Europe and Greece are looking into a bottomless pit. The people are just as reluctant as the countries that are best off in the Eurozone. The hard truth is that you don’t throw money into a bottomless pit. And the Greeks do not want to pay for years for corrupt factions in their country. Willem Buiten of Citibank has a harsh opinion on the Greek debt crisis. So will they come true after all?
Willem Buiten’s harsh words from Citigroup in London come true?
Willem Buiten, economist at Citibank Corp. in London already noted the following about the Greek problem on May 13, 2011 (not reproduced verbatim):
- The Greek state is de facto bankrupt.
- It is necessary to recognize this situation of Greek bankruptcy as soon as possible.
- EC support (second tranche) is only justified if there is indeed a chance to process this bankruptcy in the most orderly manner.
- It is important to write off the debt immediately.
- The Lehman bank collapse comparison with Greece does not apply. Compared to Lehman, Greece is a ‘local government.’ It is important not to overdo things.
- The losses that have long since been suffered should be blamed on those who caused them: the financial institutions that lent, and not on the taxpayers.
- Because this implies that, for example, pensions for Europeans will indeed be reduced in the future, financial institutions must be supported against collapse.
- It is illusory to think that Greece can be helped with even more cash deposits.
- The Euro is not in danger at all from this situation.
The ‘never support failure’ principle
The principle of never (continuing to) support failure is so old that it cannot be found in the ‘phrase books’ that can put a name to a well-known expression or ‘quote’.
- The principle was first of all a quote used in war conditions: if things went wrong on the battlefield, you brought your soldiers back. If there was no prospect of victory you didn’t add legions, you took your consequences and gave up, trying to save as much as you could.
- It is also not a principle that politicians would currently want to see in their name. The principle smacks of callousness and ruthlessness. That is also why most governments within the EC do not dare to speak out when it comes to Greece. The question here is whether that is correct.
Jan Kees de Jager and the principle ‘never fail to support’
No more money from the Netherlands for a bottomless pit?
Jan Kees de Jager is Minister of Finance of the Netherlands and CDA member. De Jager recently appeared to be slightly controversial regarding some old-fashioned Christian principles. Even now, the predominantly Christian morality no longer resonates with him: if the Greeks do not do something about it themselves, the money tap will be closed as far as he is concerned. No other cheek is turned. Whether support is completely denied to Greece is and remains a sensitive issue, especially because it is a political issue that does not find support among the major financial institutions. Minister De Jager is not the only financial minister who proclaims this principle. Yet the road back remains difficult: first there is support, then again there is no support. The biggest fear is the fall of the Euro. This can only be prevented if Greece is expelled from the Eurozone. That just means one less bad apple.
Gentle healers…
There are other adages that can apply to the Greek situation, which are more in line with more social views: ‘gentle surgeons make stinking wounds’, for example. This comment seems less harsh, but basically says the same thing: that acting softly and therefore continuing to pour money into a bankrupt economy only makes matters more serious and does not solve anything substantive.
The common (Greek) man does not want to suffer
It is clear that the Greek people, unlike their government, have no intention of suffering further from their crisis, which is popularly said ‘not caused by the average Greek.’ The Greek government was promised European aid in the form of 120 billion if the Greeks met very strict conditions.
However, the second promised tranche of billions in aid will only be given if the Greeks have met the EC’s requirements in the first period of the first aid . It is clear that the Greek government was only able to prove that it was able to meet the conditions of the first tranche. The Greek people are clear about this: it is not their fault and they are not going to suffer for years because of what the banks and government themselves have caused. The latter means that the Greeks will never meet the strict conditions of the EC and the IMF (International Monetary Fund, which is global).
Other solution than continuing to provide financial support to the Greek government
The word used in this context is stamping. According to the NYSE Euronext definition, stamping is:
‘The reduction of the nominal value of a share or a bond by the issuing institution. This almost exclusively happens if the issuing institution is in financial difficulties. Stamping is also called Redenomination.’
In fact, it means that the debts that Greece has with the financial institutions are drastically reduced in value, i.e. they are reduced at the expense of the financial institutions. This also implies that no further financial support needs to be given to Greece. However, a major problem is arising at the financial institutions that have lent money to Greece.
By rolling over debt
To avoid a bankruptcy of their own institutions, the French, who are up to their necks in Greece, have proposed rolling over the debts. This means making relatively short-term loans long-term. Then the chance of payment is greatest
Conclusion
It is clear that Willem Buiten is a proponent of the adage ‘never to support failure.’
The problem is that there are too many political considerations involved in the decisions about this Greek tragedy.
It is of course fair to leave the error where it was created: with the financial institutions. The recent past has shown that those institutions are generally capable enough to repay their loans from the EC countries.
So countries that do not meet the conditions: expel them from the Euro zone so that the Euro can be saved, by removing the bad apples from the basket? It seems almost impossible to avoid .
read more
- Greece’s selective bankruptcy
- Greece: a proud nation