Voting Away Your Debts

Nov 1st 2011, 10:38 by Buttonwood

SO THE home of democracy is going to have a vote on whether to accept the latest European debt deal (if the government survives to hold such a vote). At one level, the idea of "voting away your debts" seems rather odd. But voters have every right to do so, as long as they accept the consequences. In his book "Golden Fetters", Barry Eichengreen argued that one reason the gold standard failed to work after the first world war was that most states had become democracies; regular doses of austerity were needed to ensure sound money. But that was politically impossible once the working classes had the vote, especially as politicians were worried about the threat of communist revolution.

The problem of Greece is that public expenditure is higher than tax revenues, and the government cannot finance the gap in the markets. So the Greeks have four options.

1. Raise taxes. The population seems to be against that, with the property tax being particularly unpopular. The man on the Athens omnibus might well be in favour of raising taxes on the rich, or on companies, but it does not seem as if this strategy will be pursued with sufficient vigour, or will raise enough money. 

2. Cut public spending. Public-sector workers are against that option.

3. Borrow money from their EU neighbours. The neighbours are willing to hand over the money but only on condition of further austerity. This the Greeks also dislike.

4. Default outright. The result will probably be even more painful austerity. Cut off from the financial markets, the Greeks will have to balance the budget overnight. They may also need to rescue their banks, a capital-intensive process. Leaving the euro might also involve a rescue of the corporate sector, which would find its revenues in (devalued) drachma and its debts in euros.

Although there is a risk that voters will reject option 3, it may be that politicians will use fear of option 4 to pull opinion around. If the Greeks designed their own menu, one would guess that it would be for the EU to lend them money, without imposing the austerity conditions. But the Germans have to satisfy their own voters; democracy cuts both ways.

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I can't deny that Papandreou calling a referendum on the new aid package for Greece is the right thing to do, no matter how inconvenient it is for the rest of the world.

But why now? He waited for the world to sweat it out, until the EU managed to piece together a basic deal amidst intense political and economical pressure- no small task, no matter how insufficient the solution. Why turn it on it's head without warning, just as the markets let out a sigh of relief- after keeping quiet during prolonged, painful meets? Certainly his timing is dramatic, but the world is not his stage.

And then, the matter turns of deeper questions of democracy: does a true leader leave such decisions to the people, or convince the people to follow him down the right path? Is he asking for a show of support or simply giving up, reluctant to go down in history as solely responsible for the decline of his country?

I doubt that the government needs to raise new taxes; they just need to be more efficient in collecting the existing ones. The problem is that people don't want to pay their taxes because they are not sure that the money will be used for the public good instead of the personal enrichment of government members and their cronies. I think the referendum call is a fair and brave decision. Other EU member states should welcome it. If Greece chooses option 4, the Greeks will have to blame only themselves for the resulting negative consequences. I feel sorry for the ordinary Greeks who never really achieved the high standard of living as claimed by Western media. Whichever option they choose, they will have to suffer.

Wrong referendum.

Wrong country.

Wrong century.

The proper time and place for a referendum was in Germany in the 1998. That would have forestalled the whole politician-driven Euro debacle before it could wreak havoc on the peoples of Europe.

For cynical politicians "“ late in the day - to give the Greek People a "free choice" between decades of austerity and immediate financial collapse is rather like Henry VIII giving Anne Boleyn a "free choice" between a swordsman and an axeman for her execution!

The most important lesson from the Euro debacle is a lesson that the paternalistic scribblers at The Economist can never admit, even to themselves:

This was a disaster inflicted on the People of Europe by self-serving megalomaniac politicians operating outside the constraints of Democracy.

From the very outset the Euro zone "“ with its multiplicity of languages, low labour mobility, and disparate economies - was recognised as being an inappropriate currency union. Even as it was being introduced, it was a disaster foretold.

The cockamamie Euro scheme was never intended to benefit the People of Europe. It was forced upon the People of Europe for political reasons by megalomaniac politicians drunk with the thought that a currency union would be the vehicle with which they would write themselves into the history books as "Great Leaders" and "The Founding Fathers of a United Europe".

The German People in particular, upon whom the whole scheme hinged, were denied any direct say in whether they were to participate.

Where the People did have a direct say "“ notably in Sweden and Denmark "“ they voted to avoid the mess, even though The Great and the Good from both sides of politics were urging them on into folly! In Britain the politicians didn't even dare to call the referendum.

(In Switzerland - the world's only Democracy - the People refuse even to have anything to do with the catastrophe that is the EU.)

At no point in the history of the EU member states have the People ever been given the opportunity to freely choose the form of government they prefer for their country. At no point have they ever consented to having their lives ruined by odious self-serving megalomaniac politicians who enjoy a monopoly on legislative power, supported and defended by paternalistic apologists like The Economist.

If the People had had their say earlier (as in Sweden, as in Denmark, as in Switzerland), they might have been able to prevent this disaster.

But given the The Economist's unshakeable commitment to the doctrine of paternalistic "government-by-politician", that is something it can never, ever, ever, ever bring itself to contemplate.

What will be far-reaching effects of this crisis? What conclusions follow from biblical analysis? "And [the king of the north = Russia] will go back (to) his land with great wealth [1945]; and his heart (will be) against the holy covenant [state atheism]; and will act [this means activity in the international arena]; and turned back to his own land [1991-1993. The collapse of the Soviet Union and the Warsaw Pact. Russian troops returned to their country]. At the appointed time [he] will return back." (Daniel 11:28, 29a) Now Russia will return. It also means the economic and political earthquake; the disintegration of the European Union and NATO. Russian troops will return to many countries of the former Eastern Bloc. What will happen then? "And will enter into the south [Georgia], but it will not be as the former [1921] or as the latter [2008], for the dwellers of coastlands of Kittim [the West] will come against him, and he will be dejected, and will go back." (Daniel 11:29b, 30a) It will be a nuclear war. (Revelation 6:4) As Jesus foretold, it will be "the beginning of birth pains". (Mathew 24:7, 8) After this war, the nations will put hope in the world government. (Daniel 11:31; Matthew 24:15, 21, 22; Revelation 11:7; 13:1, 2, 7) Will again be a great disappointment. Then will be much larger crises.

If it is safety that investors are looking for by steering clear of Eurozone paper, I would suggest that U.S. Treasuries and the U.S. dollars are not the place to be. As shown in this article, within the next 60 days, the United States will join the exclusive club of countries whose debt-to-GDP exceeds 100 percent:

http://viableopposition.blogspot.com/2011/11/united-states-debt-100-perc...

America will soon join such notable members as Japan, Greece, Italy, Portugal and Belgium in the "100 Percenter Club".

There is a fifth option:

5. Default outright then print money to cover the budget deficit.

This will necessitate the nationalisation of the banks, and probably some form of capital controls too.

I realise that this option is anathema to The Economist but it is a real option. One could argue that in the medium to long term that will not solve Greece's problems, although a rapidly depreciating currency would do wonders for the tourism industry and may attract export orientated industries to Greece.

Options 1 to 4 do not solve Greece's problem's either. The Greek people need to decide which is the least worst options for them. The approach of the EU to date has been to impose on Greece the least worse option for French and German bankers.

Backlash?

On Tuesday November 1, 2011, 6:39 am EDT By Dina Kyriakidou and Harry Papachristou

ATHENS (Reuters) - Prime Minister George Papandreou's shock decision to call a referendum on Greece's bailout drew veiled threats from Germany on Tuesday and hammered markets edgy over the euro zone crisis.

European politicians complained that Athens was trying to wriggle out of the rescue deal agreed only last week, concerned not so much about the fate of Greece as the possibly dire consequences for the entire currency union.

One senior German parliamentarian suggested the euro zone might have to cast Athens adrift, cutting off its aid lifeline and allowing the nation to default.

Others were stunned by Papandreou's apparent bolt from the blue on Monday on the plan for a 130 billion-euro bailout and a 50-percent write-down on Greece's huge debt, which has unleashed fury among Greeks due to its price -- yet more austerity.

But they also urged caution as the exact question to be put to the Greek people remains unknown. EU officials said they had yet to be officially notified of the vote.

The reaction from Germany, which funds a large part of European Union rescues for Greece as it struggles with a huge debt, was of scarcely disguised fury.

A leader in German Chancellor Angela Merkel's center-right coalition said he was "irritated" by Papandreou's announcement and said the euro zone would have to consider turning off the flow of money which has kept Greece afloat over the past year.

"This sounds to me like someone is trying to wriggle out of what was agreed -- a strange thing to do," said Rainer Bruederle, parliamentary floor leader for the Free Democrats and a former German economy minister.

"One can only do one thing: make the preparations for the eventuality that there is a state insolvency in Greece and if it doesn't fulfill the agreements, then the point will have been reached where the money is turned off."

Regards

I don't think other countries will wait until a referendum result in January, especially as the Greeks may say no. Yesterday those countries had an agreement with Greece; today they don't. Greeks should expect Germany et al to treat their "maybe" as a "no" and act accordingly. Which means Greece will get the consequences of a "no" - option 4 - without actually choosing it.