Paul Simon wrote that there must be fifty ways to leave your lover. But Greece can't seem to find one way out of the eurozone. Now I know what you are thinking -- but Greece wants to be in the eurozone. But does it really?
Greece and the rest of the eurozone have been railroaded to this debt plan. The plan is not a good one, and it does not really help Greece. As long as Greece remains in the zone at its entry parity, it is a basket case and remains the zone's least competitive economy. Call it euro-ssippi.
This circumstance is not even addressed by the bailout deal -- some deal. When you peruse the deal that Greece gets, it's quite interesting. There is almost nothing there to help a country that, supposedly, is getting bailed out. How does that work?
The big thing that Greece gets is the debt write off and coupon payment reductions. But the debt is only being marked-to-market in the real world. Greece was never going to pay it, so the banks are hardly giving anything to Greece. Banks lent too much (shame on them ) and Greece over-borrowed (shame on it). What Greece gets is to state that the face amount of its debt relative to GDP is lower, plus reduced coupon payments that it must make, payments enforced by a number of strict provisions. That's it. That is the extent of what Greece gets. Some bailout.
In return for that small benefit, Greece has to promise all sort of austerity and to give up sovereignty in at least, well, fifty different ways.
The Greek people love this so much they protest against it every chance that they get. The international community acts as though stupid over-lending and the past assumption that government debt did not go bad was not an ingredient. (I wonder who was the official EMU historian that came up with "the one" about "how countries don't go bust." Did former Citibank chairman Walter Wriston do some consulting on that one?)
Robert Zoellick of the World Bank is saying that everyone knows this is not a fix, it is just buying time. I have been playing that broken record for months. On Saturday, Germany's interior minister, put his "interior portfolio" aside and called for Greece to leave the zone. Of course, he was not going to give Greece the boot, but rather meant that it should be given sufficient incentive to leave. One wonders if the German minister means to suggest positive incentives (like a door prize on the way out) or negative ones, should Greece stay. But then Greece already has a lot of negative ones attached to its staying and collecting on its big bailout bucks (that it promptly recycles to the banks it still owes).
This one is causing an epic headache. The G-20 is now playing the same game with Germany and the EMU that the EMU and Germany played with Greece. You want more help? Then you do more! The zone has made its own problems. It was of poor design, rules were neglected, and its members were gaming the system.
Different nations had different things to gain. Greeks wanted debt at German prices. Germany wanted markets for its goods and a place to lend its excess funds. France wanted a bigger role, and to be a bigger player on a larger stage, the EMU. And so on. No one looked at the price they would pay for the stuff that they got. I hope the Greeks enjoy those submarines they bought from the Germans (nice sale, Germany!) because everything in Greece will soon be underwater.
While it sounds mean, the German interior minister may actually be right. If Greece cannot leave the euro, it will never be competitive. Greece will need to depreciate its currency to lower its price level. This can be done. The problem would be stopping the vicious cycle of inflation and further depreciation that would follow. But at least that would give Greece a chance.
If Greece follows through with the current plan -- as seems evident -- it is going headlong into a meat grinder. It is hard to see how anything good could come of it. This is an odd example of the kinds of things that organizations come up with to save themselves. The Greek deal stops contagion for now it resolves the losses on banks to what they can absorb and it does very little for Greece. So, naturally, we call it a Greek bailout. No one is acting admirably in this crisis. No one sees the big picture.
It is interesting to see the sorts of denial operative in the Greek/European financial crisis and to compare it to the sort of denial we had in the US financial crisis. All problems may not be solvable by transparency, but having rules, obeying them, banning secret deals, getting honest ratings on derivative securities and on sovereign debt are all essential ingredients. Honesty would have gone a long way toward being preventative medicine. Instead, we will wind up with all sorts of rules and complicated deals. What we need are key institutions and policymakers that we can trust. We need to make honesty pay. Until it does nothing will be safe and no set of laws or rules can make it so.
To start, Europe needs to be honest with Greece about what it is doing to it. I'm not so sure how consenting Greece has been, since it clearly has been manipulated, it is virtually without choice, and its people oppose the plan. But Europe has a new tradition of not letting people vote on anything to do with the treaty and the EMU. While some wonder if Portugal and Spain may want some of the same of what Greece has gotten, I would hasten to add that Greece did not get its forgiveness without providing its pound of flesh. Are Spain and Portugal willing donors?
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.