Saturday, 1 May 2010

Who pays the ferryman to take Greece over the Styx?

In classical Greece coins were placed on the eyes of the deceased at burial to pay the ferryman for taking the departed over the river Styx to the underworld. So who will pay for the incredible exploding Greek rescue package of €120 bn. that requires as a quid pro quo Athens to raise sales taxes, scrap bonuses amounting to two extra months of pay in the public sector and accept a three-year pay freeze. Union officials also claim that by next year, the IMF and the EU want Greece to shed 10 percentage points from the public deficit that reached 13.6% of output in 2009. That's what we will be facing soon when the next UK government also calls in the IMF.

Economics does not exist on its own, its proper description is political economics and the political part will be played out on the hot streets of Greek cities this summer. The involvement of the IMF is also a political decision so some non-EU, Anglo Saxon, entity can be eventually be blamed for the inevitable ensuing problems and to cover up the unpalatable truth in Brussels that this is a clear failure of the Eurozone which their previous political fudges allowing Germany and France to breech the growth and stability rules of Maastricht setting up the Euro generated. Portugal was given a good kicking for breaching these same rules but they of course do not run the EU and Greece is getting the same treatment.

So returning to my thesis it is clear the Greek people will have to pay part of the price for this package. But will they? Today, Mayday, is a traditional day of marches in Athens. No prizes for guessing what the main theme will be. Already even the Cameroun dominated DT is carrying pictures of Greek riot police dealing with anti-EU/IMF protesters in Athens. Less parochial parts of the media like Reuters are carrying numerous pictures and stories on the same theme. Greek unions have called a strike for 5th May and one of the smaller Greek political parties are calling for a referendum on the whole deal. I hope they have better luck than we did on Lisbon.

One thing is certain. It won't be the Greek politicos and EU crats on their comfy salaries and incredibly generous pensions who pay. Unthinkable! That would be the end of the world as we know it! Ordinary Greeks will now have to work on to 67 from the previous 53 but not our hard working benefit fiddling politicians. Its pure Animal Farm.

There is a great vagueness of who will actually pay how much and when of this 120bn. The implied assumption is the Germans will cough up the lion's share. But has anyone asked the German people? Well they will have their say in Westphalia in the 9th May elections. Also some irritant German professors will take this to the German constitutional court claiming the whole deal is unconstitutional and in flagrant breech of the Maastricht Treaty. In UKIP Cabal speak these people are clearly malcontents to be drummed out of the party/club.

Meanwhile Spanish unemployment hits 20%. Are they next in line for the EU/IMF treatment? No, we will beat the Spanish to that dubious honour. It is on the streets of Athens and in the German courts this deal will disintegrate.

In the unlikely event the deal gets past these two obstacles I opine it will not work. It is too draconian. It will shift the crisis from a possible sovereign default to a certain private, deflation driven, default as business go bankrupt and home owners default on their mortgages. As our soon to be ex-supreme leader says, you cannot withdraw money from the economy until the recovery is established. I hear he will soon be coming on the job market so perhaps our loss will be Greece's loss as well.

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