The Greeks are facing a stark choice. They can say yes to the terms of the European bailout – in which case they face a life sentence of harsh austerity under the watchful eye of European technocrats who’ll basically be telling their government what to do. Or they can say no – in which case they face a life sentence of harsh austerity, but at least they’ll be in charge.
Democracy is messy. And now it’s messing up the best-laid plans of the elites. They’re beside themselves that Greek Prime Minister George Papandreou would dynamite their rescue plan by calling a referendum. Consult the people? What could he be thinking?
Mr. Papandreou was no doubt thinking of his own survival. All around the country, Greeks are saying ochi (no). Forcing nasty medicine down their throats against their will is a good way to be kicked out of office. Besides, the salvage plan was likely to be dynamited anyway. The current government may not survive the week. The next one could be far more hostile to the European Union’s idea of a cure.
The premise of Europe’s financial system was fatally flawed from the start. It assumed that culture didn’t matter. It assumed that Europeans could be made as interchangeable as euros and that, eventually, they’d all behave like Germans. But now, every cultural stereotype has turned out to be true. The profligate Greeks and Italians are in hock up to their eyeballs to the thrifty, industrious Germans and Finns. The good burgers of Hamburg would be quite happy to let Greece sink to the bottom of the Aegean. But they can’t afford to see their own banks and pension funds sink with it.
Europe wouldn’t be in this fix if the banks hadn’t lent the Greeks all that money in the first place. Both Europe’s sovereign debt bubble and the U.S. housing bubble were caused by reckless lending to feckless borrowers living way beyond their means. In the U.S., government-approved mortgage lenders peddled subprime mortgages to people who couldn’t possibly repay. Nobody noticed these mortgages were worthless until house prices collapsed, lenders foreclosed and taxpayers were forced to bail out the banks.
Greece was the subprime borrower of Europe. The banks didn’t think too hard about how solvent it was. In retrospect, perhaps they should’ve been more worried about a country where 40 per cent of the workers are on the public payroll, and envelopes of cash for bribes are the normal way of doing business. Tax evasion is practically a duty. The Greek government cooked the books for years as the EU turned a blind eye. Once again, taxpayers are on the hook for the banks’ mistakes. The only upside is that the Europeans have stopped lecturing the Americans.
There’s no quick fix for this debacle. There may not be a slow fix, either. Austerity plans may look fine on paper, but you can’t always make them stick. You can’t turn a nation of tax evaders into tax compliers overnight – especially when the tax collectors go on strike.
And Greece is just a tiny country. What about Italy? The Italians are €1.9-trillion in debt, and they aren’t about to give up their perks, either. Italy has more than half a million pensioners who retired under the age of 50. They will spend an average of 40 years in retirement, and they cost the system $13-billion a year. But what politician is going to cut them off? The government is propped up by a deeply entrenched jobs-for-votes system that is as Italian as spaghetti. Even tiny villages have dozens of people on the payroll to do non-existent jobs, paid for by the central government. Reducing the number of these people, or their salaries, is unthinkable. It’s exceedingly unlikely that the Italians will allow a bunch of Eurocrats to destroy their way of life. And Italy is far too big to fail. Therefore, the Italians, like the Greeks, will be inclined to tell the Eurocrats to go to hell.
Too bad about the euro. It was such a nice idea, until the people got in the way.