“Democracy means government by the uneducated, while aristocracy means government by the badly educated.” – Gilbert K. Chesterton
The Greek government officially changed hands over the weekend as George Papandreou stepped down. Now, I’ve been pretty vocal about the fact that I believe Papandreou has handled the situation in Greece less than adequately. Unfortunately, there are no signs that this new government is going to do anything differently. The referendum that Papandreou offered up last week was a colossal error. The public is far from understanding the EMU crisis even though they understand that something is horribly wrong in Greece. Even worse though, the leaders in Greece appear to have an equally poor understanding of the root cause of the issue.
What this episode regarding the referendum proved is just how poor the understanding really is. Greek leaders and EMU leaders for that matter fail to understand what the EMU needs in order to resolve this crisis. I hate to keep repeating this, but the region’s economic entities need monetary sovereignty. The Euro as is, will not work. Ever. And even if we happen to resolve this crisis (by some miracle) the same trade imbalances will lead to debt imbalance and a solvency crisis at some point in the future. What Europe needs is a solution that resolves the trade imbalance. This must be achieved via the creation of an autonomous monetary state (fiscal union or break-up). The solution has become clear. It boggles the mind why Greek leaders are still fumbling around trying to pretend that austerity and more of the same Euro construction is going to fix everything. They’re going along with the “German plan” even though it won’t work to improve the economic outlook for Greece. Talk about throwing a Hail Mary into an end zone without any wide receivers there to catch it…..
The worst part about this Greek debacle is that Greece has become a sideshow at this juncture. The real story is turning to Italy and the other periphery nations. And the ECB is now making it clear that they’re not a willing buyer of Italian debt without further austerity. ECB governing council member Yves Mersch said this weekend:
If we observe that our interventions are undermined by a lack of efforts by national governments then we have to pose ourselves the problem of the incentive effect.
The translation of this sentence is simple:
We are going to continue with the exact same strategy of austerity and ECB bond buying when necessary with the hopes that more of the same failing policies will reap different results.
The bottom line: the Europeans still don’t seem to understand the disease they suffer from and nothing that has transpired in the last few weeks changes the outlook for what is slowly killing them.