Greece Should Default And Leave The Euro

The truth about Greece is that staying in the EU and sticking to the Euro is impoverishing Greek citizens and amplifying the popularity of right-wing extremist parties such as Golden Dawn.

I read with interest that German officials are actually developing some of the spending cuts the Greek government must implement. With untold billions of euros worth of bailouts already gone and even more to come, a line has to be drawn in the sand.

The time has come for an immediate Greek exit from the Euro. Greek exports are clearly uncompetitive being priced in Euros. Greek culture has languished for too long with low productivity and a welfare state that knows no limits.

The adoption of the drachma and a return to an independent monetary policy would be a far better course of action than continuing to skewer the people of Greece with high prices and uncompetitive exports priced in a currency they don’t deserve to be in.

A culture of tax avoidance and debt snowballing in unison with a brain drain of Greek professionals that started back in the 1950’s means that enormous cultural hurdles must be overcome in order to get back on track.

But what does back on track mean? It surely doesn’t mean paying back the billions of dollars in debt that successive Greek governments have accumulated. It sure doesn’t mean impoverishing Greek citizens so penny-pinching German bankers can experience schadenfreude.

The elevation of the bondholders as the most important people on the planet has grave consequences for how the world works. The fact that banks had to have debt writedowns rammed down their throats does not bode well for any compassion in the great reckoning that is to come.

There is no doubt that the Greek people share some culpability for voting themselves more money without increasing productivity, exports, savings or developing any standout product or Unique Selling Point for tourism.

The bondholders are not the most important people in the world. Risk and reward should exist in every asset class, sovereign debt included. If a Greek default leads set in motion multiple bank collapses around the world, that should go with the territory.

Stripping the savings of German households and shipping them to a government propped up by a slim majority and facing almost total collapse of civil society is not the way forward for Greece. Default is not a bad call when there are no prospects whatsoever of Greece becoming self-sufficient under the Euro.

Why should we accept at face value anything boldholders claim will happen if Greece defaults? The financial sector has no credibility anymore. The global financial crisis proved what a house of cards they operate on.

“Too big to fail” means “too dangerous to keep operating”. The mess of derivatives associated with hiding Greek debt and making coy claims of compliance with the Treaty of Maastricht are yet another indication that banks want to have it both ways.

Through supporting Greece staying in the monetary union, all policymakers are doing is letting bankers win twice – once with all the fees and interest as the debt rose to unsustainable proportions and again with artificial writedowns that kick complete loan writeoffs into the future and keep banks solvent when they actually aren’t.

George Soros wrote a really good analysis of the international lending boom in the 1970’s that culminated in a bank crisis in 1984. All of the same arguments are being recycled now – too big to fail, IMF loans, World Bank led reform, central banks banding together to get things done.

The bondholders know that history repeats. Once as tragedy, twice as farce. The farcical elevation of the bondholders over human beings is the great shame of the 21st century. Too bad many economists can’t see the wood from the trees here.

The European Union was the most risky and unstable idea ever implemented in the history of global politics. It doesn’t meet any of the optimal currency area requirements espoused by Robert Mundell. Complete and utter mistake that needs to be unravelled before Golden Dawn equivalents take over throughout the EU.