Monday, May 24, 2010
Greece and California
"In formally requesting Euro45 billion ($60 billion) from the [IMF] and [EU] Friday, Greek Prime Minister George Papandreou sought to end the drama over whether Greece can pay its bills. ... What it would do instead is open a wide new world of moral hazard--for Greece, for the countries providing aid, and for the future of the entire euro-zone. ... Thursday's market turmoil left Greek bonds in emerging markets territory at 8.7% on 10-year debt--5.7 percentage points about the German benchmark. This came after the EU's statistical agency, Eurostat, said it still lacked confidence in Greek figures and raised its 2009 deficit estimate to 13.5% of GDP from 12.7%. ... Meanwhile, tens of thousands of Greek public workers took to the streets to protest the government's austerity measures, such as they are. Could there be a greater disconnect? ... But over the next five and a half years, Greece will face some Euro240 billion in debt-service and refinancing costs-roughly equal to Greece's gross domestic product. ... Loans might delay, but cannot prevent, a radical restructuring of Greek debt. ... Further austerity measures demanded as a quid pro quo might take some domestic heat off Mr. Papanderou, but the IMF's policy history does not bode well for future economic growth. ... If Greece is bailed out, the markets will rightly conclude that a line has been crossed, and that Portugal and even Spain will be rescued too. Even the Germans don't have that much money. ... Mr. [Wolfgang] Schauble is so worried about Berlin's finances that he opposes tax cuts for Germans, but he nonetheless wants to bail out a spendthrift Greece. In an interview Monday in Der Speigel, he warned that, 'We cannot allow the bankruptcy of a euro member state like Geece to turn into a second Lehman Brothers,' adding that 'Greece is just as systematically important as a major bank.' ... Far better for the EU to draw the line now, force Greece and its creditors to take their pain, and to demonstrate to markets that there won't be a rolling series of bailouts. To adapt Mr. Schauble's Lehman analogy, better to stop the moral hazard at Bear Stearns, lest Spain become Lehman. ... Greece's problems are familiar across Europe: a welfare-entitlement state that is unaffordable given the country's anemic economic growth. This is what has to change, but it won't as long as the Greeks marching in the street believe their standard of living will be salvaged by German or French taxpayers", my emphasis, WSJ Editorial, 24 April 2010, link:
I agree with the WSJ noting the WSJ does not cite Islamic immigrants as a welfare-state problem in Europe. Nor does it compare Greece to California. Or the US. So I will.