Greece Not Out of the Woods

Why victory for pro-bailout forces in the Greek election merely delays the inevitable.

In the election billed as a make-or-break moment for the European Union, the pro-bailout faction in Greece has carried the day. Antonis Samaras and the conservative, pro-bailout New Democracy party have won 30.1 percent of the vote, giving them 130 of the 300 seats in the Greek Parliament. The anti-bailout Syriza party led by Alexis Tsipras won 26.5 percent and 70 seats, and the pro-bailout Socialist PASOK party, led by Evangelos Venizelos, ran third with 12.6 percent of the vote and 34 seats. "The Greek people today voted for Greece to remain on its European path and in the eurozone,"  said New Democracy leader Antonis Samaras. "(Voters chose) policies that will bring jobs, growth, justice and security."

Will they? Barring major changes in the way Greece conducts its affairs, the answer is no. The latest bailout of $218.6 billion, courtesy of the European Union and the International Monetary Fund (IMF), will do little more than forestall the inevitable in a country beset by five years of recession, 22 percent unemployment, and thousands of private sector businesses shutting down. And even as Mr. Samaras vows to maintain the austerity measures necessary to keep the funds flowing, he promises to seek a better deal than the one currently in place. This is due in large part to more lenient terms won by Spain's insolvent banks when they received their very own $125 billion bailout only last week.

In other words, Greece is little more than a symbol of the far larger disease that afflicts the European Union. That disease can be reduced to a simple phrase: socialist-inspired hubris. It is a hubris so deep and overwhelming that common sense cannot compete with it. There is no other way to describe a union that was created, based on two fundamentally flawed ideas, namely that industriousness and slackness are inconsequential, and that bureaucracy supersedes culture.

The idiocy of the first idea can be reduced to a simple concept. Every other consideration notwithstanding, there is finite limit on how far nose-to-the-grindstone Germans, who retire at 67 years of age, will go to underwrite devil-may-care Greeks, who retire at 61. That is not to say that Germans will immediately abandon the Greeks, as Peter Tchir, with TF Market Advisors explains. “Now that Germany and others started looking at how to manage a Greek exit, they have realized some scenarios are pretty disastrous and will go out of their way now to avoid those. There is just too much risk--that it quickly spreads to Spain and Italy, especially if the ECB (European Central Bank) has to take massive write-downs,” he contended.

The idiocy of the second idea is just as damaging. The original vision behind the creation of the EU was a "United States of Europe" that would mitigate the conditions that produced two World Wars. Yet while America is comprised of fifty separate states under a federal umbrella, every one of those states is American, culturally speaking. The EU on the other hand, is a conglomeration of sovereign nations, each with its own cultural imperatives and, as Germany and Greece illustrate so vividly, markedly different visions of both entitlement and fiscal responsibility.

Where Europe got it spectacularly wrong was setting up a common currency without first setting up a political union. Thus, the bailout conditions imposed on Greece by the EU, the European Central Bank and the IMF that many Greeks see as overly onerous to begin with, are further exacerbated by the reality that those same Greeks view such "austerity" as an assault on their national sovereignty. British writer Nigel Gardiner of The Telegraph illuminates the current consequences of this cart-before-the-horse approach, within the context of last week's announcement by European Commission President Jose Manuel Barroso that the EU must take “a very deep step” towards further integration:

"Barroso, like all members of the European Commission, is unelected and unaccountable, and his approach exemplifies much that is wrong with the European Union today, including a sneering disdain for self-determination and a callous disregard for public opinion," Gardiner writes. "Barroso’s plan is big government writ-large on a European-wide level, stripping power away from national governments, resulting eventually in a dramatic redistribution of wealth from richer EU countries to poorer ones, with northern Europe overwhelmingly footing the bill for bank failures in places such as Greece, Spain and Italy. An EU banking union will do nothing to address the Eurozone crisis, but it will significantly advance the power of the Commission over nation states, and erode the ability of national parliaments to regulate their own countries’ banks as they see fit, giving unprecedented powers to an EU cross-border supervisor."

National sovereignty is anathema to the supra-nationalists. Nothing illustrates this more vividly than the avalanche of doomsday scenarios that have been predicted should Greece eventually leave the EU. Not because Greece's economy, representing less than 2% of the European Union’s GDP, is particularly important, but because a financial meltdown there would likely be "contagious," spreading to far larger economies like Spain and Italy, in turn leading to a continent-wide banking crisis or even an international one.

Thus, the banking community, from the ECB to the Bank of England and the U.S Federal Reserve had all promised to "take action" to stabilize financial markets in the wake of an "incorrect" Greek vote -- meaning they were ready to inundate the markets with liquidity in all its Keynesian, delay-the-inevitable-debt-bomb glory. That flood may still occur if Greece fails to form a coalition government quickly enough to satisfy the markets. Massive amounts of future debt will be used to pay down existing debt, and despite all assurances to the contrary, the pressure to enact the kind of structural reforms necessary to break the cycle, will be eased. "Too big to fail" will remain the head of the spear for those thoroughly convinced that the reckoning of the socialist-driven, self-entitlement welfare state must be postponed virtually indefinitely.

The EU-philes and their financial enablers believe the Greek vote has bought them a reprieve. Yet a Reuters poll revealed that 35 out of 59 analysts across Europe and the U.S. expect Spain will need a "full-blown state bailout within the next 12 months," and former UK Prime Minister Gordon Brown predicts France and Italy will need bailouts as well.

Yet these concerns are not just confined to Europe. The Congressional Budget Office (CBO) reveals where the United States is currently headed. "Under the assumptions leading to the most negative effect on GNP, debt would reach 250 percent of GDP by 2035. CBO’s model cannot reliably estimate GNP after debt reaches that amount, in the agency’s judgment: The assumptions about private saving and capital inflows incorporated in CBO’s model are based on historical experience, and if interest rates and the debt-to-GDP ratio rose to levels well outside of that experience, those assumptions might no longer be valid." In other words, we're 23 years away from our own date with incalculable fiscal chaos, courtesy of the same socialist-inspired hubris bringing Europe to it knees.

In the United States, we have been afforded the macabre benefit of seeing where the socialist end game is inevitably leading. Half the nation, ideologically speaking, refuses to believe it. It doesn't get any more hubristic than that.

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