The tragedy being played on the European stage is not Oedipus Rex, the Greek drama we all had to read in high school english classes, but Hamlet, the more complex and darker drama by Shakespeare. To blame, or not to blame, that is the question. Whether it is nobler to lie and hide the truth and thus by doing avoid the scandal of self anointed blame; or th suffer the slings and arrows of numbers that never lie not do find false fault unpo the innocent, that is the question. So we have Prince Varoufakis delivering his speech to the finance ministers and being booed off the stage. Former economic professors only know about economic theories and the reality of numbers, finance ministers know about the game of politics and when to blame others for their own failures. Indeed, one might describe them a a cast of Lady MacBeth constantly arising from the discussion table to compulsively wash their hands. Now there are those individuals that believe that the EU will muddle through and fudge enough to make everyone happy. Frankly, that is not possible, so let me direct your attention to this website: http://www.visualcapitalist.com/video-the-european-debt-crisis-visualized/ Bloomberg is usually a bit more on the liberal side of economics, finance, and politics, but this came as a redirect from thier site, the Bloomberg News. I love this video from Visual Capitalist, the writer and animator who put this video together really spent some time understanding the problems of the EU, the EMU, and the various countries within the union. So copy and paste into your browser and enjoy.
As the video puts the problem, the ECB may control the monetary policy (which is, by the way, still a political decision for any central bank suck as our Fed or UK’s Bank of England) but individual countries control their fiscal policies. That is, what is spent by the central government and how much. Since so much of Europe is in the throes of socialism, these individual governments tend to spend far more than they collect in taxes. Some, like Norway, may have sovereign funds based on well head taxes on oil production, but most of Europe has almost no access to such natural resources. There are no big copper mines, iron ore deposits, tin mines, and so forth. That means that the governments must collect high taxes on income and consumer sales. The VAT tax in some countries is close to 25%. VAT is a sales tax that hits the hardest on the poor. The tax is suppose to punish over consumption and is usually not levied on food. But everything else is fair game. Go the a doctor and he adds a VAT to his services. The VAT encourages many to cheat the government. When I go to France and I need to buy firewood, which is suppose to be taxed, the seller accepts cash only. He will not pay any VAT to the government nor income tax. This is a wide spread problem in Europe and not confined to the PIIGS.
As one can see, if a government cannot collect the taxes it needs to spend on its people, then it must borrow when and where it can. This is Greeces problem. The Greek government has been very ineffective in collecting taxes (income, VAT, etc) and it has had to borrow funds to pay for the free lunch it provides to many of its residents. When Greece became a member of the EMU it already had a high debt to GDP ratio. At least foreign banks could keep a limit as to how much Greece could borrow and at what rates. But once in the EMU, well, that was letting the alcoholic have the keys to the liquor cabinet. In this case, that cabinet was really a large warehouse. But this problem is further accelerated by the fact while the EU parliament has tried to take political control of the EU as if it was the final authority, the reality has been quite different. Since the individual countries retain their sovereignty that puts the political solutions into one of several categories. The first is that the problem is someone else’s fault. Number two is that we are all at fault, and number three is it is no one’s fault. Thus the idea of consensus means that the fault belongs to no one country or group but is, more or less, an accident or coincidence. The problem with the blame game is that truth is sacrificed for lack of blame. Hence, a premium is placed on obtaining cooperation in making sure that blame accrues to no one.
Unfortunately, Varoufakis is not going to accede to that game. The problem with Greece is the huge debt that they have accumulated with the help of the other nations in the EMU. When everyone is willing to spot you more than enough drinks at the bar one will become drunk. What really matters is that the status quo does not change for Europe. The member nations will cling to the excuse that debt has always been the smart way to deal withy funding socialism. Germany has already declared that Greece will need a second bailout, a third, a fourth, and even a fifth. What are these bailouts for? To pay the bond debt that the out country central banks have made possible to acquire. The idea is that if Greece would only accede to the wishes of the majority it would borrow a lot more debt to keep the payments coming on the present debt service. The hope is that the economic turn around will happen fairly quickly and inflations will boost the earnings while providing the excess needed to service one’s debt. Unfortunately, Mr Varoufakis has had the temerity to speak the truth about not only Greece’s finances but that of the EU countries. Well, one can’t have some economics professor telling the politicians what the truth is. If they want the truth they’ll ask him. No, political savvy means learning how to lie and shuffle off the blame on to someone else. This is why Varoufakis is vilified for all the sins of the EU ministers. He insists on the truth, he speaks the truth, and no one can handle the truth, sorry Tom Cruise, you lose this one. So another Greek, who is, incidentally an Oxford economics professor and follower of Keynes is now going to head the delegation. The man can speak softly and tell others what they want to hear.
The stakes are rather simple. If Greece does not take any more loans from the EU group, then they will, most likely, default on some or most of their bonds. The whole point of the Greek bailout in 2012 was to save the banks that held Greek debt, not to put a penny into Greece. And if the Greeks cave in and agree to take on more debt, not a penny of it will ever go to any person in Greece, That money will go to the banks in Europe. Greece will be made a debt slave. Come May, things start to get more critical and in June they become almost impossible. The simple fact is that Greece cannot stay in the union and pay its debts unless it wants to totally wreck its economy. The Greek economy actually did well these past several quarters have reported. The only sector that has been negative has been transportation. Shipping has contributed to the Greek economy in the past and now it is actually dead. One has only to look at the Baltic Dry Shipping index to see that point. To accept the EU, the EMU, the ECB, and the IMF directions would be to destroy its economy. In the end, Greece will never earn enough to pay off the debts, let alone service them. But the EU finance ministers don’t care to hear that truth. They want to make sure that their fingerprints aren’t on the murder weapon. In the end, that poison tipped sword will strike the Greeks and all will die on stage.