So the European Union is considering the terms for lending Greece yet another massive tranche of money. The most that they can possibly succeed in doing is to delay the date when Greece defaults. All you have to do is look at the maths.
The Greeks are just like the British Labour party, they will foolishly spend other people’s money till they reach the limit of finding people stupid enough to lend to them. According to Greek figures (which have a long history of saying what the listener wants to hear) their sovereign debt is 340 billion Euros. Currently they are asking for a 12 billion Euro top up. With a population of 11 million their current stated debt works out at 31,000 Euros for every man woman and child in the country. But you can add to that a mountain of off balance sheet debt, the borrowings of their many nationalised businesses, commercial debt including billions to their shipping industry, private debt and tens of billions worth of derivative contracts.
I would be very surprised indeed if the real total debt was less than 100,000 Euros per capita before property (mortgage) borrowing. With a retirement age of just 58 years and a life expectancy of 80 it is easy to see that the working population is about half the total population. So the debt becomes 200,000 Euros for everyone in the working population. But over 14% of that labour force are unemployed. Then we look at a GDP per capita of $28,000 (and declining rapidly) and you can see that it is impossible for them to even pay the interest on what they owe. Greece is just one big Ponzi scheme.
So, when Greece decides it isn’t going to honour the agreements it came to when it borrowed and spent all this money, what are the rest of the PIIGS going to do? Ireland and Portugal are already on life support with Spain and Italy not far behind. The countries in Europe who would be called on to bail them out simply can’t afford to and even if they could their voters just won’t let them.
It really looks like the end of the whole Euro currency project is in sight, it is just the nature of the collapse that is up for discussion. What order will countries leave in? What terms will they leave under? Who will pick up the bill? And how much bigger than the banking problems we just suffered is this going to be?
With hindsight the Euro should have been an extra currency, for trading, on top of the existing national currencies. Then it would have done most of the good things for economies without doing most of the bad things.
One very good thing that must come out of this is a re-evaluation of what the EU is about. It is very obvious now that a federal super state is just not going to work, so everyone working towards that aim should stop immediately and all the edifices they have erected, like the European Parliament, should be dismantled. Instead the EU should concentrate on being a free trade zone, this is what will bring the maximum benefit to its population. And to do that we urgently need to get rid of the very many non tariff barriers that EU member states have erected out of misguided nationalist protectionism. Also the system of giving lots of money to corrupt countries to squander on their political classes should be stopped immediately. Equalisation of economies will happen very quickly if free markets are allowed to operate.
The thing that really gets me is that all the clever people in government and in finance didn’t see this coming. Once the Greeks were allowed into the Euro it was as inevitable as night follows day.
Finally I have a partial solution to Greece’s problem. Look at the map of the Aegean above and you can see that from a geopolitical perspective Greece contains a lot of islands that should be Turkish. The Greeks grabbed them when the Ottoman empire collapsed. Why not sell them back to the Turks who have a thriving economy and who would be more than willing to pay up? After all America bought Alaska from the Russians.