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Greece Is Ungovernable

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BERLUSCONI
PA

People around the world behaved badly this week, hardly a unique phenomena, but the consequences were more earth-shattering than usual.

Most disappointing was the jailing of three Pakistani athletes who obviously didn't realize that bribery and cheating wasn't cricket.

Then another Republican, Herman Cain, has been virtually "voted off the island" by his mishandling of allegations about sexual misbehaviour. His initial responses were as unconvincing as were Bill Clinton's, before Monica Lewinsky's dress stain was subpoenaed. It's now apparent that Cain is clearly not Abel.
Most alarming was the agreement of Greece to a rescue and this week's flip-flop by its president that the deal was off unless approved by referendum. Then he flipped again. The Greeks still didn't realize that when so much money is owed by a country, its sovereignty has been forfeited to its lenders. Markets tanked and wiped the smiles off the faces of the "Merkozy" duo that crowed last week a solution had been found.

His referendum idea was a ruse and will lead to a neverendum string of votes, elections and false starts. Greece was again "gaming" Europe, and Greece again revealed that it was ungovernable.

The solution is to remove the politicians from negotiations and hand over the workout to professionals like the IMF. That lender of last resort is run by former French finance minister Christine Lagarde and her institution should deal directly, and singularly, with Greece to remove politics that have turned a straightforward business situation into matters of national pride.

Europe's dithering has also made matters worse, as did actions by Lagarde's predecessor, Dominique Strauss Kahn. He was a fellow socialist traveller like Papandreou who did what all socialists do, which is to give away money that doesn't belong to them without strings attached. He gave Greece the wrong impression about its predicament or its leverage.

Lagarde, by contrast, is a no-nonsense free enterpriser who is as American as she is French and ran one of the world's biggest law firms full of men from many cultures. She's fair and tough and direct.

Greece, for its part, will be well-advised to simply leave and let the IMF help it pick up the pieces. Greece, as I have written before, is not a country but it's a party. There are 60 members of its cabinet for starters, no one pays taxes unless employed and real estate titles are murky to disguise owners in order to facilitate money laundering.

It's also very possible that the country may again lapse into revolution or a coup d'etat. This has been its history: Hundreds of years as a Turkish colony followed by decades of military dictatorships and Potemkin governments.

The evidence of anti-governance is there: Greek people have staged debilitating strikes, violent rampages and tax revolts. Its civil servants, tax collectors, police and military, also reeling from dramatic pay cuts, are wild cards and may not enforce new stringent rules and regulations. Past practice, as now, is that politicians call off tax collection efforts during elections to win them.

Frankly, the IMF should throw one last lifeline and keep politics out. Speeches that Greece should never have been allowed into Europe may play well to French and German audiences, but have contributed to this referendum nonsense.

Markets are already bracing for a total, de facto Greek default or withdrawal from the European Project. This would cost Europe another trillion or so, but once the dust settled everyone might be better off. The rest of us, by the way, would not be affected very much. Even the relatively anemic growth rates in the United States of 2.5 per cent are equivalent to adding economic activity the size of Greece's every year. And China's grows every two years by the equivalent of three Greeces.

Another reality is that Greece is so deeply in hock that it should be discharged from all debts, or opt out, in order to get on with life. It's the Argentina option.

That may seem unfair to Europe, but its leaders are mostly to blame for letting Greece in, and letting it stay in, without proper oversight or independent audit requirements. Decent supervision would prevented most of this mess.

Instead, the Eurozone behaved like a gigantic credit card company handing out credit and privileges to 17 nations without checking creditworthiness, incomes or track records.

Like other deadbeats, the Greeks now face Hobson's Choice. If they accept the bailout funds (which include a 50 per cent haircut for creditors) and go through enormous financial suffering for years they will still end up with debts of 120 per cent of GDP by 2020. Alternatively, they could quit the Eurozone, possibly the EU, get rid of all debts by reneging on them, go to the IMF with a begging bowl like a Euro version of Argentina and end up with a cheap currency that can eventually help generate exports, jobs and economic activity.

For the Europeans, whose regimes filled debtors' prisons in the 18th and 19th centuries, discharging bankrupts is not in their DNA. Their prisons were only emptied by exporting their debtors to mosquito-infested and dangerous colonies. But this time, they are in the debtors' prison themselves without parole. The only way out is to let market speculators and banks write off their bad Greek bets, help some of them survive and move on. The bad behavior has to end.

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