Way over across the Atlantic,
things are happening that are of interest to us for a change. Voters in Greece are going to the polls for
the second time in about 6 weeks to try and elect a government. If, like most of us, you haven’t been paying
any attention to the situation in Greece let me give you a brief recap. Since the founding of the European Economic
Community (United States of Europe) there has been a semi unified government
and a central bank that administers the overall European economy. For the past few years, Greece has been operating
on funds borrowed from the EU central bank.
Now it has become obvious that Greece has no way to repay the loans or
even to keep up with the interest.
(Sound familiar?)
When this
became an obviously unsustainable situation, the Greek government attempted to
cut spending and raise taxes which jointly are known as “austerity
measures”. To the Greek citizen, these
are not popular measures. It probably
wouldn’t be popular here either. So the
public took the same tact as many voters here – they voted out the tax
increases and spending cuts. Well, they
tried to anyway. They have lots of
political parties in Greece instead of just two like we do. Therefore there is no majority party at any
given time so two or more minority parties have to work together to
govern. After the election 6 weeks ago,
no combination of parties was able to reach a majority coalition so no new
government has been formed.
Today
voters are deciding between two parties, neither of which will actually have a
majority. The “New Democracy” party
wants to re-negotiate the bailout deals and continue “some” of the austerity
measures. The Syriza party wants to quit
paying off any debt and give everyone anything they want like free medical,
free income, free housing, electricity, telephone, etc. They don’t want to raise taxes, in fact they
plan to cut taxes. They have some hazy
idea about taxing other countries to provide this income. If you’d like the details please take a look
here: http://finance.yahoo.com/news/caution-greek-elections-could-spur-215700419.html
According to most observers, after
the election this weekend there will be a coalition that will not continue the
tax increases and spending cuts and will default on the debt to the central
bank. When that happens, Greece will be
expelled from the Eurozone and will have to come up with a new currency of its
own. The world will probably watch in
considerable interest as the new country unfolds because this isn’t an isolated
incident. Several other European
countries are in the same or similar situations. Greece currently owes more than 500 billion
euros to other countries – principally the Eurozone and eurosystem. If it is expelled from the union it will
still owe the money theoretically but I don’t see any way for it to be
collected. It is also likely that the
new Drachma will be in a runaway inflation situation as soon as it is
issued.
So when Greece
is out of the EEC, what happens to the rest of the member countries? I can’t wait to see. Here’s my prediction, Greece will quickly
convert to a dollar based economy and the EEC will completely fall apart over
the next two years. Meanwhile, I’m booking
a trip to Greece for late summer/early fall.
See ya there.
That’s the way I see it, how about you?
Post Scrypt
Believe it or not, the Greek public actually voted to continue the austerity measures and attempt to pay back the money they had borrowed. I could HOPE that we would have done the same. Would we?
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