they worked so hard to establish.

A Political Death in Massachusetts

No one can say that history doesn’t have  a sense of humor.  Twelve months ago you would not have found an American alive who believed that the senior Senate seat in the State of Massachusetts would remain anything but eternally Democratic.    Afterall, it had been occupied for nearly 50 years by the same man -a liberal lion who happened to be the scion to the family that had dominated Massachusetts politics since the early 1950s.

To say that the Democrats owned Ted Kennedy’s senate seat, is to understate the matter.  Most of us believed that to dislodge a Kennedy or any Democratic successor would  require the  political equivalent of a comet striking Boston.

Republican Scott Brown’s victory yesterday, which  upended more than 70 years of Democratic rule, was therefore not just historic;  it was proof that  American politics are never static, that change can come as quickly - and as brutally- as the time it takes to fashion a political agenda that is out to lunch on the way most Americans think and feel.

For Barack Obama this could not be a more depressing indication of the degree of national outrage and disappointment about his young Administration.  Coming at exactly the one year mark of his accession to power, this voter statement was not a rejection of  the Kennedy legacy per se, as much as a deliberate  swipe at the big government, welfare programming and economic naivete of the current Administration.

Yet nor should it be read as an endorsement for the Republicans.  The election of  Scott Brown should rather be understood as a warning to them that the electorate will no longer tolerate politics as usual,  nor will it give latitude to candidates who are out of touch with the basic concerns of life – jobs, housing economic stability and national security   – or  to those who prefer to gamble away the country’s future on health care reform,  global warming obsessions or deficits that will saddle their children and grandchildren with onerous obligations for years into the future.

The lesson of Masschusetts, ultimately, is that Americans – liberals and conservatives alike, are fed up.   They are not looking for a Messiah, as some wanted to paint Barack Obama;   nor are they looking for big government, as both Bush and Obama presented to them.   They are looking for common sense and stability. 

Those are not qualities that our political system seems to produce in abundant quantities.  But maybe, just maybe, an emerging leader in one of the parties will get the message and bring back to the White House  those elements with enough time to stave off a true national disaster.

WHO IS GOING TO OWN AMERICA?

The debate in Congress rages this week about President Obam

a’s $815 billion stimulus package and yet the most important question is not being asked:

 

Who is going to own America? 

 

The debt that Americans are being asked being asked to assume, which could amount to many trillions of dollars over the next 20 years, is obviously going to be fronted by creditors with deep pockets.

 

So who exactly are they, these creditors?  The American citizen?   Nope.  American citizens don’t have that kind of money.  The government?

t itself?  No, it does not have that kind of money on hand.    Then who does?  

 

The answer is foreign governments.  And among those governments are those whose agenda may not necessarily embrace the life, liberty and happiness of the average American taxpayer.

 

In short, Russia, China and Saudia Arabia are about to become America’s somewhat suspect sugar daddies .

 

These governments, in case you don’t know, already own trillions of dollars in U.S. treasury bonds. Should we be offering them even more?   It is very much like placing bars on your windows to deter the thief  and then leaving the front door key under the mat for whenever he feels inclined to enter your home. 

 

To be fair, it has been argued (and quite convincingly) that these nations have a vested interest in propping up the American economy.  For while the U.S. citizenry accounts for less than 5% of the world’s population, it accounts for 25% of global GDP.    That makes the U.S. market place, with its enormous potential for consumption, the trough from which the rest of the world feeds.   Would these nations, asks the economist,really  sever the pipeline which provides them with their own source of nutrition? 

 

The answer most economists give is no.   These nations, they claim, have signed on for a life long, no-going-back adventure with the American economy.  Never again will they  have recourse to their capital.  Never again will they indulge in the dream of buying up major American properties or other assets with their profits.    When their treasury bonds come due, the only thing they will be able to do with the money is buy new bonds.   In this scenario they are not loaning money at all.  They are investing in the American economy in perpetuity. 

 

The trouble with this picture is that the potentates of Moscow, Beijing and Riyadh may have a somewhat different understanding of their role in our future.   As Frank Gaffney points out in his book War Footing ( an AFA recommended book of the month), China is poised for a  military confrontation with the United States some time over the next twenty years and all its economic planning, military posture and foreign policy maneuverings are geared towards that eventuality.   Russia, almost needless to say, has re-entered world politics convinced that it deserves recognition and respect as a great power and is making a determined effort to restore 19^th Century style balance of power politics – at the expense of the United States.   Saudia Arabia has been the international financier of  the global jihad for at least 30 years and despite the fondness of its leaders for Western styled luxuries, is pretty well committed to the West’s destruction. 

 

Some sugar daddies.

 

So what if the projections are wrong?   What if instead of recognizing the virtues of  interdependence the leaders of these countries embark on a meglomaniacal drive for world domination? Do these much vaunted economic safeguards really clamp the vault shut  on their global ambitions?

 

Israel learned about top heavy ownership of its economy the hard way. In the 1990s, seeking to free itself from its economically suffocating socialist heritage, the government began to sell off huge chunks of its communications, banking and transportation sectors.  But this privatization process soured when it was realized that the buyers of these plum assets would be cash -flush Israeli companies who could build virtual monopolies with all the goodies they could now collect at auction.  Today the Israeli economy is in a sorry state because of it, with 65% of the country’s assets controlled by only 18 families.  It is this oligarchy which essentially rules the country, effectively asphyxiating the political culture and disempowering the citizenry.

 

The danger in owing your economic survival to the good graces of people who despise you, cannot be underestimated.  Not all nations act rationally; not all leaders are honest about their intentions; not all care even about their own long term survival (witness our dear friends among the mullahocracy in Iran).

 

Before committing to a prescription of debt recovery medicine, it might be best, then, to determine the credentials of our doctors.  Are we, in the end, being advised to quaff medicine that will make us well?   Or are we being duped into drinking a decidedly unhealthy poison?