Greece Collapses – Germany and the World Will Pay the Price
By Shlomo Maital
Two trucks speed toward each other on a deserted highway. They are 50 kms. apart. Each drives at 100 kms. an hour. They have 15 minutes before they meet. Plenty of time to slow down, stop, turn off the road.
Yet they still collide head on, with massive damage.
Then, the experts debate why this happened.
This is the story of Greece. Greece joined the EU in 1981. It joined the Euro in 2000, in time to implement paper euros and coins when all of Europe did.
Here is what former European Central Bank Chief Economist Otmar Issing said, in March 2011: “Greece was only able to join the euro through deception [its budget deficit was far above permissible levels] and the currency bloc’s leaders have been “too polite” ever since to deploy adequate sanctions that could have averted the region’s debt crisis. When I worked for the ECB, I suffered every time countries didn’t meet the criteria…Greece cheated to get in, and it’s difficult to know how we should deal with cheaters. … Greece will probably be unable to honor its debts as it grapples with insolvency. The country’s repayment ability remains questionable even after the government endorsed an accelerated asset-sale plan and a package of budget cuts necessary to draw a fifth tranche of its bailout.”
It was obvious in 2011, four years ago, that Greece could not pay back all that it had borrowed. Today its public debt is an unsustainable 177 percent of its GDP. So it is obvious – much of the debt has to be wiped out, one way or another.
Are Greece and its leaders to blame? Sure. But on the principle of “sunk costs”, the history is irrelevant. The question is, what to do today, to avoid the crash? We’ve seen it coming for years, according to Issing. Yet Europe and its blind leaders continued to torture Greece, imposing ever more severe austerity. You cannot grow an economy by shrinking it. And an economy can only pay back debt by growing. Grade 5 kids know that. But politicians and economists don’t. You cannot have a single currency, the euro, without a single united banking system throughout the euro zone with one set of rules. That never happened. It never will. So the euro will become a permanent chronic ongoing crisis, and it has been for years.
Yesterday German Chancellor Angela Merkel said, “if the euro fails, Europe fails.” Really? What has Chancellor Merkel done to recognize reality – Greece cannot, cannot, pay back its debt? She should have said, “The euro has failed, because I have failed, and I therefore tender my resignation. I failed to explain to the German voters, that even if we wipe out a quarter of Greek’s debts, Germany still has gained immensely”.
Who has been the big winner from Greece’s suffering? Germany.
Why? Because Greece has dragged down the external value of the euro, and the cheap euro makes German exports more competitive. If Germany under Merkel would give Greece 3 percent of all it has gained from the Greece-driven euro decline, the crisis would be over.
Some 37 % of Germany’s GDP comprise exports, or nearly $1.5 trillion (in 2014), just slightly behind that of the U.S., whose population is three times bigger. Even China exports only 23 % of its GDP. How strong will German exports be, when Greece leaves the euro, restores the drachma, bankrupts its citizens and its banks, crashes world financial markets, bashes the world economy — and then the euro soars, throwing Germany’s export-driven economy into recession?
Two trucks speeding toward each other for years. Could the crash have bene prevented? Sure, with common sense.
No. History will be unforgiving to the hypocritical blind leaders who caused this.