Lawry,
You may well be right -- that Uruguay is a better default-model for
Greece than Argentina. But in practice models don't come into it.
Governments are usually forced into a default when the balance of
creditors/investors turns against them, and not as a result of a
rational decision. Most countries of any size are as much subject to
economic success or failure as any business or city, and over time
will experience both. Investors may be angry if a country defaults
but they know that investment anywhere always has an element of risk
and, at bottom, they must take the responsibility. But also most
countries of any size and longevity have some features, whether
geographical, geological or skill-wise, to be able to improve its
standard of living by exchanging its most efficiently made products
or services for those that it wants from others. The assets of a
country are always vastly greater than its national debts and once
governments of failed countries learn, or are forced, to reduce their
size, cost, bureaucratic corruption, and currency inflation, then
prosperity will inevitably resume and outside investors (if they are
needed) will start to pay attention.
You ask at the end of your message "Will Greece be in a greater hurry
to separate from the Euro, than the Eurozone eager to shed Greece,
the deadweight partner?" Neither really wants to default. The
question is really hypothetical. It will be the balance of investors
(and potential investors) which will decide. I can't imagine that
this will be delayed for much longer.
Keith
At 17:41 04/11/2011, Lawry wrote:
A better model for Greece than Argentina or Iceland may be Uruguay.
Creditors accepted a relatively modest give-back, austerity was
implemented, a short term international cash infusion was set-up,
and the whole thing was worked out cooperatively. Led by an
effective government intent on maintaining Uruguay's credibility,
Uruguay focused on exports that were in demand (beef, soybeans,
IIRC) With surprising rapidity, Uruguay regained normal access to
international capital markets.
Argentina, thanks to Jeffrey Sach's nonsense recommendations, balked
at meeting their debt obligations, went into default and has been a
financial pariah ever since, with a limping economy even now.
Argentina's strategy has not led to 'self-respect' and while
Greece's would enjoy a period of heady self-assertion were they to
default they would soon learn -- as has Argentina -- that even
greater and inescapable pain lay ahead. Even Zorba woke up with a
massive hangover after his life-affirming but reality-denying
debauche of the night before.
Iceland nationalized its banks and the Icelandic people dug deep to
spread the misery, but, with good government, the blow was absorbed
and the Icelandic economy has been thriving. This took, as it did in
Uruguay, social cohesion and discipline.
Will Greece be able to find that discipline, or will oratory-based
politics merely inflame the Greek sense of victimization? Greece
lacks the fiscal terms that countries normally have due to their
tie-in to the Euro. Will Greece be in a greater hurry to separate
from the Euro, than the Eurozone eager to shed Greece, the deadweight partner?
Cheers,
Lawry
On Nov 4, 2011, at 8:09 AM, Robert Stennett wrote:
Very interesting analysis. Any thoughts on Iceland and how that may
(or may not) set a pattern for other European countries?
Barry
On Nov 4, 2011, at 5:30 AM, Keith Hudson wrote:
I can see no hope for Greece now. Even if Mr Papandreou manages to
form a Coalition government later today and get a vote of
confidence, I cannot see how the majority of Greek people are
going to accept many more years of even more austerity than they
have already suffered.
It's no use saying that the Eurozone has been pampering them for
many years and they must now buckle down and get used to reality.
When it comes to human emotions, there are no absolutes. It's all
relativity. As Krushchev once said when he'd retired from being
the President of Russia: "It's easy to govern starving peasants.
But once they have food in their bellies then it's another
matter." Two years ago, most Greeks had already gained as high a
standard of life as most Germans, French, Italians, etc. It's
already declined, and even this part-way step has produced a
country that's barely governable.
Any more attempts at austerity, then daily riots and national
strikes every few weeks will produce a revolutionary situation.
Or, rather, not so much revolutionary (because there is no
conceivable alternative in sight) but total breakdown. At an
intuitive level that ordinary Greeks probably understand, even
though they can't articulate, they know they face a choice of more
austerity for at least 10 years in the Eurozone or yet even more
austerity for a only a couple of years or so if it, like Argentina
in 2000, it decides to default. In the latter case, it could
leave the Eurozone, restore the drachma, and regain the
self-respect and cultural independence which the bureaucrats of
Brussels took away from them years ago.
I can see no other immediate future for Greece, even if it has to
have a draconian government -- maybe even with military backing --
for a few years. China will help. It is already building massive
port facilities at Piraeus and won't want to see these held up.
Furthermore, Greece could immediately start offering wonderful
holidays to tens of millions of the Chinese middle-class whom the
Chinese government is already encouraging to spend more. In four
or five years' time, if not before then, the average Greek will be
scratching his head in wonder that his country ever entered the
Eurozone in the first place.
Keith
Keith Hudson, Saltford, England http://allisstatus.wordpress.com/2011/10/
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Keith Hudson, Saltford, England http://allisstatus.wordpress.com/2011/10/
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