Well, that’s all right then. Looks like the Greeks have passed their vote on the austerity measures, so everybody gets to ignore the issue for another month or so. FTSE100 is up, everything is good and we’ll carry on as normal then. Both the Greek people and us as Europeans have been failed yet again by the dismal spinelessness and lack of leadership across the board.
Any fool can see the Greeks can’t live with the same currency as the Germans under the current rule of engagement. They only managed in the first place by fiddling the figures, and the poor foundations of Greece’s entry to the Euro are now giving way under the load of their lifestyle and lack of earning power. Greece either spends too much or doesn’t work hard enough. They can never make up the productivity difference with Germany, even if they wanted to. There are two possible responses to that, either drop them out of the Euro, preferably before the Army generals take over the country again and the EU has its first military dictatorship in the ranks, or treat them in the same way as the Americans treat Indian reservations, and simply accept that we have a group of people that will continually require Federal subsidy.
It’s not as outlandish as it sounds. We do that sort of thing in the UK already – we take the money that used to be earned by financial services in the City and Labour used that to cover up the increasing structural unemployment in the rest of the country, both explicitly in generous and uncapped benefits, and more perniciously as middle-class welfare by excessively expanding the public sector (ONS stats). Part of the hoo-hah from Yvette Cooper, Harriet Harperson et al that the cuts are going to disproportionately impact women and the poor is because that stands to reason – the primary beneficiaries of the largesse will take the greatest hit when it runs out.
Greece could be made to work with a permanent financial transfer from other countries, though it would be polite to ask both the donor countries and indeed the Greeks themselves if that is really what they wanted of a European Monetary Union. And perhaps get some more political accountability all round, so that politicians can’t let grand ideas run away without regularly testing them against the ideas of the poor sods that are going to have to pay for it all. It’s the old taxation and representation issue that caused a load of trouble in some obscure colonial outpost in 1776.
What isn’t working is to pretend that Greece can sort the problems out without continuous gifts from abroad. Even if they get the gifts they may not make it, so endless talk of bailouts and austerity is whistling in the dark. In the beginning, perhaps there was a case to be made for pretending it won’t all end up in a horrible mess, so enable the French and Germans to stabilise their banks. They’ve had long enough now.
It’s time to stiffen the spine of leadership and start taking action to deal with the place we find ourselves. Europe is still reasonably rich, and in some areas reasonably productive. We have some serious macro challenges. We are living beyond our means. We may have less oil available to us that we had in future. Some of us have created a monetary union without creating a fiscal union.
None of these issues are intractable, either in isolation, or together. But they are hard, and if we leave them to fester they will cause us very serious grief. We need leaders that will give it to us straight, and get us to roll up our sleeves, spit on our hands and get to work fixing some of these, to build us a better future, rather than lolling about resting on the fruits of the last twenty years.
Of course, what the Greek government says and what it does are two very different things. And yet another shedload of EU taxpayers’ and IMF money is going to be burned worthlessly on the pyre of this characteristically European failure to take decisive action. Guys, the mission is lost. There’s no way back from here. Either man up and buy Greece time, again and again forever, or let go.
The Greek public sector workers, and indeed ours here in a much lesser way, just haven’t accepted that in the fight between European living standards and global capitalism has been won. The living standards lost, to the rest of the world that generally gets by on less, and to the transnational corporations and the guys that own the capital wealth.
Defeat is inevitable, but if effective action is taken soon then a successful retreat may be possible. Living standards are going to fall across the West in general and Europe in particular, the question now is how quickly. And if we continue to ignore reality and go la-la-la-la all the time, then they’re going to fall pretty damn quick.
Greek public sector workers aren’t going to be retiring in their mid fifties in the coming years, unless they have been saving hard and been squirreling their savings abroad. If they’re lucky they’ll get to retire at all! This bomb is going to go up in the next year or so, as Labour’s Liam Byrne so succinctly put it ‘there’s no money left‘. At least in the UK we can create the money, effectively taxing holders of cash and all consumers to make up the difference.
The Greeks could do the same with the drachma. They have the advantage of a decent climate and a place people want to go on holiday to. If they want to kid themselves they are rich enough to retire at 53 then they have to get other people to fund it, and it’s more civilised to do it by continual devaluation making the country a cheap destination for tourists that blagging it from other people via the EU and IMF. Of course that will have the corollary that imported Stuff will continually get dearer, but Greece can probably feed itself, and hey, early retirement does have its price!
This one is going to cause the mother of all financial shitstorms when it finally comes off the rails. I’ve been holding off buying shares for the last couple of months, partially because I wanted to get into index-linked cash in a serious way, but now I am going to start saving towards a war chest to buy into that shitstorm when it turns up. I have a list of firms I like the look of, that do real stuff and have been doing for years, and get to pay a dividend. They’ve been getting too dear of late.
There’s some chance IMO that the storm will be such that it may take down the Western currencies, in which case all bets are off and money itself may no longer have any value, effectively we will have what happened to the Reichsmark. That kind of thing destroys things like pensions, savings and anything that isn’t stuff or land. It’s not impossible to imagine that happening, but it is probably not going to happen, and in that case the storm will offer opportunities. It will probably be ruthless in testeing for value, however – ‘goodwill’ has questionable value when all around you are losing their heads.
It’s also interesting that the old saw about the volatility of the capital value being higher than the volatility of the income is what I experience. Against that should be set the fact that I’ve only been tracking this for a short while, so it’s hardly like I have been seeing things over a couple of business cycles. I qualify yield in terms of income as a fraction of what I paid for a share rather than in terms of the current share price, which takes at least one volatile variable out of the equation. However, it does reflect how I intend to use my holdings, once I have retired.
I’m also surprised that there aren’t more PF writers getting ready to steer into the coming storm. Maybe I am just crazy, but I am up for it, though I need a bit more time to save up that war chest. So in some ways I’d rather the EU and the Greeks play a little more shadow boxing before the levee breaks and the shaky edifice assembled from the combination of cowardice and misplaced conviction crumbles in the tide, perhaps later this year or early next year.
For sure, I could end up doing the same as the EU politicians, and burning the whole stake as I buy into a moribund market if the financial system is destroyed, the sky turns to endless falling rain and the markets flame out. On the other hand, this is one crisis that is clearly going to happen, the only uncertainty is in when the deonouement will play out. It seems kindof rude not to at least consider whether I can make something of it… Yes, it is market timing. No, I can’t call the exact bottom, so I will have to wade in when I feel enough damage has been done and have to be prepared to see gut-wrenching losses if I call the low too early. That’s life – the meek do not inherit the earth, they get slaughtered in the crossfire. The main lesson I should take is from the pusillanimous European elites fixated on weak deferral of action. That lesson is “Be Not Them”. Yoda had it about right. “Do or Do Not. Do not Try”