Reports that senior EU politicians advise corporations and banks to make contingency plans for a Greek exit indicate an unequivocal signal to world markets that this is now a fait accompli. It is ironic that this has been brought about by the exercise of the will of the Greek voters. Indeed, this is one of the few occasions that the Greeks cannot claim it is the corrupt politicians that have brought about their demise.
It is hard not to acknowledge that this has all the tragic elements of a chronicle of a death foretold. The high drama associated with all high politics of the last three years unfortunately has made light of the real decline in living standards in Greece. No political actors prioretise health, education and pensions. They all concern themselves with messianic solutions to intractable problems.
An interesting recent report suggest that an active segment of political support for default are among those that assume that since their deposits are outside Greece they will benefit from a default as asset values will decline in real terms. Same assumption is made for those holding large debts that will be denominated in a new currency. They all forget the probability of hyper-inflation and a very simple economic truth. Investment, economic development and innovation are all associate to economic sentiment. Economic signals reign supreme.
After three years of negative economic press, with impending escalation of social unrest and economic hardship, who do they think will invest in Greece? The Greeks themselves do not, by migrating their funds out of the country en masse. The capital flight was to the tune of 3% of net bank deposits on average for the last 24 months! Staggering. My favourite associated illusion is that Chinese and Russian investors cant wait to flock to Greece. And they will of course be willing to pay pre-euro prices for assets! We are back to an infamous statement of Papandreou senior: ‘Greeks should not be the waiters of Europe’. Obviously not, as bookings are down 40% this year.
The Greeks are caught-up on a bad deal, with north European growth needs, dictating interest rates while lacking a mechanism to ameliorate growth imbalances. Unfortunately, they also appear to lack the will to face productivity inefficiencies, sectoral interests and recognise the need to contain their leviathan polynomic state. As a Greek it is painful to watch my country of birth rise over the last 20 years from developing to developed. Then attain status as one of the top 30 developed economies in the world and now watch it decline in what appears a perpetual spiral towards economic and political peripherality. On what grounds and with what conditions can future political elites expect to be re-admitted to a currency union? Maybe earlier comparisons with Argentina are not out of place in one respect: Greece is also a country of lost opportunities and perpetual populism.
And a nice article in Greek on the political absurdity facing those that attempt a reasoned analysis.