Monday, May 03, 2010
I am far from an expert on international finance, but the bailout of Greece by various European governments and the IMF announced Sunday may do little more than kick the can down the road. The package is very large relative to the size of the Greek economy, but important constituents are not in favor of the plan, which includes major spending cuts.
Greek Prime Minister George Papandreou warned his country it would have to make "big sacrifices" as he announced massive new cuts to secure the rescue package, which is bigger than that of bankrupt Argentina in the 1990s.The motivation for the various European governments is clear -- there is a serious concern that the default contagion could spread. How Athens allowed the situation to deteriorate to this magnitude is remarkable, but I suppose that the perverse logic in sovereign finance is that the more dire the crisis, the bigger the gun is that they can hold to their own head, and threaten a suicide that disrupts the entire continent.
But Greek unions vowed to battle the drastic round of austerity measures, worth some 30 billion euros and including deep cuts to wages and pensions.
The bailout, worth 146 billion dollars, includes 30 billion euros of loans from the International Monetary Fund whose executive board is set to approve it "within the week," managing director Dominique Strauss-Kahn said...
...But reaction in Greece was severe, with Yannis Panagopoulos, president of the million-member strong GSEE union, warning that the cry for help would only "worsen the recession and plunge the economy into a deep coma."
He added: "It's time to step up the social battle, our May 5 general strike will be the beginning of a long battle."
For some reason, that always reminds me of the scene in Blazing Saddles when the new sheriff, played so memorably by Cleavon Little, arrives in Rock Ridge and threatens to shoot himself to get out of a tight situation (NSFW; racist language used in a satiric and comedic context):
Three decades ago, one of my favorite places to go for a late-night snack after studying all evening was Hoagie Haven, down Nassau Street from the main part of the Princeton campus, but close to the eating clubs and the E-Quad. The Haven had what I thought was the best Souvlaki in town (even now, it is only $3.90), and the consumption of all of those tangy Greek midnight meals has not had any long-term adverse impact on my health, as far as I know. I have to say that $146 billion would buy a lot of Souvlaki.
Some feeble minded questions about the Greek bailout:
1) Is their any reasonable expectation that they will ever pay the money back?
2)What incentive do the Greeks have for honoring their end of the agreement after they have the cash in hand?
3)I believe approximately half the bailout is coming from the IMF. Is not the IMF funded principally by the US taxpayer, and if so, does this mean that the over taxed US citizen is now working to support Greek retirees as well as our own?
4) Or can the IMF just print money?
Let'em go bankrupt, and then the unioneers can just stay on strike, or alternatively accept a court ordered settlement. I think there is probably much more danger to the world economy from the impending bankruptcy of California, a much bigger economy.
Sidebar, Blazing Saddles is in my top 5 comedies, all time.
Script is by Mel Brooks and Richard Pryor. White or black, if you're offended ... the joke's on you. Howard Zinn couldn't write a better populist history of America. "We'll take the n*ggers and the the ch*nks, but we won't take the *r*sh!"
You can argue which is better: The Producers, Blazing Saddles or Young Frankenstein. I put Saddles first -- it's so much subliminally copied you can forget how fresh it was when it came out. The "bean scene" is actually key: if you laugh at that, Mel owns your ass the rest of the way. More one liners in a minute than most comedies have in an hour: "Sheriff Bart, they said you was hung ... And they were right!."
Same question for the Greeks as for the Washingtonians. You just took an astonishingly huge lump of cash and made it vanish. Now you say another huge lump of cash will make it come back.
If Greece does not change its behavior, this money will vanish just as sure as the last lump vanished, and into the same pockets. Same for Washington.
From what I have read a third of the bailout will come from the IMF and the U.S. finances about 40% of that. So the U.S. will be borrowing another $15 billion from the Chinese so that Greek union members pensions will be paid.
Kinda makes you feel all warm inside.
Once a large chunk of the cash is turned over, can you imagine the wonderful parties all over Greece and the opportunities for selling luxury goods and villas on non-Greek islands?
The Greeks have no intention of tightening their belts; saying they are - sure, but actually doing it - not so much. After all, crying crisis got them a boatload of free money this year, why not try the same tactic every year until it doesn't work?
I always thought the EU and the euro would fly apart because of some ancient and pointless dispute between the French and the Germans.