Thomas Donlan of Barron’s explains why recent positive changes from the Greek government do not solve its lingering problems.
Despite appearances, Greece is not having a fiscal crisis. The Greek government has proved it can balance its current budget. Income from taxes from January to May pretty much equaled spending on pensions, rail subsidies, government salaries, and so on. This is called “a primary budget surplus” in the polite language of international finance, “austerity” in the perverted language of some economists, and “reality” in the common languages of Europe.
It’s amazing how far the Greeks have come in the years since they disclosed their large overhang of debt, but they still have a crisis—a political crisis, a crisis of confidence.
All of the Greeks with brains long ago put euros under their mattresses—preferably mattresses in other countries. And all of the other Greeks are taking euros out of Greek banks now—more and more, faster and faster. The ATM has become a printing press sustaining the liquidity of Greek banks.
Most of Greek financial wealth and most of the nation’s prosperity from 2002 to 2007 was never earned. It was borrowed, in euros. Greek governments, Greek banks, and Greek citizens borrowed from Germany as if they were Germans, on friendly terms with low interest rates and scant collateral. Easy credit replaced gross domestic product. It raised the value of real estate and other immovable assets. It provided funds for pensions, salaries, and subsidies that made every Greek feel like a king.
History does repeat itself, but not as Karl Marx said. In reality, it’s farce, then farce, then farce again. Since its war of independence from the Turkish empire, the modern Greek state has defaulted five times, in 1826, 1843, 1860, 1894, and 1932—not counting the recent restructuring of Greek debt.
The Greek economy has shrunk by 25% since 2010, and the real Greek economy was never that big to begin with. Almost everyone—Greek, German, or international bureaucrat—realizes that the Greek economy cannot create the wealth that would be needed to pay what the Greeks owe.
