Mohamed El-Erian, PLEASE SIT DOWN. You’ve freaked ‘em out enough already!
Approximately 14 million of Turkey’s 75 million people live in Istanbul, making the city larger than all of Greece in terms of population. Why does this matter? Because Greece spends about the same as the U.S. on defense in as a percent of GDP. It goes to show just how much low-hanging fruit, how much fat is available to cut from the Greek budget. It also shows that Germany is not without responsibility.
Putting the Greek debt crisis in context
Greek politicians are notorious for being corrupt, greedy, and incompetent. Regardless of party or ideology, most have gorged themselves at the expense of the country’s economic well-being.However, they were not alone; their German counterparts guided them down the path to perdition. The unwritten practice of European Union officials looking the other way over doubtful state numbers provided by Greece and other countries during the creation of the eurozone is still symptomatic of deeper problems in the dream of a united Europe that is quickly turning into a nightmare.
A major part of the Greek debt crisis is the result of excessive military expenditures forced on the country by the German military industrial complex. Greece has purchased more than 1,000 German Leopard tanks, but for half of them there are no shells. In addition, the Greek government bought three German submarines; two barely made it to Athens and the third is still in a German dockyard because it is not seaworthy.
Why did Greece buy such useless military hardware? Two reasons: That was the price Greece had to pay to secure German loans and EU grants and the Germans have had few qualms about bribing Greek politicians (remember the Siemens scandal?) to grease the wheels of industry. In 2009, 4.3 per cent of the Greek GDP went to military spending. Beyond purchasing faulty German military equipment, Greece sustains a large military establishment to counter continuing threats from Turkey, which accounts for a staggering $14.5 billion a year.
The Eurozone is simply a consolidated version of the problem facing China and the U.S. Think of Germany as China. Think of the United States as a combination of the periphery states Portugal, Ireland, Italy, Spain and Greece. Germany makes the stuff. The PIIGS consume the stuff. Germany is the creditor. The PIIGS are the debtors. You get the drift.
The Euro is basically a forever fixed peg with a name: think Yuallar or Dollan if there were printed currency for the Yuan pegged to the U.S. Dollar. The Euro will drop to whatever level necessary for the periphery to find equilibrium as their economies are restructured under German supervision/conservatorship. Their debt is now on par with Fanny, Freddie and AIG. Germans will have the happy problem of exporting more while its citizens hoard gold thinking they are fighting the last war again.
Let’s get back to work. Calls for the end of the Euro remind me of all those economists begging the U.S. government to nationalize the banks in 2009. Yeah, I’m talking to you Nouriel “Nationalize Insolvent Banks” Roubini, Paul “Obama Should Nationalize U.S. Banks” Krugman, Joseph “government takes over those banks that cannot assemble enough capital through private sources” Stigliz, et al.
European banks will rebuild their capital by swapping their wounded sovereign bonds to the ECB which will hold it until maturity and mop up via term deposits. No new money is created. Repeat: no new money will be created.
Everyone goes back to picking strawberries. China gets to compete with Germany, and the U.S. suddenly looks good again in the never-ending race to the bottom.
Call it karmic justice. Or maybe market forces at work.
Danb 10:28 PM on May 17, 2010 Permalink | Log in to Reply
Any chance of getting a Print button on the Live Blog Page?
Teresa Lo 11:45 PM on May 17, 2010 Permalink | Log in to Reply
This blog works a bit differently than all the other ones (and still needs the autorefresh to get fixed), so if you don’t mind, I’ll add the task to the to do list, but am not 100% sure that I can deliver.