Beware of Greeks Bearing Heavy Debts

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Forgive the obvious analogy here, but that big fat Greek Trojan Horse bearing debts looks as dangerous as the version Sophocles wrote about 2,500 years ago when he warned to beware Greeks bearing gifts: "Nought from the Greeks towards me hath sped well. So now I find that ancient proverb true,

Foes' gifts are no gifts: profit bring they none."

Today Greece is seen as a friend rather than a foe, although the impact of the country's debt crisis has major consequences worthy of a Greek tragedy. Contagion is spreading to other nations, markets are in turmoil and there is even talk of the collapse of the European Monetary Union (EMU), implying the possible end of one of history's great currency experiments, a monetary union without a full political union.

Seemingly oblivious to the colossal global crisis their wretched over-regulated welfare-state economy has created, Greeks are marching in the streets in opposition to change and economic reform.

They seem to think the 2004 Olympic spending extravaganza was normal economic policy, that cheap European interest rates were there to stay and that overextended state programs were to be permanent features of daily life.

The latest estimate is that Greece needs a combined Europe/ International Monetary Fund bailout of $160-billion over three years, a number equal to roughly $15,000 for each member of Greece's 11 million population. That's some gift to Greeks bearing debts in an economy that is widely recognized as one of the worst places to do business in the developed world.

Even with the downgrade of Greece's debt to junk status, some of the speculation about the scope of the crises -especially about the possible end of the euro -- seems far-fetched. The idea of a major revamp of the euro as a currency is strongly rejected as impossible by the European establishment. On the other hand, nobody saw the Greek meltdown coming either. What happens when other marginal nations in the euro fold-- Portugal, Spain--run into fiscal dead ends? There are also unpredictable political fallouts to come across Europe as the scale of the Greek bailout grows.

Even though Greece's economic and financial status has been statistically and culturally hopeless for decades, the Greek fiscal tragedy landed without obvious warning from the markets, ratings agencies or the vast global community of official think-tanks and organizations charged with tracking looming disaster. A 2008 IMF staff report on Greece acknowledged the country faced debt problems, but no crisis. "In view of Greece's membership in the EMU, the availability of financing for the external deficit is not a concern."

So much for that theory. Now the IMF and the major EU countries are scrambling to cover the lack of financing to cover Greece's mounting gross debt, currently at about $370-billion, or 115% of GDP, and by some estimates heading for 150% of GDP.

The latest items on the denial list, events that will supposedly never happen, is a Greek default on its debts, or a Greek restructuring of its debts, or Greece's exit from the euro. Greek Finance Minister George Papaconstantinou on Sunday firmly rejected all of the above as preposterous. On Greece exiting the euro, he said: "It is a scenario what has absolutely no basis in reality."