Grexit

There is much speculation regarding a Greek default and its exit from the Euro currency.  Much of the rationale for keeping Greece in the system is of the kick the can down the road variety where contemplation of withdrawal is too hard to think about.  But its denouement is inevitable because too much money is owed so that servicing the debt sucks the life blood out of the Greek economy at a faster rate than it can make and replace it.  Uki Goni's editorial in the New York Times:  “What Greece Would Face in a Default” is correct in drawing the similarity to Argentina renunciation of its debt in 2001 to the country’s indifference to reality.  Greece joined the Euro currency on a fiction and it will have to leave on the fact that it can’t hack being part of a developed economy with costly government.

First lets recognize the inevitable.  The Greek economy can’t service its debt because it requires more resources than what it generates.  An economy depends on the circulation of money, an economic lifeblood that nourishes and oxygenates the organs that produce.  Greece is in a similar position as Germany after World War I when the Versailles Peace Treaty required it to pay huge war reparations.  These payments took the lifeblood out of Germany’s economy which created the economic instability of the Weimar Republic and finally the metastasises to Hitler and Nazism. Greece is loaned money by the EU so that the money and more is taken to service debt.  Austerity makes the problem worse by reducing economic activity which reduces income and finally the ability to repay.   Its not logical that they stay in such a loss position and the longer they do the more radicalised the country becomes.

Greece and Argentina are countries that deny economic reality.  Various articles about Greece in the New York Times over years bring up a very meddlesome government hindering economic activity.  One article from memory recounted the travails of a Greek American trying to start a beer company in Greece only to be held back by a government bureaucrat beholden to Heineken beer of Holland.  Another article detailed an online Olive Oil start up with company executives required to submit stool samples to a Greek Health bureaucracy in order to sell third party oil never touched by any of these executives.  And finally a railroad built because money was made available by the EU but with no market demand.  The final determination of the project was that billions would have been saved if the government had just subsidized the taxi ride of the few riders using it.  These are decisions of a non-market entity, government, making wasteful asset allocations that are difficult to recover from even given a bountiful economic environment. Greece can’t afford a large meddlesome government similar to what prevails in the more developed regions of the European Community.

As long as Greece is part of the EU and its currency the meddlesome large government bureaucracy exists.  Until a default there is no possibility of a dis assembly of this uneconomic structure so that it can rebuild logically in a marketable manner.  There is no guarantee that it will.  Its likely course would be the same myopic one as Argentina with dismal result but there is always hope that it will not go there.  Currently without a default there is absolutely no hope.