By Philip Pilkington, a writer and journalist based in Dublin, Ireland
Civilization begins with order, grows with liberty and dies with chaos
– Will Durant
Well, it looks like the Greeks are going to get a deal on their debt. Provided they continue to destroy their economy through austerity measure, of course. But then why should it be otherwise – why on earth should logic rule when crass moralising is so much more palatable?
But there are a couple of problems with the current ‘arrangements’. As Marshall Auerback wrote yesterday:
Suppose Greece finally does get a deal? I realize everybody says it is a ‘one-off’, but do you really think the Irish, Portuguese, or even the Spanish and Italians will go along with that, particularly if (as is likely) they continue to experience double digit unemployment and minimal growth?
Marshall’s focus in that piece was Spain as the proverbial elephant in the room. And his argument should be seriously considered.
However, there’s another important angle on this. And in truth, it’s rather obvious – less the elephant in the room than the floor, ceiling and walls. Simply put: if Greece gets a deal and if other countries begin to increase the pressure to have their debt burdens alleviated, should potential investors in European government bonds not come to see that they’re just disposable playthings that can be tossed over the side of the crib the moment the ECB and the Germans find it politically convenient to throw a temper tantrum and do so?
Way back in October Mosler and I wrote:
Think about this. You’re a private sector institution that has to ensure that you don’t take losses on crappy paper. You’ve now seen that the Eurocrats are willing to burn anyone who invests in the sovereign debt of any European country that experiences significant financial difficulties – difficulties which, it should be pointed out, are imposed on these countries by the Eurocrats. And you’re expected to continue to consider, for example, Italian debt to be relatively safe? What a lark!
And now, in the wake of what seems to be a deal on the Greek haircut, look at what’s happening elsewhere. Yesterday Reuters reported that the unions in Portugal were demanding that Potugese bondholders take a hit too. The intro to the piece ran:
Portugal must renegotiate its debts rather than impose harsh austerity measures to overcome its economic crisis, the head of the country’s largest trade union said on Wednesday, threatening to step up strikes if the government pushed on with cuts.
The union leader that called for the restructure is hopelessly confused about the politics here, of course, claiming that debt should be restructured rather than austerity measures being imposed. But we all know that debt restructures in Euroland are always going to come with a clause stating that extremely punitive and counterproductive austerity measures must be imposed.
So, yes, the Portugese unions are confused about the crazy politics behind these deals. (And why shouldn’t they be? After all the politics are deranged – what sane person could intuitively understand them?). But, no, the demands by the unions are not unreasonable. They are perfectly correct in thinking that if a haircut has proved the only viable solution in Greece, it will probably be inevitable in Portugal too. As the union leader said:
If the results in Greece were disastrous, without a doubt they will be no different here.
Obviously the union leader is 100% correct.
But here’s the thing: these haircuts are not really doing much to alleviate the real problems because the more of them that are demanded, the more investors are likely to pile out of the European sovereign debt markets. Again, if you were an investor would you throw your money into a pot if the holder of the pot offered you a very low rate of return and also told you that there was a very good chance that he might arbitrarily toss a match into said pot at any moment? I wouldn’t.
The situation in Europe has turned into a complete farce. The ECB needs to step in to guarantee the bonds, but the Germans won’t let them because, in their infinite wisdom, they are intent on drawing blood from a stone and imposing austerity measures (that don’t work) on the periphery.
But given these current ‘tactics’ the ECB will eventually have to step in because investors will be spooked so badly by all the talk of more haircuts that the only ones left to keep a lid on the bond yields with be the central bank.
Does the ECB realise this? Do the Germans? I don’t know. But my guess is: no. My guess is that they haven’t even thought this stuff through. My guess is that they’ve become so caught up in their own little morality play that they fully believe this nonsense.
Our leaders today do not try to bring order to chaos to ensure that their citizenry can live in liberty; instead they try to exacerbate and manipulate chaos itself so that they may impose their arbitrary rule. If history has taught us anything it is that such politics is a very dangerous game – and that such games are the enemy of civilisation.