A Greek tragedy
"Drive the corruption from the land … "
And so it has come to pass that the EU has agreed to bail out the Greeks:
A bailout, however, does nothing to fix the misguided policies that have generated Greece’s existing debt and ongoing deficits. Bailout therefore merely postpones the day of reckoning. Worse, bailout both rewards Greece’s bad past behavior and encourages such behavior in future. Greece will never change its misguided policies if the E.U. and IMF infuse it with new cash, just as no teenager who has overspent an allowance will reform if the parents merely expand that allowance.Thus bailout merely transfers resources from other nations to Greece. This is presumably beneficial for Greece in the short term because it postpones painful adjustments like lower salaries for government employees. But a bailout harms the citizens of these other countries, who did not live beyond their means. And a bailout harms Greece in the longer term by delaying adjustment of the fundamental flaws in its economic policies.The negatives do not end with the current bailout. Greece will be back for additional bailouts in short order, since under a bailout it will not fix its underlying problems. And once the EU and IMF have bailed out Greece, they will find it impossible to resist bailouts for Portugal or Spain. As the recent downgrading of these countries’ bonds suggests, they (perhaps along with Italy and Ireland) are also at risk of default in the near future.A bailout, however, does nothing to fix the misguided policies that have generated Greece’s existing debt and ongoing deficits. Bailout therefore merely postpones the day of reckoning. Worse, bailout both rewards Greece’s bad past behavior and encourages such behavior in future. Greece will never change its misguided policies if the E.U. and IMF infuse it with new cash, just as no teenager who has overspent an allowance will reform if the parents merely expand that allowance.
Thus bailout merely transfers resources from other nations to Greece. This is presumably beneficial for Greece in the short term because it postpones painful adjustments like lower salaries for government employees. But a bailout harms the citizens of these other countries, who did not live beyond their means. And a bailout harms Greece in the longer term by delaying adjustment of the fundamental flaws in its economic policies.
The negatives do not end with the current bailout. Greece will be back for additional bailouts in short order, since under a bailout it will not fix its underlying problems. And once the EU and IMF have bailed out Greece, they will find it impossible to resist bailouts for Portugal or Spain. As the recent downgrading of these countries’ bonds suggests, they (perhaps along with Italy and Ireland) are also at risk of default in the near future.
It looks like no-one has learned any lessons from the bank bailout. By bailing out the Greeks, we create moral hazard, where people misjudge a situation and then learn that no matter how badly they misjudge the situation, someone else will tidy up their mess.
Actions should have consequences: putting your hand on a hot stove causes pain, the pain teaches you to be more careful. But if you didn’t feel any pain and didn’t have any other consequence from it, why would you be more careful?
Time after time, we are told: “This is too big to fail. If this fails, the consequences will be devastating.” And so fewer and fewer successful things prop up more and more failing things.
What happens when the last successful thing fails?
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- May 6, 2010 at 09:20
{ 11 comments… read them below or add one }
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1
May 6, 2010 at 08:37 -
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May 6, 2010 at 09:33 -
We come Acropolis! LOL!!!
Is it Punday?
The Greeks are having it given them on a Plato!
and from I can’t remember who the other day…
Beware of Greeks bearing gilts…Why are they not selling off their marbles and other antiquities? and offering cheaper holidays, thought this was a market economy! Just goes to show the EU is the new Russia!
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3
May 6, 2010 at 10:14 -
the problem is the people responsible for the situation will get away with it scot free……greece has fiddled the books,overspent and allowed vast amounts of jobs to be ‘offshored’ to even lower cost economies like bulgaria….all of which means that lots of people want to work for the govt…..
it is exactly the same here…..£trillions of oil money wasted,millions of jobs lost (cars,shoes,textiles,clothing etc) -vast immigration and nice cushy govt. non-jobs to buy allegiance and fiddle the dole numbers……….
things are so bad we have already had to print £225 billion of counterfeit money!!!!!!
all for what? the uk shambala ?
and the mps,lords and big business will NOT suffer………all rewarded with nice cushy jobs and pensions.until they are FORCED to pay they will continue to squander money and resources……..
as a start gordon brown should be put on trial for selling the gold…….after pre-announcing it……….nick leeson was put on trial and got six years i recall…….he was also made bankrupt if memory serves……….
until these hoons face justice they will continue to shit in our faces!
time to grow some people and get organised. -
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May 6, 2010 at 10:17 -
Anna, this has nothing to do with saving Greece. It has all to do with saving the banking system once again.
The ’system’ cannot let Greece default on it’s debt obligations. Not only would it trigger massive losses for the European (and UK) banking system who hold Greek Government bonds, it would also trigger hundreds of billions of pounds of credit derivative swaps resulting in further catastrophic losses for major financial players.
CDs’s? A ‘nil sum game’ the market says. It’s only a nil sim game if everyone can pay everyone else. But that just ain’t the case – see AIG and $180bn of US taxpayer funds.
This is a war between our political , banking and corporate masters and the people. And the outcome, world wide is, I fear, going to get very, very ugly.
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May 6, 2010 at 10:28 -
Good thing it’s all Monopoly money then. Trouble is, they are trying to pretend it’s not.
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May 6, 2010 at 12:08 -
The Greeks will come acropolis anyway. It’s not enough money and never will be enough money. Greece has a population of approx 12 million with approx. 6 million taxpayers. They have just borrowed 100 billion Euros ish at 5%. Their GDP is currently around 350 Billion Euros….
They think they are going to pay that back with cuts? It seems to me they need 4% growth just to pay the interest and 7% to repay the capital at 10 billion per year( over 10 years) that’s 11%. But they are saying 4 years? Starting with a 3% contraction of activity – LOL! Greece must go bust and should do it now, not squander another 100 Billion trying to stave off the inevitable. The new, new, new new Drachma is probably being printed right now.
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May 6, 2010 at 12:12 -
Anna,
You’ve repeated a lot of the text in your article.
I think I’ll vote UKIP. Only way to get out of this EU nightmare. I was wavering until Nigel Farage crashed his plane and went for the sympathy vote. I’m a sucker for that. -
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May 6, 2010 at 14:20 -
Farage’s plane crash?
I just assumed that was Gordon Brown’s General Sikorsky moment.
Didn’t everyone?
Are they trying to pretend it was an accident or something? Pull the other one!
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May 6, 2010 at 17:21 -
Prime Minister George Papandreou leads the Pan Hellenic Socialist Movement in the Greek Parliament. Socialist, eh? Bust? Who would have thunk it? Do you think voters might draw lessons from this example? No, me neither.
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10
May 6, 2010 at 20:24 -
Hi bofl
scot free, I do beleive the word you are looking for is SKOT ,nothing to do with Scot or Scotland
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May 9, 2010 at 14:05
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