Greek Socialism Crumbles

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Yet Bob Doll, chief equity strategist at BlackRock, gives light to a different perspective. “We’re going to find Band-Aids and we’re going to muddle through these credit problems,” Doll said. “The consequences of not following that route could be pretty dire, and I think the interested vested parties are going to step up.”

Yet most economists remain unconvinced. Greece’s current debt amounts to 340 billion euros ($485 billion), which is 150 percent of the country’s annual economic output. Calculations by Reuters, based on 5-year credit default swap prices from Markit, show an 81 percent probability of Greece eventually defaulting, based on a 40 percent recovery rate. Then there is Greece itself, which must pass any austerity package agreed upon if Europe is to be spared what many nervous bankers have referred to as a “Lehman type moment,” harking back to the 2008 collapse of Lehman Brothers which sparked the current Great Recession.

It is an austerity package which promises to be even more severe than the one which precipitated several riots in that country, including the ones last Wednesday in Athens, where tens of thousands of angry Greeks massed around the main Syntagma Square to protest. Some of the rioters hurled gasoline bombs at the Finance Ministry, and police responded with tear gas. And while “Band-Aids” appear to be the order of the day, they may only be deferring the inevitable. Economic professor Nouriel Roubini illuminates why. “The muddle-through approach to the eurozone crisis has failed to resolve the fundamental problems of economic and competitiveness divergence within the union,” he said. What he means is elucidated by investment banker Martin O. Hutchinson. “Greece produced nothing close to the level of economic output that would be needed to justify its spending and the lifestyle of its people…Its people need to suffer a decline in living standards of about 30% to 40% so that the country’s output is sufficient to repay its debts,” he echoed.

Greece is not alone. Last Friday, after European markets had closed for the weekend, Moody’s placed Italy’s Aa2 rating on review for possible downgrade during the next 90 days, due to “structural weaknesses such as a rigid labor market [which] posed a challenge to growth,” reinforcing the notion that the Greek debt crisis is “contagious.”

Such contagion has not gone unnoticed in the United States. Also on Friday, four Senators, Jim DeMint (R-SC), Orrin Hatch (R-UT), David Vitter (R-LA) and John Cornyn (R-TX) introduced an amendment to the Economic Development Revitalization Act, which would prevent the IMF from accessing $108 billion of U.S. taxpayer funding sanctioned by the Obama administration in 2009 to bail out foreign nations. “Now is not the time, when Americans are struggling to find work and have budget problems of their own, to tap innocent American taxpayers in order to bail out profligate European governments,” said Hatch in a released statement.

This is an obvious attempt to insulate the United State from a eurozone suffering through a string of related defaults. And America is not alone in in that respect. According to “senior sources,” British banks, including Barclays and Standard Chartered, have radically reduced the amount of funding available for unsecured lending to other eurozone banks, withdrawing tens of billions of pounds from the inter-bank markets. The move threatens to seize up credit markets in a scenario similar to 2008, when stronger banks refused to lend to weaker ones, which led to a string of major banks going under–and taxpayer bailouts for those that didn’t.

Where is all of this headed? A brilliant speech given last Thursday by Lorenzo Bini Smaghi, member of the executive board of the ECB, at the Executive Summit on Ethics for the Business World explains some of the current thinking:

The fight to survive, which in a capitalist system should reward the company with the best product, is changing in nature. Particularly in a period of economic difficulty, when returns are limited, those who survive are those who bet on the failure of others and who manage to convince the market that such a failure is inevitable. It is no longer about Schumpeter’s ‘creative destruction,’ but ‘destructive destruction,’ where the one who survives is the one who bets, rather than the one who innovates and produces.

“The same is true for countries,” he said.

Next week, the Greek parliament will vote on the latest series of austerity measures, which include $39.5 billion of taxes and budget cuts, along with a privatization drive valued at $70 billion–all of which is required by the IMF before it will release the next $17 billion installment from the original bailout package. The government has also promised to cut 150,000 jobs from its over-loaded public sector workforce by 2015, effectively ending the long-cherished concept of lifetime government employment in the process. All of it will be thoroughly despised by Greeks who, to paraphrase Margaret Thatcher, have yet to comprehend that the inevitable demise of their socialist society comes because Greece is running out of French and German money to spend. The vote is scheduled to take place at midnight on Tuesday.

For a eurozone faced with the real possibility of dissolution if the vote goes the wrong way, it’s even later than that.

Arnold Ahlert is a contributing columnist to the conservative website

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  • Steve

    Complete financial and moral bankruptcy is always the way Socialism ends…now just add a pile of skulls and you get Marxism/Fascism.

    • Bobby Feltersnatch

      Yeah I like what we have here in America better. I'm really hoping we get really crazy and go for a corporate theocratic state. That would be so amazingly good for us.

      You know, because, morals are important. And you can only obtain them through religion, specifically Christianity. If you are a Republican or Conservative, it usually makes the pot even sweeter.

      Oh, sorry, I am holding up the next guy from denouncing the evils of the Obama admin. and why our country was so much better under Bush and Reagan.

      Carry on.

      • Scott

        Yep, nothing like being preached to by a guy who glosses himself "Bobby Feltersnatch".

  • Cephas

    What of the USA? We have a national debt that's eating up our GDP, and 40% of that debt is held by a hostile power (China).

  • davarino

    We have to get our fiscal house in order now. Cut spending, change the tax code so it is fair (ie. everybody pays taxes, including GE, but effectively lowering taxes).

  • Amazed

    The USA "guys with the checkbook" are addicted to their spending in Congress. We have a President and his cabinet, the DOJ and HS who answer to "someone" other than the American People (can you say UN)?

    It is not by accident that this article quotes Jose Vinals, director of the monetary and capital markets department of the International Monetary Fund (IMF), “You cannot afford to have a world economy where these important decisions are postponed because you’re really playing with fire,” said Vinals. “We have now entered very clearly into a new phase which is, I would say, the political phase of the crisis.” I hear in this remark a well defined and apparently PLANNED Process of which we are now in the Political Phase. Although we do have an international economy, why are we having our local economies hijacked from us?

  • Amazed

    The Federal Reserve has been bilking money for decades, recently a Treasonous Shakedown of the US Taxpayers with billions and billions of dollars looted and sent to Unions and overseas monetary institutions; much of it is missing . Paper money has been printed (against the laws), and Hyperinflation is already started. Obama wants to be the Director of the UN. The banking Cartels just might let him as he is doing such a great job for them already.

  • Amazed

    Divide and Conquer! That is what is happening. Confound the people with confusion about their social fabric, the family and healthy norms; drug them, public school them into taught submission and fearful of independent thought, sell goods along with the ideas of sex, get gender confusion into the mix by kidnergarten, run up the credit cards, mandate the housing bubble…rob the people blind and accuse them of being racists, bigots and terrorists if they challenge the social engineering and flagrant diregard of our Constitutional Rights and Laws.

    We are on the Precipice of a great change. Will the People of the USA Defend our Constitution or have we become too fractured idealogically and/or too ignorant of our heritage? Can we afford the legal fees if our Courts are corrupted to the core as well?

    • Jim_C

      Congress is full of magicians: these are people whose job it is to take a $25,000 in donations into millions of dollars in contracts for their sponsors.

  • AntiSharia

    I remember about a decade ago, when I was in college, I got into frequent arguments with a student from the Netherlands. He kept insisting that the EU was the way of the future, and the US system was finished. I pointed out that there was no way such a system of multi national, multi- ethnic, socialism could work. It always ends in collapse. I said give it 20 years at most and it will come crashing down. The EU was always doomed because it was built on a fairy tale, were having trouble in America not because the American system is flawed but because President Obama bought into the same fairy tale.

  • Amazed

    One of the stalwart hurdles is the dominating tyranny of the media – it's psychological warfare against the middle class and corporate sponsors and manipulative LIES

  • RatkoMladicFan

    I fear that Albanian islamic terrorists will use this chaos and try to take part of Greece, like they did with Serbia (Kosovo). Albanian illegal imigrants are threat to all countries that border with Albania, since they go there with one reason: Kill local population and claim their land for "Greater Albania". They did it in Serbia, they are doing it in FYRoM, they will do it in Greece and Montenegro.

    And they also stole George Bush's watch.

  • Terry

    Socialists always promise more of other peoples' money to those who vote for them.

    Now other people have run out of money for the left to waste. Greeks have voted for such profligacy at home, so they will now suffer its consequences. They can riot all they like, the cupboard is almost bare.

  • Alycia Jergen

    Maybe it might help to suggest your proposal to other economies around the world. Since most all use a credit money system maybe they might be more receptive and have less institutional resistance to change.