Wednesday, November 9, 2011

If Popandreou is Not Pericles, How About Berlusconi?

It turns out that George Papandreou is not Pericles (image source)

Just a Little Recent Greek History

The beginning of the "Greek situation" came when bond holders invested in Greek bonds at a low risk and a modest interest profit.  Because of dozens of fairly ridiculous mis-management problems, the Greek government was falling short of tax revenues and wanted to invest with more government spending in order to boost the local economy.

The "government spending" side was, in fact, one of the "dozens of forms of mis-management."  The money got spent all right, but the beneficial economic effects didn't materialize as planned.

Here, we have to be just a little understanding about the mess.  The Greek government employed a "notably patchy" policy of collecting taxes.  Corruption cycles were so traditional that some of them probably saw their beginning during the ancient wars with Sparta. The modern Greek economy had become a festival of oligarchy and savage wealth inequality.

Only a fraction of the "investment money" raised by Greek bond sales ever got close to the task of actually growing the Greek economy.  Having plenty of this "bond" cash at their disposal, the Greek Parliament found it too attractive to simply continue on a failed path of palliative measures with pensions, benefits, ineffective public project spending and the like.

Quality public management stepped aside.  As long as an acceptable ratio of the bond money continued to filter to these wasteful targets the population remained calm and the social parasite class remained well fed.  And, the bond holders got their interest.

The world had a full expectation of the Mediterranean, "easy going" habits of the Greeks long before this reached its current crisis point.  No one particularly expected Greece to be a "hard hitting," "beady eyed," "tight fisted," "strong willed" example of close national management.  Their record as tanned, calm and collected "enjoyers of life" in their beautiful country never promoted such nonsense.

The debt grew and grew.  Just like in the United States.  Although the spending was there, no new Parthenon appeared on the Acropolis.  The money seemed to consistently vaporize while it was stored in the treasury with the doors locked.  Every time the levels dropped, more bonds were sold.

Risk and Loss --
the Horror of the "Two Horsemen of the Acropolis"

Of course, there probably are, actually, "Four Horsemen" out there somewhere, but we'll focus on risk and loss because they are the central features of this post.

As far as the investors went, Greece was a bond buyer's paradise.  All along the path to financial nobility, buying a few Greek bonds every once in while was roughly as safe as most other possible places to put one's money.  European and Arab monied class folks associated a bit of class to the policy while under regulated European banks routinely added the bonds to the low risk side of their investment portfolios.

The interest was low but acceptable and so was the risk.  Even though very little has been said about it, there was a ghostly innuendo that, somehow, if "push came to shove," the Greek government could and would guarantee the debts.  Even now, the oligarchs have not chosen to share whether or not there was "anything in writing."

The Republican Global Economic Collapse of 2008 exposed just how much investment money had been frittered away by Greece's government, that is, revealed just "how much water had dripped from this leaky bucket" through the years.

"We just need to bail faster!" (image source)

If blame is to be attached to the Greek population, it is the same blame that can be attached to Americans.  The fault, quite beyond the outrageous corruption of the governments and the oligarchs, can best be described as a dismal failure of general populations to take any noticeable interest in what was going forth in one's own government.  Both we Americans and the Greeks could have done a much more convincing job of noticing "how much water was dripping from the corresponding national buckets."

The Keynesian "Chicken Comes Home to Roost"

Of course, sooner or later the predictable collapse occurred.  Amid virtual flurries of the event's re-description as an "act of God" or a routine "economic cycle," Greece's bondholders, now firmly in charge of both the governments and the media outlets involved, decided that a carefully manipulated public opinion campaign could "modify" the bonds' risk -- after the fact -- from very low to none at all.

Well, the "very low to none at all" risk which looked good going in has entered the material world.  (See cartoon)  The Greece bond investments have been "hoisted on their own petard."  All that's left is the possibility of more, new, "monetized" European bonds being issued as a "loan" to bail out the old bonds, except, this time, the low risk side of the investment has turned into a much higher risk, a fact not missed by the Eurozone taxpayers being asked to pony up the cash.

The first chapters of the same story are now unfolding in Italy.

The absence of a "new Parthenon," mentioned above, is also yet another "elephant in the European living room."  Finding themselves in a far more sober moment of reflecting on precisely what all this debt has actually purchased for them, the Greeks -- like the Americans -- see essentially nothing.  On a smaller scale, the Greeks are as confounded as the Americans in this respect.

Ancient Mysteries Repeated 
The Vaporizing Prime Ministers of the Classical World

To wrap up this MeanMesa posting, we can note a remarkable similarity between the political demise of both the Greek and the Italian Prime Ministers in the midst of this chaos.  Now that the long game of "bond selling" has reached its inevitable denouement, there are political prices to be paid.

That denouement is a ghastly cake with a cruel austerity as its icing -- foreign imposed austerity, the very least palatable flavor of all.

Knowing that their careers as Prime Ministers have ended, both George Papandreou of Greece and Silvio Berlusconi of Italy have little appetite for administering the social rebellion this new austerity will create in their streets.  Each of them, no doubt responding to the last, frantic phone calls from their European bond holders, have agreed to depart on the condition that the bailouts -- and the resulting French and German austerity demands -- be accepted.

Less drastic but grotesquely similar, we see the House Republicans here in the US acting in roughly the same manner.  Although they had campaigned on the prospect of creating jobs and garnering the resurrected energy such a success would have delivered to their failing image, they abandoned this potentially ideal solution in favor of the demands of our own country's bond holders with their bizarre spending cut frenzy.

The threat of a Greek referendum, asking Greek taxpayers to foot the immense debt bill of the failed public investments of Greek bond capital, was abhorrent to the bond holders.  It would be the same as asking for a huge payment on an empty grocery cart, a distasteful reality best reserved for Papandreou's unfortunate successor.

Berlusconi saw the same plight a little further ahead in his own dwindling future.  Without the constant influx of bond sales, he would be left alone to face the burden of actually running the Italian economy.  Aside from the relentless fascism, a similar fear lurks deep below the scaley skins of American Republicans.

Stay tuned.  These leaking ships have yet to ground themselves safely on the rocks.