The Terminal Patient: Greece’s Second Bailout

It has some of the world’s most keen protesters, and its worst credit rating, if one is to believe those often misguided gurus in Standard and Poor’s. Greece is teetering, if not dancing near the cliff face of default.

The question on the lips of every policy maker: Do we let them sink or swim? In ancient mythology, described with such color by Sir James Frazer in The Golden Bough, the protector of a tribe (priest, chieftain, or guardian) would be killed once age and vulnerability began to set in. To allow such symbolic figures of protection to die the natural death would be catastrophic for agricultural yields, inflicting famine and pestilence upon tribe and people. Most preferred the more violent solution: death by human agency.

The fear of allowing Greece to slide into financial oblivion is something that terrifies and thrills. Rather than kill the chieftain, do we rescue him or rejoice in his natural demise? For the foolish and barely believable Mayor of London Boris Johnson, there is optimism in this economic calamity. (This was the same man who reminded his Chinese hosts at the handover ceremony for the Olympic Games that ping pong was invented at the British dining table). Let Greece collapse and cleanse itself, creating a new currency and canter away from the Euro altogether. Exeunt old Greece, enter a new, squeaky clean and free state with a super currency in tow.

The European approach to the Greek dilemma has been nothing short of confusing, a fruit salad of populist measures and tepid responses. The reality is that the Greek debt problem is very much a German-French problem. German lenders, for instance, have about $22.7 billion in bond holdings tied up in the Greek system. The key here from the German standpoint is what matters with the health of the public accounts. French banks have a greater involvement with private and household debt.

The populist stance has been embraced by the German Chancellor, Angela Merkel. Merkel is working both sides of the fence, scolding the profligate across the political aisle while shoring up her local support. She wishes to join in statements directed against Greek mismanagement on the one hand, but she is concerned to see a eurozone partner collapse and fall off like an amputated limb. The Euro ideal may well be at stake, and there is no country with a greater interest in seeing that doesn’t happen.

The austerity diet is something the German voter demands because that is exactly what, or so goes the argument, he and she had to put up with in creating wealth and stability. ‘Germany’s economic boom,’ explained Dirk Hoeren in Bild Zeitung (May 18), ‘did not fall in from the sky. It was paid for through hard work and austerity.’ To thrive, the German worker accepted lower wages – initially. To prosper, the orchard had to be pruned.

Europe is not, however, Germany, an obvious point that requires re-stating. While Merkel can take a swipe at her Greek counterparts, accusing them of being easy with their money and lax with their work regimes is not only unconstructive but inaccurate. For one thing, the EU itself has figures showing Greek workers as having some of the longest hours in the zone, with the greatest level of weekend working. The problem is that they are not willing to pay taxes to a government that refuses to provide adequate services for them.

The French, in contrast, have been lukewarm, and some even supportive. Leading businessman Maurice Lévy makes it clear that common ground between Bonn and Paris in their response to Greece is virtually non-existent. For one thing, the argument of economic frugality does not fly with French sentiment. ‘We don’t even have a word in French for “tax payer.”’ The term, as he reminds us, is ‘contributors.’ If money be muck, then spread it about. The notion that the Greeks will be helped from Paris is not a surprise for many, and negativity is minimal. Besides, the desire to protest runs thickly in the French blood.

Bailout packages of this sort are, however, mere band aids for a terminally ill patient. The Greek situation is not a problem of liquidity but one of chronic insolvency. A crisis of liquidity can be rectified by stable governments who can reliably borrow (in the sense that they can repay in due course), partnered by banks that can reliably borrow and lend once their books are sorted. None of this seems to be the case in Greece.

While the Greeks continue to lead lives of not so quiet desperation, the economic regionalism that Brussels now presides over seems doomed. But not before the last gasp of an economic injection that will do more to obscure than rectify.

Binoy Kampmark was a Commonwealth Scholar at Selwyn College, Cambridge. He lectures at RMIT University, Melbourne. Email: bkampmark@gmail.com

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