Beware of Greeks when bearing giftsFATHER RAYMOND J. DE SOUZA
The twists and turns of the euro crisis, with trillion-euro solutions being conjured by the big brains of the financial world, make it rather hard to know exactly what is happening, even for those of us who were once economists.
Economics initially attracted me because it was the social science which, at its best, combined analytical rigour with a robust humane element. It's the science of human freedom, and reminds us that all choices involve trade-offs.
I fear that the last weeks have given a rather different impression, namely that economics is precisely a great conjuring art, capable of reconciling impossibilities in a way that the obvious consequences of foolish decisions can be made to vanish. Economics is not a natural science, but there is something about it that is like chemistry, wherein whatever appears on one side of the reaction has to somehow be accounted for on the other side. Instead, there has been more than a whiff of alchemy in the European air, as ever more elaborate mechanisms have been devised to avoid the harsh reality that debts must either be repaid or defaulted upon.
The Greek plan, such that it is, requires holders of Greek bonds to accept 50 cents on the euro, which has been labelled "voluntary" in order to avoid it being classified as a default, which it otherwise plainly is. And the 1-trillion bailout fund is neither 1-trillion or a fund, but rather a kind of insurance scheme to allow investors to buy debt from Greece or Italy or whoever is next with a quasi-guarantee that they won't lose everything. Perhaps they might even get 50 cents on the euro. Investors will understandably find that prospect less than alluring; on Tuesday they demanded a 455 basis point premium to buy Italian bonds over German ones.
How bad is it? All the frenetic activity in Europe this week has been aimed at getting Greek debt down to 120% of GDP by 2020, which will require serious austerity and more than a little accounting chicanery. If Greece pulls it off, nine years hence it will be where Italy is now in terms of debt-to-gdp. Italy is at the head of the queue for the next crisis. Given that Europe is now in its 18th month of saving Greece, one can only imagine what fabulous measures will be employed to save Italy.
Economics in this situation should be clarifying. Greece and the others have debts that they cannot pay. Either they exit the euro, inflate their way out of it and take a heavy hit on their real standard of living, or they stay in the euro and find someone to pay what they can't – the Greek pensioner, or more probably, the German taxpayer, an Arab sovereign wealth fund, or the Chinese exchequer. A plan that calls for nine years of austerity measures and rosy economic forecasts in order to get to a slightly less unsustainable level of debt is not worthy of being called economics. It's politics, or advertising, or hypnosis or perhaps epic poetry.
Thus it may be time to update Virgil. Timeo Danaos et dona ferentes, he wrote in one of the more famous lines of The Aeneid: "I fear Greeks even when bearing gifts." The reference is to the Trojan Horse full of wily Greeks, ready to wreak havoc on the gullible city of Troy. Europe is learning what the Trojans did, having admitted the Greeks to the eurozone, a decision now wreaking havoc with Europe's finances. Beware of Greeks, even when giving them gifts.
The eurozone crisis has been characterized as a crisis of confidence in the entire European project and the leadership of Europe. The solution to such a crisis cannot be another confidence trick.
Father Raymond J. de Souza, "Beware of Greeks when bearing gifts." National Post, (Canada) November 3, 2011.
Reprinted with permission of the National Post and Fr. de Souza.
Father Raymond J. de Souza is chaplain to Newman House, the Roman Catholic mission at Queen's University, Kingston, Ontario. Father de Souza's web site is here. Father de Souza is on the advisory board of the Catholic Education Resource Center.
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