Author : John E. Charalambakis
Date : May 8, 2012
The results of the elections held in Greece last Sunday may well have sent a powerful signal to politicians and policy makers worldwide, that has yet to be discussed by the press. That message simply says: “We are no longer your useful idiots”.
It seems that for many decades – and especially since the financial crisis erupted – the politicians and policy makers have used fear mongering to push “solutions” that exemplify the new math, where through subtraction they hope to add to growth. The “solutions” proposed have neglected the causes of the crisis while addressing only some peripheral symptoms.
People, in their naiveté and without comprehending the implications of the propaganda to sustain an ill- conceived monetary union not worth saving, were used by the politicians and policy makers in a cynical way in order to sustain a cause which has been converted into a fetish. The worshipping of such an irrational idea has only been serving the causes of those responsible for the crisis, i.e. those who over-extended credit, cheapened standards, manipulated prices (including the price of money a.k.a. interest rates), collateralized worthless paper “assets”, created the monster of $700 trillion derivatives markets, and disguised liabilities as safe assets, while destroying wealth and productive capacities of many real economies around the world. It is my humble opinion that unless the banking sector in general – and the EU-wide in particular – is broken up and cleansed the problems not only will remain but most probably will be multiplied while the pain will be exacerbated.
It seems that the need for an EU-banking catharsis cannot be done without folding the Euro-project. The way that the Euro-project was designed and executed was nothing but an exercise in futility, where the traditional concepts of fiscal union and of a real lender of last resort were distorted for the sake of temporary profits, at the expense of the people and of the concept of true wealth creation. The EU-imposed fetish of saving the Euro at all costs neglects the basic economic idea that the prosperity of a nation does not depend upon its ability to have an overvalued discredited currency – so that they can buy other nations’ products – but on its ability to produce. Unless productive capacities are restored nations are doomed to fail. Moreover, the imposition of a common currency without a unified political identity and purpose is meaningless. Can you imagine the dollar as the currency of the States without a clear united political identity of its people? It would simply be absurd.
Why then did the EU try to save Greece with two bailout packages worth over $300 billion while also writing off another $130 billion of its debt? Cui bono (who benefited) of all these bailout efforts? The total cost of such bailout is close to 150% of Greece’s GDP! In the US we are still debating if it was worth saving the banks who were the perpetrators of the financial crisis. In comparison the US bailout and the stimulus package barely touched 10% of economy, and we still fight about it! How and why in the world did Greece need 150% of its GDP as a bailout? Cui bono?
We have written before in these commentaries that the cause lies squarely at EU banks that perpetuated over-extension of credit, securitized toxic IOUs, while accommodating misconceived political goals. The easiest clients for those banks were the governments that run their nations on a clientele mentality without understanding the dire consequences of their debt-issuing decisions. The true debt-to-GDP ratios of nations such as France, Belgium, and Germany, (when we take into account their unfunded liabilities), exceed 400%. Such ratios are simply unsustainable and point to an EU-wide financial catastrophe that will be nothing short of chaotic. Of course such financial catastrophe can still hit the US and the globe since we too suffer from similar problems, and unless we address them soon – with a comprehensive plan of breaking up the banks and establishing an anchor of hard assets (with gold playing a major role) for reasonable credit creation – similar catastrophe could impact the US.
In the second half of the 19th century, Greece participated in the Latin Monetary Union along with Italy, Belgium, France, and Switzerland, (later other nations such as Romania, Bulgaria, Serbia, and Austria joined too). Greece dropped out in 1908. Monetary Unions without a unified political identify are destined to fail, as did that Union. If they do not fail due to lack of the unified political identity, they cheat (like cartels do) by cheapening the currency/inflating their currency, and doom the union to failure by printing too much. The EU announcement of a “growth pact” points exactly in that direction.
It seems that the citizens of Greece woke up to the realities that EU politicians and policy-makers used them as useful idiots for their own purposes while treating them with contempt (when Greece was called a bottomless barrel by the German Finance Minister for example). The EU propaganda of saving Greece seems to be a mask for a malignant crusade while the preachers portray it as a cause for the common good. When the fetish mentality is done away with Kazantzakis’ freedom cry will echo throughout the EU.
The EU is in dire need of a strategic disintegration of its currency in order to save at least the free trade aspects of it. The sooner a nation jumps off that Titanic – by establishing a currency board/anchor with a more stable and credible asset class – the better its chances for survival would be. Those who want to stay onboard – in order to enjoy the music that the captain ordered to be played by the orchestra – may not be that well off after all.
Maybe that’s what Pablo Neruda meant in his poem “Ode to Wine” when he drafted the following lines:
“Sometimes you feed on mortal memories,
on your wave we go from tomb to tomb,
stonecutter of icy graves, and we weep transitory tears,
but your beautiful spring suit is different, the heart climbs to the branches,
the wind moves the day,
nothing remains in your motionless soul”.
Ode to the awakening then!