by Bill Bonner
Tempests Everywhere
And then democracy comes into being after the poor have conquered their opponents, slaughtering some and banishing some, while to the remainder they give an equal share of freedom and power.
– Socrates, Plato’s The Republic
A snowstorm battered the East Coast of the US today. Politics rocked southern Europe.
Sitting here on the edge of the beach, overlooking the Pacific Ocean, a gentle breeze stirring the trees… birds singing… surfers carrying their boards across the sand…
… it’s hard to imagine the tempest in North America, let alone the swirling clouds over the Parthenon. The radical left-wing Syriza coalition party won in Greece.
Once again, Greece is a victim of democracy.
Greece’s elderly president Karolos Papoulias warily eyes Alexis Tsipras as he is about to be sworn in as the country’s new prime minister.
Photo credit: Aris Messinis / AFP
Austerity? What Austerity?
What this means, exactly, is anybody’s guess. The Wall Street Journal struggled:
“Within minutes of the close of the polls, Germany’s powerful central-bank chief, Jens Weidmann, pushed back.
“It is clear that Greece will remain dependent on support and it’s also clear that this aid will be provided only when it is in an aid program,” he said in an interview with television broadcaster ARD.
A message on British Prime Minister David Cameron’s usual Twitter account, meanwhile, warned that the Greek result will “increase economic uncertainty across Europe.”
Increased uncertainty is a good bet.
Meanwhile, the papers reported that Europe’s apparatchiks were working overtime to accommodate the new government so as to keep the system functioning. Also reported was that Greek voters were fed up with “austerity.”
As to the first bit of news we have no doubt. All the powers-that-be don’t want to become the powers-that-used-to-be. They’ll do whatever it takes to hold on to their authority. It’s the second bit of news that makes us say, “Huh?”
Not that we haven’t heard it before. The Greeks… the Spaniards… the Italians… the Portuguese… the French – they’re all supposed to be tired of “austerity.” But what austerity?
According to our sources, the Greek government currently spends 59% of GDP – a figure even higher than in France. Like France, Greece has plenty of civil servants enjoying a cushy life at taxpayer expense. And in the private sector, too, the cronies get their favors, privileges and tax breaks… while as much as half of tax revenue goes uncollected.
Which is probably a good thing. Were it not for the black market, and tax evasion, the Greek economy would probably fall apart. Elsewhere it is reported that 45% of GDP is collected by the Greek government. The difference between collecting 45% and spending 59% is apparently the source of the problem. But we’re not sure. All of the numbers we see are a little fishy.
Many of the data that are readily available are a bit outdated. However, this slightly more up-to-date chart of government spending in absolute terms shows that spending has increased substantially in the summer of 2014 – click to enlarge.
Clever Legerdemain
It was thanks to fishy numbers that Greece was admitted to the EU in the first place. The European Union insists on a certain standard of financial integrity, or it won’t let you in. (Fearing that it might have to bail you out later.)
Greece managed to get in thanks to the clever legerdemain of Goldman Sachs, which disguised some of the nation’s debts. Then, with no more fear of getting paid back in Greece’s dodgy drachma, lenders were happy to open their wallets to Greek borrowers.
Government debt increased from 100% of GDP as recently as 2006 to 177% this year. Spend, spend, spend. Pensions. Health care. Education. And why not guns, too? Greece is even one of the biggest military spenders (as a percentage of GDP) in NATO. This is austerity?
Real austerity is what you get when you spend no more than you make… minus what you need to pay to service yesteryear’s excess spending. Real austerity is what you get when lenders wise up, realize you’ll never pay them back, and don’t lend you anymore money.
Real austerity is what you have when the Germans say nein to any more financial support. Real austerity is not what the Greeks have. And not what Greek voters voted against. It’s what they need. Austerity is what we all need.
The ratio of Greece’s government debt to GDP has increased greatly, as the nominal value of economic output has plummeted. For one thing, malinvested capital was liquidated, for another, Greece’s domestic money supply declined sharply as depositors fled and the banking system became effectively insolvent (it was then recapitalized via a bailout). Since there still remain huge amounts of non-performing loans on the banks’ books, bank credit is likely to remain scarce for the time being – click to enlarge.
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