Wednesday 24 June 2015

GREXIT - The witching hour approaches !

The one thing that is obvious about the Greek economy is that this little country of over eleven million people has no hope of ever repaying it's  317 Billion Euro debt.   It's affairs are in a hopeless shambles with an economy paralysed with clientelism, hopeless public administration, comically bad regulations and an unreliable justice system.

June 30 is the make or break date.  In desperation Greece elected  Alexis Tsipras and his Syriza party on the promise of lifting the strangulation imposed by the EU in exchange for monetary bailouts. Tsipras is a truculent and aggressive man and he has butted heads with Angela Merkel and the rest of the EU hierarchy.  What he demands, the EU is refusing to give, but Grexit is feared because the flow-on effect could see the end of the Euro and even the possibility of the destruction of the EU market.

There is every chance that at the end of this month Greece will default on it's debts.  That is not an unusual outcome in world finance - in fact Argentina has made a habit of stiffing it's creditors and always seems to bounce back into the world community after a period of penance.

The big difference is that Greece is an EU member - and the EU is supposed to be an irrevocable union.  If Greece walks away or is turfed out for not paying it's debts that could lead to contagion - and spread to other vulnerable economies such as Portugal or Cyprus - or even Italy.

What we have here is simply a normal situation that happens to citizens of all countries in everyday life.  People go bankrupt when they amass debts that they can not pay.  A court examines their financial situation and takes charge of any assets they hold - and sell these to recoup money that is distributed to those owning the debt.  Eventually - usually a matter of years - the debtor is released  from bankruptcy and allowed to make a new start.

That is exactly what Greece needs now. It needs the freedom to revert to the drachma and devalue it to attract tourists and get it's economy in shape.  It is up to the Greek people to implement a government capable of sorting out the mess that pretends to be it's economy and sort out a tax regime that pays it's bills.  The Greek people are completley fed up with being managed by creditor nations and will cheerfully suffer the pain of having the necessary reforms thrust upon them - by the people they choose to hold office.   There is a possibility that might be the Communists or the other right wing side of politics - but that is a choice that is up to the Greek people.

For the EU it delivers an inescapable lesson.  The EU is unworkable with monetary union unless it's financial rules are enforceable.  It is simply an accident waiting to happen on a similar manner to what is facing Greece unless they put their house in order.   The worst thing that can happen is some sort of last minute compromise - that sees Greece get another bailout that further increases it's debt and staggers on with the same problems hanging over the head of it's people.   Bringing the crisis forward to another day - is not the answer !

Even the major countries in the EU are constantly breaking financial rules - and getting away with it. If the EU needs to contract to a smaller group of countries with compatible financial economies that would be preferable to the economic mess that is now in place.   The loss of the 317 billion Euros owed by Greece would be the price they have to pay for making the mistake of bailing out non performing economies.  With hindsight, it is obvious that the EU grew far too quickly - and that sheer size was a false objective that influenced thinking.

GREXIT might not be the disaster many people imagine.  Restoring the EU to a proper working basis will allow those struggling to meet square peg in round hole situations to escape and restore their economies - and when these are in proper order at some future time - the opportunity to regain membership of the EU would be a rewarding dividend !

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