Veronique de Rugy of the Mercatus Center has a very good – but somewhat depressing – analysis of the fiscal crisis in Greece. She basically concludes that bailouts will continue because nobody in Europe is willing to do the right thing.
This got me thinking about what I expect to happen. Here are the options, along with my (admittedly wild) guesses about their likely implementation. They add up to more than 100 percent because I think the Greek government (aided and abetted by their German and French enablers) will adopt more than one of these options.
Indeed, the only option that is completely unrealistic is doing the right thing and reducing Greece’s bloated public sector.
My CYA disclaimer is that these are the probabilities for the next two years.
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New Bailouts – 40 percent chance of additional funds from European taxpayers (via the European Union) and/or from world taxpayers (via the IMF).
Default to Private Bondholders – 25 percent chance of default (a.k.a., restructuring) of at least some portion of the money owed to private investors. This number would be higher if it wasn’t for the next options.
Restructuring of Prior Bailouts – 50 percent chance of an indirect bailout by restructuring existing loans from the European Commission and/or IMF.
Indirect Bailout from the ECB – 80 percent chance of additional purchases of Greek government bonds by the European Central Bank.
More Tax Increases – 65 percent chance of additional significant tax hikes. I’m tempted to make this 100 percent, but I think even the Europeans realize that Greece is probably on the wrong side of the Laffer Curve. As such, more tax increases would reduce revenues for the government.
Leave the euro – 10 percent chance that the government will abandon the common European currency. It may seem like I’m not giving enough consideration to this option, particularly since going back to the drachma would give the government the ability to screw bondholders with inflation. Veronique’s article explains why this might not be an attractive option, but I’ll add one further point. The European elite passionately favor centralization and the common currency is a symbol of centralization. As such, they will provide endless amounts of bailout money before allowing something that would be interpreted as a violation against their secular religion of “ever closer union.”
Real Spending Cuts – .0001 percent chance of meaningful reductions in the burden of government spending. Why do the right thing when you can get taxpayers from Germany, Netherlands, and other nations to subsidize your corrupt fiscal regime?!?
[…] last chart shows that net interest spending is genuinely untouchable (unless one wants a Greek-style or Argentine-style default). The rest of the budget, however, can be addressed. Entitlements can […]
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[…] last chart shows that net interest spending is genuinely untouchable (unless one wants a Greek-style or Argentine-style default). The rest of the budget, however, can be addressed. Entitlements can be […]
[…] last chart shows that net interest spending is genuinely untouchable (unless one wants a Greek-style or Argentine-style default). The rest of the budget, however, can be addressed. Entitlements can be […]
[…] last chart shows that net interest spending is genuinely untouchable (unless one wants a Greek-style or Argentine-style default). The rest of the budget, however, can be addressed. Entitlements can be […]
[…] last chart shows that net interest spending is genuinely untouchable (unless one wants a Greek-style or Argentine-style default). The rest of the budget, however, can be addressed. Entitlements can be […]
[…] don’t forget bailouts, cartelization, subsidies, waste, corruption, and […]
[…] wrote in May 2011 that the situation in Greece was hopeless because nobody with power and/or influence wanted the […]
[…] wrote in May 2011 that the situation in Greece was hopeless because nobody with power and/or influence wanted the […]
[…] Four years ago, I put together a bunch of predictions about Greece. You can judge for yourself, but I think I was quite […]
[…] Four years ago, I put together a bunch of predictions about Greece. You can judge for yourself, but I think I was quite […]
[…] Four years ago, I put together a bunch of predictions about Greece. You can judge for yourself, but I think I was quite […]
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[…] eyes are not deceiving you. Obama and Geithner want more bailouts, which will simply encourage more profligacy. And the President even endorsed more harmonization of economic policy, which will exacerbate the […]
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[…] bailout (Greece already has been bailed out several times, with both direct and indirect handouts) will make things worse. Another bailout will be a case of throwing good money after bad. And it will exacerbate the […]
[…] bailout (Greece already has been bailed out several times, with both direct and indirect handouts) will make things worse. Another bailout will be a case of throwing good money after bad. And it will exacerbate the […]
[…] bailout (Greece already has been bailed out several times, with both direct and indirect handouts) will make things worse. Another bailout will be a case of throwing good money after bad. And it will exacerbate the […]
[…] bailout (Greece already has been bailed out several times, with both direct and indirect handouts) will make things worse. Another bailout will be a case of throwing good money after bad. And it will exacerbate the […]
“The US ranks at the bottom of the developed world when it comes to educating our kids, health care and retirement. That’s where your free market system placed us.”
Robert, do you not see the irony in naming the areas of US society where markets are most regulated and centralized and then blaming free markets?
A last point to Robert: Go see if people earn in Argentina 1/10 of what they earn in Sweden! I have spent some time looking at wages in Latin America and Europe and the unavoidable conclusion is that those GDP figures are a very very bad measure of production and well being and they have an unacceptable bias toward tax hells: A file clerk in Argentina does not earn 1/10 of what a file clerk earns in Sweden, the argentinian earns much much more than 1/10.
In my small latin american country the wages are between 1/5 and 1/3 of what they are in the USA and the USA GDP per capita is 10 times my country’s GDP, so it is crystal clear that those GDP figures are unsuitable for measuring production or well being. The PPP figures seem to be much better ones, but they have problems too.
But the european media is perpetually promoting figures that say that Sweden has 10 times the output per person of Argentina, Norway 93 the output of Nicaragua or that Norway has twice the output of the USA. Those figures are good for promoting the socialist (false) claim that the western europeans tax hells are paradise but they are not at all adequate for comparing output or well being.
There are many ways in which those figures have a HUGE bias in FAVOR of TAX HELLS and AGAINST TAX HAVENS , but I prefer to not extend on that because I have not read carefully the methodology
Europe is not doing that bad because it has been continuously reducing tax rates, because in much of Europe they abandoned the very destructive floating exchange rate chaos and adopted a common currency -the euro- (the US has a common currency, the dollar) and, moreover, Europe adopted the Schengen Treaty which allows almost free movement of people, goods and capital
Robert,
I bet you use rankings elaborated by european mainstream media or by international bureaucracies; both of them usually are tirelessely promoting more exorbitant power & control over the people by a sadistic arrogant political class and promoting too more $trillions in taxes for those politicians.
In Europe they often use ridiculous keynesian figures that say that Sweden has 10 times the GDP production per capita of Argentina or that Norway has 93 times the GDP production of Nicaragua. Ridiculous!
Go to Argentina and tell me if people produce 1/10 what they produce in Sweden. Go to Sweden and you will see what a collection of old houses and buildings it is, they live in big part from capital acumulated decades ago, before Sweden was a tax hell!. Go see if argentines eat 1/10 of what swedes eat. Go see and tell me if argentinian houses are 1/10 the size of swedish houses or if argentines have 1/10 the number of clothes the swedes have. In Stockholm, Sweden, about 60% people live in apartments, even tough there is more land per person than in the USA. But in the USA very few people live in apartments and the houses of the US ‘poor’ as almost as big as the average swedish house!
The europeans often tell us that swedes live better than americans… That is downright ridiculous. Go see Sweden’s exorbitant prices for almost anything thanks to their exorbitant taxes! Go buy a regular sized house in Stockholm and tell me how many $millions it will cost you! Go to a Hotel or a Restaurant in Sweden and compare the prices with the USA’s
The sadistic nauseating european social security systems bankrupt both the young and the old, it bankrupts the young by taxing them to pay for sustaining the old, it bankrupts the old because the old were unable to accumulate capital when young because they had to pay such high taxes when young.
How can that ‘european’ system bring greater wealth than a system where people accumulate a capital that generates a return in old age without needing to tax the young?
Singapore has a social security system that is essentially a system of accumulation of capital. Singapore was dirt poor in the 1960s. Sweden was one the 1960s richest kids. But Singapore rejected the disastrous ‘big government, exorbitant power for the political class’ advice by mainstream academia, media and the economics nobel prizes and now Singapore has a higher per capita PPP output than Sweden!
The european socialist sadistic system of exorbitant power to the political class is a failure. The contractual freedom – small government system of Singapore and Hong Kong is a blattant success.
I do not know much about health care figures, but socialist europeans, or people like Paul Krugman, love to use misleading figures. They love to use the Human Developpment Index because once you reach certain level of developpement you have enough to eat and enough medicines and having a bigger house, bigger car or having a capital to sustain you in old age -what americans have much more than europeans- never shows in a higher Human Developpment Index. So the HDI is great for promoting ‘european superiority’ (and ignoring USA’s biggest wealth and standard of living)
In South America Caribbean we often have a young attractive population because here most women HATE to kill babies through abortion, so the most attractive, passionate and HEALTHY people are actually born and not killed through abortion. Thanks to such young HEALTHY attractive population we need to spend little on health care. There is a clear correlation between health and beauty.
But, of course, bureaucracies allege that we are so healthy BECAUSE the good health services they provide!
Thanks for reading
Zorba – you criticize Greece for guaranteeing education, health care and retirement money at a mediocore level and you argue for a free market approach to these things. In reality your free market approach with all the private incentives, like that used in the US, makes these important things worse.
The US ranks at the bottom of the developed world when it comes to educating our kids, health care and retirement. That’s where your free market system placed us. Of course, for the 1% at the top life is great in the US. For the rest of the 99% it is less than mediocore. I’d take the Greek system that takes care of its people over the dysfunctional US system any day.
Excellent post! But I think the probabilities of real spending cuts is much higher than what you say, the internet is destroying socialism as we know it, look how Facebook brought the fall of Mubarak.
This is a new world where socialism, as we know it, cannot survive.
Too optimist? No!
It’s a new generation of party people…
[…]
Brazil, Morocco,
London to Ibiza,
Straight to LA, New York,
Vegas to Africa
the internet is going everywhere. The internet -through blogs like this one- will kill socialism. It’s just a matter of time. The new generations will be of party people and not anymore of sadistic socialists. Through referendum we will kick the nauseating political classes out of our lives, that is the unavoidable path. Just my humble opinion
One small but perhaps important detail that seems to get no coverage: The nice Greek beaches and California like weather move the Laffer curve to the left. The lure of sea and sunshine will cause a Greek to go Laffer a bit sooner than a Dutchman working in dreary weather Amsterdam.
Where on earth will Greeks find the oomph to produce about $42k each worth of goods and services (debt equal to 150% of GDP) to pay back the loans? Most Greeks have long made lifetime choices around mediocrity. When some of the most important things in life, such as education, healthcare and some retirement money are unconditionally guaranteed (albeit at an inevitably mediocre level) how many people have the desire to achieve excellence, when nice beaches are awaiting and when a large part of the rewards of any excellence will go to support those who have chosen mediocrity under the sun?
Isn’t it clear why the West is in decline? Ironically Greece is considered the cradle of Western civilization and Democracy. How appropriate for it to be in the vanguard of western decline; proof that you cannot simply vote into existence the Paul Krugman perpetual economic machine of prosperity, i.e. visions of higher prosperity through lower incentives to produce. Won’t happen! But, by golly, we have to try every single incarnation of that delusion before we give up. It will be too late by then dear Americans. By then you’ve become Greece. As I said many times, the point of no return has passed for the US too. More cycles of “hope and change” are on the way. The US will never regain the 4.5% growth rate that will enable it to keep its #1 standing on the worldwide prosperity scale. Privileged life, as you know it, is over dear Americans. Lights out! If you think things are bad now, wait until you become more equal.
I think default to private bond-holders would also qualify as “doing the right thing” in a way. Bond-holders are supposed to be the watch dogs making sure an institution doesn’t become fiscally reckless. Greek debt holders ought to lose, they bought junk and overpaid for it. “Bail outs” don’t bail out the Greeks, they bail out their creditors and reinforce the giant moral hazard that is our global financial system.