Wednesday, May 09, 2012

Time To Give The Greeks A Dose Of Reality

Now that the majority of Greeks have again proven their political immaturity by voting for a bunch of communists and neo-Nazis (abandoning the corrupt establishment only after it started to limit the mooching they've gotten used to ), the rest of Europe must be very clear. There will be no relaxation of terms, period. The terms they've already gotten where they've gotten more than €100 billion in debt forgiveness even as they will continue to get new loans, making it a massive transfer of wealth to Greece, were in my view in fact already far too generous.

So unless they have new elections where they change the results, Greece should be forced to face reality of their choice. There should be no more cash flow payments to Greece. That includes not only the loan packages, but also all the handouts Greece have for decades received from the EU budget. They should be left to fend for themselves. Let them see how things works out when those "oppressive Germans [and other Northern Europeans]" stay out of the picture.

Because Greece has a large primary deficit and because no one will lend to them, this means that they will have to immediately balance the budget. That will force them to make even greater, and far more disorderly and disruptive, budget cuts. And of course with no money from the EU budget that will mean an even greater decline in government spending received. Far from the outcome of "no more spending cuts" outcome promised by Alexis Tsipras, the leader of the biggest communist party in Greece.

And if that leads Greece to re-introduce the Drachma and finance their government through the printing presses, then fine, do go ahead and make our day. Then they will get massive inflation that will give them the real income cuts that they were trying to avoid.

Unfortunately, this will in the short term hit not only the very deserving majority of Greeks but also hit the minority of Greeks who are rational. But that is unavoidable, just as it was unavoidable that more rational Germans would suffer because of other German's election choice in 1932.