ESTABLISHMENT FEARS CATACLYSM IF GREECE THRIVES

Bob Unruh
WND.com

There’s a lot of fear among the moneyed interests across Europe and around the globe as the island nation of Greece fights with its debt and debtors over repayments and default.

It’s because there are other Greeces out there. And the fear is they might thrive if unleashed from the limits of international entities like the euro.

According to Marketwatch report Tuesday, the worry is that Greece’s inability to repay its debt would produce skyrocketing interest rates, panic in the banking industry, mistrust in both borrowers and lenders, and, as Marketwatch explained, “rivers flowing upstream.”

There are those who say the United States and others also could end up in that situation.

But the analysis by Brett Arends says the real worry is that Greece would abandon the euro and would thrive.

“The fear is that if Greece leaves the euro, the country will return to prosperity – and then other countries might follow suit,” Arends wrote.

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He pointed to statistics showing economic growth in several eurozone nations has been stunted during their time in the group.

For example, Greece had real GDP growth, per person per year, of 4 percent before the euro. It’s 2.3 percent with the euro. For Italy, it was 5.2 percent before, 2 percent with. Portugal? Six-point-five percent before, 2.4 percent with. Spain comes in at 5.7 percent before, 2.9 percent with.

The economic growth of Italy, Spain and Portugal in the 1980s and 1990s, when they were “struggling” with the lira, the peseta and the escudo, “makes a mockery of their performance under the German-dominated euro,” Arends said.

“Apparently having control of your own national currency and your own monetary policy works well with having your own government and your own national sovereignty. Who knew?

“Greece under the euro has averaged half the growth, and double the unemployment, of Greece under the drachma. Some benefit,” he said.

None of this, he pointed out, is new.

“Back in the 1990s the British were told they’d be in deep trouble if they didn’t give up the pound sterling for the common currency. The British economy would tank, they were told. Britain would become ‘isolated.’ Oh, and you could forget about London remaining a big financial center. Without the euro, London would be finished. So much for that. If you want to see how finished London really is, try buying a house there.”

Dean Baker of Truthout in an article posted recently by the Center for Economic and Policy Research noted that the U.S. does share circumstances with Greece but not necessarily in the way many people might think.

The commentary lines up with the Marketwatch report.

“While Greece’s budget problems have made headlines, its economy is actually more constrained by being trapped in the euro zone than by the restrictions on budget deficits. This has prevented the adjustment in relative prices that is needed to restore the competitiveness of Greece’s economy.”

He continued: “If Greece had still been on the drachma when the financial crisis hit in 2008, its currency would have plummeted as investors from the rest of Europe stopped lending the country money. That would have meant an unpleasant bout of inflation for the Greek people, but it also would have quickly restored the country’s competitiveness.

“The simply story is that the price of Greek goods and services would fall relative to the price of goods and services produced elsewhere in proportion to the decline in the currency. This means that if the drachma had fallen 30 percent relative to other currencies, Greek goods and services would have cost 30 percent less compared to the price of goods and services produced in Germany, France and elsewhere.”

The result would be “an increase in exports and a decline in imports, which would provide a substantial boost to GDP, offsetting the effects of the crisis.”

The commentary warned that the U.S. could be facing problems if it locks itself in to the Trans-Pacific Partnership trade agreement, because it would be more difficult “for the United States to take measures to get countries to stop propping up the dollar.”

Meanwhile, Agence France-Presse reported on the possible scenarios for Greece.

The report said Greece’s debt is about 180 percent of annual output, “almost double what the national economy produces every year and largely seen as unsustainable.”

Given the nation’s continued work within the eurozone, an extension of its current financial bailout might be a partial solution, but debt forgiveness, given the present politics of the continent, appears out of the question.

AFP reported: “The idea that Greece will miss a debt payment to the IMF on June 30 is no longer taboo and was raised at a meeting of top eurozone officials at their annual meeting in Bratislava last week.

“While not an official default, the missed payment would trigger panic on the markets for everything Greek, including a run on Greece’s barely standing banks … Once the bleeding begins, emergency measures could include the introduction of strict capital controls, closure of the banks, and the government issuing IOUs to finance the public sector, while preserving every last euro to pay off more debt.

“Greece exiting the euro is the one scenario that few want to imagine, as it would not only bring damage to the single currency, but to the European Union project as a whole, just as Brussels faces threats from Putin’s Russia over Ukraine and talk of an EU divorce by Britain.

“But beyond the crushing embarrassment, it would also risk contagion, with market players on the hunt for the next weakest link in the eurozone,” the report said.

Reuters said the payment due at the end of June is 1.6 billion euros.

The report said the eurozone is reluctant to change its accommodations to Greece, because others might want changes, too.

Greek spokesman Gabriel Sakellardisi said his government has no more options to offer and was sticking with its latest commitment to higher taxes on some items and wage and pension cuts. Discussions and briefings continued on Tuesday.

Eurozone officials, meanwhile, said they could be generating an ultimatum soon.

And Greek banks experienced another run on cash deposits on Monday, with $449 million walking out the door through withdrawals.

Reuters said its poll of euro money market traders found one-third believe Greece will pull out of the eurozone.

“We should work out an emergency plan because Greece would fall into a state of emergency,” German EU commissioner Guenther Oettinger told Reuters.
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