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Greece’s Deal with the Devil

Has Europe sold its soul for a lifetime of the welfare state?

by
Diran Majarian

Bio

July 16, 2011 - 12:00 am
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The Greek crisis is a toxic mixture of politics and economics. The showcase euro zone project is in jeopardy from a looming sovereign default of one of its members.

 

Greece made a Faustian pact with the European Union that allowed its political elite to freeload the system, using EU transfer money and cheap credit for local political patronage instead of building a sound goods and services economy.

The euro destabilized the balance of payments. Local production waned and imports soared. Price inflation led to pressure for wage increases. Greece lost competitiveness. Public debt mushroomed to finance never-ending public sector deficits. For many years the EU blinked.

The EU elite, fearful of the Lehman precedent and protective of their scandalously undercapitalized banking system, have chosen a contradictory approach of debt bailouts to cover creditors by musical chairs and wage and price deflation austerity.

The Devil is now seeking his due. Greece is locked into an ever-growing debtor’s prison with a shrinking GDP causing its tax base to implode. The rising mountain of debt is currently 150% of GDP, shortly to rise to 170% with the next bailout loan on the pyramid. Unemployment is skyrocketing; shops and businesses are closing. The government cracks the whip, cursing its own people every time unrealistic tax revenue projections fall short, creating ever more draconian penalties for tax evasion. This climate seeds an increasing flight of capital and lack of investor confidence.

EU policies are terrorizing periphery countries with deep recessions and mounting unemployment, creating disorderly default risk from rising social unrest. Northern European taxpayers are also growing restless and upset over ever-growing demands for bailout money from Brussels, as the periphery sinks under the growing debt overhang. They are concerned that these are stealth transfers with growing doubts that the periphery has the capacity ever to repay the money.

Nobody in the EU is happy. The more EU voters see Brussels asking for taxpayer money to bail out banks and socialize losses, the angrier they get. This causes growing discontent with the whole EU system. The EU elite seem smugly sure of themselves, appointed with secure positions rather than democratically elected. Politicians in member countries face a rising storm. Few have the courage to openly express their discontent for fear of ostracism from the Brussels elite for daring to question them.

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