Thursday, February 19, 2015

Grexit, schmexit: It ain’t gonna happen

For sale? Owner must sell ...
Right now a battle of Homeric proportions is being waged for the future soul of the European Union.

On one side are the Teutonic bookkeepers of the EU, led by Merkel of Germany and Cameron of Britain. On the other side is the tiny, profligate, bankrupt state of Greece, the home of Western civilization.

Caught in the middle are the other EU states, with the citizens of most of them not too sure that tightening the screws on Greece with renewed – or continued – austerity steps is the wisest thing to do.

Siding with the Teutons are many commentators, who are convinced that the whole thing is a tragedy, with a dire ending already cast in Olympia. Here is one example of such doomsayers:

My view? There won’t be a Grexit from the Eurozone or the EU.

Why not? Because the interests of the Greeks and the Teutons are not that different, and any interest-based negotiations rather than position-based negotiations should lead to an agreement that meets the most important requirements of both sides.

To start with, we need to discount the statements coming from politicians that a deal is a deal and has to be carried out. That’s nonsense. When you are in a workout situation, deals are signposts along possible routes to resolution, and not resolution itself.

If you strip the arguments of the Teutons and of the Greeks down to their essence, you come up with something like this:

Greece:   Our people are hurting; we have 50% unemployed young people; people are struggling to put food on the table; we need hope, not despair, if we are going to take steps to reform our political system; austerity has not worked as people thought it would. So give us a bridging loan, let us agree on immediate and mid-term goals, and let us inject some cash into the economy to give jobs to people who need them.

Germany:  Your country is bankrupt; your government owns large whacks of the economic assets, and runs them very poorly; your labour is cossetted and lazy and over paid and over protected; your pensions are too high and are paid too soon; you borrowed money to fix your problems and agreed to reform your system, but have not carried out concrete steps to do so. And above all, your tax system is broken: people do not pay their taxes and nobody bothers to throw them in jail for such crimes.

What’s the essence of the problem?

Greece lived beyond its means (as did America); Greece borrowed too much to spend on the wrong things; labour and other economic reforms need to be faced up to, agreed upon, and laws passed to implement them; but everyone wants Greece to stay in the Eurozone and in the EU.

So where’s the difference?

My guess is that the Germans want a public confession by the Greek political leaders of the reality of and magnitude of the problems facing them; they want concrete steps to be taken in accordance with an agreed timetable; and they will then pump more money into Greece – one way of another, and most likely through the face-saving money-printing quantitative easing steps of the European Central Bank.

So what will happen in the next week or so?

Some senior Germans are rattling sabres publicly, but Merkel is keeping her powder dry. However, the new Greek government is trying to come up with some ideas that can bridge the gap between the Teutons and the Greeks, but are somewhat trapped by their promises made to be elected.

So, I expect a Third Force to emerge, aiming at reconciling the Greek and German positions, fleshing out the main objectives, laying down the tracks for the solution-train to trundle along, and putting a price tag on various things. Just like the Germans, French, and Russians did to arrive at the Minsk agreement.

I put my money on the president of France to step forward to form the Third Force and broker a deal.

And then we can all sit back and wait for the Europeans to crank up their printing presses and print gazillions of Euros, like America did with its QE solution.

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