The Greek end-game

It's not a novel observation that Greece is screwed. It fails the most simple of income vs expenditure tests. Mr. Micawber could have spotted the imminent tragedy with his eyes shut. But what's going to happen?

The conventional wisdom, by which I mean the opinion of journalists in the dailies whose collective economic expertise could be bettered by an orang-utan, is that at some point Greece will default (adminstratively or in practice, it makes little difference), fall out of the Euro, devalue the new drachma, endure a couple of years in economic purdah (c.f. Argentina, Russia) then benefit sufficiently from devaluation that it gets a small economic surplus. Bingo, problem solved. Bad luck for the Franco-German banks that lent to Greece of course, but them's the breaks of international finance.

I'm going to stick my pseudononymous neck out here and say that the degree to which Greece is screwed has been massively understated. What does Greece produce apart from olive oil? Iron, aluminium and copper which are highly vulnerable to global recession. Greece defaults, Europe is forced to recapitalise its banks as they write down their Greek loans, the China-driven commodity bubble pops, Greece suffers a decrease in exports despite devaluation. No way this ends well.

Michael "Liar's Poker" Lewis wrote of Greece and taxes in Vanity Fair and convinced this writer that there is no feasible way of persuading Greeks to pay taxes on time and in full in anything like the same proportion that German and Britons do. So there goes the state's income. No way that the rioters will countenance anything like the necessary cuts in Government spending. Any potential Government prepared to balance the budget will not get elected. For the next 3-5 years I see Greece staggering from one collapsing coalition to another.

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