Greek Referendum on Austerity a Good Thing

The recent bailout package arranged by the ECB and agreed to by the funding parties will be voted on by a Greek referendum. No word on when or how the ballot will take place, however from an outsider’s perspective with some understanding of the problems Greece faces, a referendum sounds like a good idea.

Problems in Greece Are Ingrained into Their Way of Life

Most of my readers, I’m sure, are familiar with the recon work Michael Lewis did in Greece and published in Vanity Fair. Their way of life has in many ways been defined by a culture of “I do whatever I can get away with.” Unfortunately this has terrible consequences when the day of reckoning comes… and that day is drawing very near. For those not familiar with the stories Michael accumulated on his time in Greece, I can sum it up fairly quickly: Nobody pays taxes, everyone is trying to hood-wink everyone else, and nobody (if they’re smart) lends to anybody from there – because they don’t pay the money back. This was all well and good when (if the country needed more money) they could simply print more drachmas. Problem is now all their debts are in euros, and they don’t own a euro printing press.

Greek Solution Requires Fundamental Change in Behavior of the Populace

In order for Greece to continue to have an economy, a great deal of behavioral changes must take place. First among those is becoming credit-worthy by paying taxes. Problem is, nobody dares to be first – and with good reason. Government officials have been pretty much blind as to what and how much economic activity goes on in their country, because everybody lies about what they buy, spend, and earn. It will take an amazing leap of faith in the populace of Greece to change a very understandably distrustful culture. The Greek debt problem has been built over decades, and the culture is far older than that (even the modern one).

Any Greek Austerity Plan Must Include Buy in from the People

The people of Greece are getting a pretty good deal here, to my eyes. The idea of austerity sounds harsh on the average person but it would not have to be as bad for everyone if there was a high level of buy in from the top business leaders in the country. I believe that something along the line of a “don’t look back” policy would be the shortest solution that political leaders could offer business leaders to get buy in. Start reporting today full revenues and taxes owed and float the tax rate monthly for the first year based on actual receipts of the prior month. Alternatively ask business leaders to confidentially share projected expected earnings and set rates based on better more realistic numbers. Without honest reporting and collection Greek businesses need to see the writing on the wall that they are done for without better tax compliance.

The point is that if Greek political and business leaders can buy in to a reporting, taxation, and collection regime that is more accountable then there is hope for buy in from the general populace of Greece – who will suffer the most in any socio-economic change. With the business, political, and general populace aligned Greece can benefit greatly from the support of the ECB and EMU. Without it the situation will likely be quite severe.

The Alternative Solution Is Not Palatable

The alternative I see to taking the austerity package / bank loan haircut is Greek default and withdrawal from the European monetary union. The consequences of doing so would be near term bad for the banks and governments that lent Greece money – but I think ultimately they would get help from global central banks and survive. The Greek people would get an initial holiday free from debt repayment but that would fade fast as their government turned on the drachma printer to fund operations. The resulting hyper-inflation would be a repeat of situations in the past like in Brazil and Argentina (and Zimbabwe presently). Imagine violence and riots of Greek people – burning buildings and ash-covered faces.

And then…. when the smoke clears the people would STILL have to re-build a responsible economic and taxation system just like they should be doing today.

Personnally – if it were me deciding… I’d skip the violence phase and go right to the building a responsible economic model with honest reporting and taxation with the support of the ECB and EMU… but hey, that’s just me. I hope the Greek people get their opportunity to vote, and choose the shorter path to economic stability. It’s better for everyone… long term.


About S Wise

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16 Responses to Greek Referendum on Austerity a Good Thing

  1. boatman1 says:

    i like the new look,steve….i mean…i love green but that was ALOT of it…i have a green metal roof on my house.

    the greek referendum will be: do you want to be in eu or do u want chaos?….they choose th EU

    ben (or just the minutes) gives a hint of qe (probly just utters any word with a ‘q’ in it.)

    mathmatics will convince germans to break maastricht(like the GIIPS haven’t already broken it on debt/GDP) n print euro,specially since trichet is gone….draghi’s from GoldmanSks n italy…its a no-brainer.

    markets are saved, go up 100% along with the price of bread, gold goes up 300%……. finally world sovereign debt collapse begins great reset.

    we learn nothing n start all over down the same road.

  2. boatman1 says:

    when the anarchists are setting the commies on fire, literally, u have a problem alright.

    MF—not a big corzine fan,as u can imagine…….those GS guys seem like they feel entitled.
    much more of this comes to light as the tide continues to go out, showing those who have lost their shorts.

    i have a friend in kefolonia,greece…..writes the ‘fiat collapse’ blog…….he’s from NJ…..says its bad alright.

    most illuminating greek history was john zervos in mauldin’s newsletter:

  3. boatman1 says:

    just heard a good one…..MF Global—Who do they think they are?…the FED?

  4. I must say, I’d be with the anarchists. I’d rather have chaos on my own independent watch, than order under the thumb of an outside ruler. So that end, I continue to root for Greece to take the Icelandic route and screw everyone. Go back to the Dracma – although I agree with you, that it brings its own set of huge problems. At least they are problems that leave Greece independent, at least in theory. Otherwise they are the EU’s whipping boy for the foreseeable future.

    I was married in Greece (met my wife there on vacation), and have an aunt and uncle who manage an apartment complex in the Athens suburb of Glyfada. For over 20 years they’ve lived in Greece through the summer and in Florida through the winter. They stayed out of Greece this year and don’t intend to return anytime in the foreseeable future… so they are certainly on-board with the “it’s bad” view. But I don’t think bending over for the EU is best for anyone. Certainly not anyone in Greece. Better to die on a shield than live on your knees, no?

    • I can’t make myself agree with you on that one. The Greek lifestyle (with retirement at age 55) is nice but awfully unrealistic since tax cheating is rampant. It’d be one thing if everyone was on the up and up… but in my mind they ought to be thankful to get the banks to take the 50% haircut and s*ck it up like the rest of us do.

      • I completely agree that the Greek lifestyle is obnoxious and unsustainable. I agree with what you proposed (in terms of honest reporting, taxation, collection, etc). I guess where I separate is that, prior to that there will be either fierce EU-imposed austerity or withdrawal from the Euro. If I were Greek, I would rather withdraw from the EU, suffer even worse consequences (from an inability to borrow/hyperinflation from printing Dracma/etc) and remain independent for when Greece can rebuild. As opposed to suffering brutal austerity that will fail anyway (I believe it will deepen Greece’s current recession and they will be unable to meet obligations, even after the 50% haircut), and doing so all while under the thumb of the EU – and remaining under the EU for the indefinite future. As I said above, better to die on my shield than live on my knees. Fear of death – or in this case, blowing up the system – is the biggest obstacle to a real solution, imho.

  5. boatman1 says:

    papand—- just replaced all the military generals…..he’s either afraid of a coup or planning one or both.

    it would not be enough if they paid their taxes…the greatest economy in the world in US cannot fund our social security…….the whole country/system is woefully inefficient and underfunded. they are a ’70s russia that was allowed to borrow from the germans…

    papa only has a three seat majority…that fails and new guy scraps referendum.

    many times referendums do not answer the question they ask………..they are usually a popularity contest for the party/person in charge.

    the whole developed world has borrowed from the future for 40 years and is about to pay the price.

    • Majority already gone for Papandreou… three defections yesterday plus who knows today. I still don’t think it’s the borrowing itself that is the problem.

      For my money the OWS people have a point – too much wealth concentrated in too few hands… but the problem (as you well realize) with the debt is more complicated than just too much borrowing or too much owed or too much money in the hands of too few people. But those three things definitely are SYMPTOMS of the problem. Agree?

      • boatman1 says:

        sure, it is a symptom………exponential debt is a societal symptom…..the success of ‘no payments til next year’ sales programs prove how shortsighted people are…..and the fact all they want to know is ‘what are my monthlys,dude?’ its all about ‘now and for free’ and ‘why should i work if they’ll give me money’ and ‘i expect to spend 30 years retired its up to them to figure the #s out’

        very worst is public employee unions trading votes for after-20-years-of-work retirement packages at 80% of an over-paid salary.

        but i think if one’s ambition is to become rich anyone can….but it must be their primary and only ambition, at least for awhile.

        bottom line is the debt is unsustainable…..and yes that debt is a symptom.

        just as cancer is a symptom of a failed immune system, since we are born with cancer cells.

  6. boatman1 says:

    ponzi the blueprint has been done—argentina…….scale back benefits…….default and print.

    it was successful

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