Liar, Liar, Pants on Fire! The Greek Case

Includes: EU, EWI, EWP
by: John M. Mason

According to the FT, “A €130 billion bail-out of Greece will contain unprecedented controls on Athens’ ability to spend the funds, officials said…”

Also, requests had been made of Greece to postpone national elections this spring. The fear is that a newly elected government would not feel constrained by the “bail-out” currently being discussed and might, once in office, back off from the terms of the bail-out. (See my post from this past Monday .)

Why the concern?

Well, Greece is the country that lied, big-time, to get into the euro-currency community! Why Greece was not kicked out of the union when the lies were discovered still amazes some. Apparently, trust of Greece is running low…

I have heard many people ask, “Why not just kick Greece out of the eurozone? After all, its size is only about 2 percent of the total. What harm would be done?”

Officials seem to be split over two paths right now - between just letting Athens default, and keeping Greece in the eurozone while trying to build some kind of central governing body.

This split seems to be dividing two of the major players in Germany: Wolfgang Schäuble, Germany’s finance minister, who seems to favor a Greek default, and Angel Merkel, German Chancellor, who seems to want to keep the eurozone intact.

The arguments on Merkel’s side seem to run from the fear of a “systemic” run of trouble coming from a Greek default, something similar to what happened after the demise of Lehman Brothers, to a focus on the long run where the benefits of a stronger eurozone coming from a central political union that would accrue to all.

The argument on the other side: We have wasted too much time on this small, insignificant liar and we need to move on to bigger, more important problems. We can get through a minor default.

In my mind, this mess should be brought to a conclusion. Other countries in the eurozone appear to be making some progress and the financial markets are rewarding them for it. For example, both Spain and Italy have had some decent bond offerings recently.

The yield on the 10-year Italian bond closed at 5.70 percent yesterday, down from over 7.00 percent at the start of this year; for the same maturity bond in Spain, 5.34 percent, down from around 5.80 percent in early January.

Europe needs to get on with its business. Neither Spain nor Italy nor Portugal nor Ireland are “home free” yet. And the figures released this week on the economic growth of the eurozone were rather glum. But, attention needs to be given to these efforts.

If the Greeks cannot be trusted then it is time to move on. Let the default begin! This too will pass. Argentina made it…why can’t Greece?