Let’s say you loaned a friend a truckload of money: more than a friend really, basically a member of your family. And by truckload, I am talking about more than $300 billion.
Time goes by, and this family member knows the debt is coming due. But instead of repaying the hefty loan, the family member decides to change the rules of the game. So, two days before the repayment is due, you receive not a truckload of cash, but simply a hastily scrawled note from your debtor. This is what it says: “Thanks for the cash, which I am not about to pay back any time soon. In fact, you have until Thursday evening to restructure my loan. By which I mean, I am not going to pay one euro of what I owe you unless you agree to my new terms, which I myself have unilaterally devised out of thin air.”
Now, as it happens, a great deal of Greek debt is held by … Greeks. And worse, by Greek citizens least capable of tolerating their government’s notion of how to deal fairly with creditors. That’s why last week, furious Greek police officers turned out en masse in Athens to protest Greek bond swaps of significantly lower value. These swaps, the officers realize, could wipe out a fair portion of their pensions. As, indeed, is the intention of the Greek government, whose debt remains the highest in Europe.
“The most barbaric plan against the social insurance plans,” is how Ilian Vrettakos, a union leader, described his government’s strategy.
Greece, however, had an excellent way of overcoming any such resistance. Greek creditors had no choice in the matter, the government said: the new debt structure (meaning severe losses) would be imposed on them, whether they liked it or not, thanks to a new law passed last month. As for foreign creditors: those who balked at the idea of receiving far less than they should would get … nothing.
Well you can’t argue, at least not effectively, with that kind of Luger-to-the-Greek-temple logic. Financial suicide, after all, is one way to wipe out indebtedness and screw your creditors. Small wonder that by Friday, we all learned that the International Monetary Fund and Greece’s European family will be the happy possessors of 77 percent of the country’s outstanding debt. Or that the gallant rescuers will also take as much as a 75 percent loss on what they should have received had Greece paid what it originally promised.
The problem is: What is the point of all this restructuring? What is the aim of pushing the due dates for repayment farther still into the future? By the end of this year Greece will have a ratio of debt to gross domestic product of 151 percent. By next year, it will be reduced to 149 percent. Over the last year, too, Greek citizens have withdrawn almost $53 billion from their own banks—the same banks that are now getting credit swaps worth peanuts.
So what does the Greek citizen know that the European Union member states and the IMF do not?
You can’t keep making loans to a deadbeat. You can’t keep shoveling cash to relatives who can’t repay. If there were ever a time to divorce, to release Greece from both the euro and European kinship, this is it.
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