The Greek 'Disaster' That Was Never About Greece
"Disaster averted" in Greece, if the confused pundits of finance and economics are to be believed. Supposedly if Greece's profligate government had defaulted on its debt the world economy would have stared financial crisis in the face, and Greece, according to numerous accounts, actual "disaster." The deluded commentary would be funny if it weren't so sad. And divorced from reality.
Back to actual reality, Greece has been in default mode much of its modern existence. The latter in mind, and assuming Greece's government debt were mostly held by private individuals, does any reader seriously think this would be a story at all? Governments welch on promises made to their ever hopeful citizens with great regularity, so the idea that a haircut (this was never about Greece not paying its debts altogether) being forced on them would have constituted actual news is not a serious one.
Importantly, it wasn't Greek citizens or any individual holders of Greek debt that had the IMF, ECB and others so worried. It was prominent banks. There's your story. The alleged bailout agreement from yesterday is not a bailout of Greece's hapless political class; rather it's a backdoor bailout of banks that are not in Greece. With pundits, politicians and economists having almost totally misunderstood 2008 such that they still think the "crisis" was about failing banks, as opposed to government intervention in the healthy - and necessary - failure of errant banks, it's now the accepted un-wisdom that banks cannot be allowed to fail at all. In that case, how sad for global finance along with a global economy that is enhanced by the skillful allocation of capital from the financial sector. Imagine if tech were the regular recipient of bailouts, and imagine how depressed the sector would be if Commodore, Webvan and Friendster were still operating in place of Dell, Amazon Grocery and Facebook.
The greater truth is that far from disastrous, the failure of banks holding too much Greek debt would have been very healthy for the banking sector, the global economy, and Greece itself. Figure better run banks would have quickly swallowed the institutions exposed to the profligacy of Greek politicians, the global economy would have benefited from a reorientation of investment away from government waste into real ideas, and then Greece's real economy (only the economics profession thinks government a part of the economy - more on that in a bit) would have gained for the country's government being discredited in the eyes of investors. Having been burned, investors would be much less likely to fund future government spending that is waste personified. What governments don't spend - and at this point members of the Keynesian religion should avert their eyes while skipping to the next paragraph - is redirected into the profit motivated and market disciplined private sector.
Repeat again and again that governments have no resources, so when politicians spend the economy suffers mightily no matter the party in place. Absent the rough justice of the marketplace whereby bad ideas are starved of capital, there's horrid waste of same. If this is still misunderstood, readers need only retreat to the paragraph before the last and read about the dinosaurs that would still roam the tech sector absent market forces having happily rendered them extinct.
What about this notion of "disaster" that Greece somehow averted? Disaster for whom? To understand the questions, let's for laughs imagine if Amazon co-founder Jeff Bezos were to relocate his company to Athens. If so, does any reader seriously think that the country's present troubles would somehow make it impossible or even difficult for Bezos to attract euros, dollars, yen, pounds, or any other serious currency in search of investment returns? The reality is that Bezos could relocate to Haiti, yet global investors would continue to chase him in order to invest in his ideas.
The above is mentioned simply because one comically silly argument accepted by the punditry in favor of the backdoor bailout of non-Greek banks is that absent the latter, the European Central Bank (ECB) would cut off the supply of euros to Greece. In truth, the ECB is but one of countless global sources of euros.
Of course, that gets to the elephant in the room when it comes to Greece's troubles: the country doesn't have a debt problem as much as it has a talent problem. Were it seen as welcoming to entrepreneurs thanks to low taxes, lack of regulation, and relatively stable money through a loud commitment to sticking with the euro in the first place, Greece and its banks would presently be swimming in euros irrespective of ECB attempts to deny the country of same. Countries with pro-growth economic policies never lack for "money supply." Ever.
Back to this notion of "disaster" assuming a Greek government default, it never was. Contrary to conventional wisdom inside the punditry, failure for individuals, businesses, and yes, banks, is a positive sign of healthy evolution. Failure for investors is a good and necessary occurrence too for it luring always precious capital away from what makes no sense, and into that which does.
"Disaster averted"? Far from it. Assuming the healthy allowance of default, the John Boehner and Nancy Pelosi equivalents in Greece would have been wholly discredited so that future waste on their part would have been more difficult to pull off. As opposed to "disaster averted," it's a disaster for the global economy that Greece's government wasn't allowed to fail.