Saturday, February 8, 2014

Greece and the Common Currency: The Backstory?

Admittedly, only a small portion of the backstory….

Remember when Angela Merkel said that allowing Greece to join the common currency was a mistake?

Campaigning for re-election next month, Germany's center-right leader said her Social Democrat predecessor, Gerhard Schroeder, had been wrong to support Greece's membership and agree to relax strict budget rules designed to underpin the currency.

"This crisis has been formed over many years through mistakes that were made when the euro was created," she said at a campaign rally Tuesday.

"For example, one should not have accepted Greece into the eurozone ... Chancellor Schroeder accepted Greece and weakened the stability pact," said Merkel. "Both were fundamentally wrong and are the reasons for our problems today."

Greece joined on January 1, 2001, after failing to qualify in 1998:

The move was a triumph for the modernizing policies of Prime Minister Costas Simitis, who in a few short years managed to rescue the Greek economy from high inflation and excessive debt, and hoist it up close to the standards in most of the rest of Europe.

Turns out several European countries (including Germany) sold arms and other goods to the Greeks prior to this integrating move.  The skids were greased (no pun intended) with cash under-the-table:

When Antonis Kantas, a deputy in the Defense Ministry here, spoke up against the purchase of expensive German-made tanks in 2001, a representative of the tank’s manufacturer stopped by his office to leave a satchel on his sofa. It contained 600,000 euros, about $814,000.

…corruption was so rampant inside the Greek equivalent of the Pentagon that even a man of his relatively modest rank, he testified recently, was able to amass nearly $19 million in just five years on the job.

It wasn’t only German firms involved; however the Greeks are holding special venom for Germany due to German actions during the financial crisis:

But as details of his back-room deals emerge, Mr. Kantas is also fueling a broader outrage here, particularly toward Germany, which has berated Greece for the financial mess it finds itself in.

The purchases were financed:

Adding to the absurdity of the purchase [of various useless and incomplete weapons systems] (almost all of it on credit)…

One former director general of the Defense Ministry, Evangelos Vasilakos, calculated that Greece spent as much as $68 billion on weaponry over the next 10 years, much of it borrowed money.

Absent a backstop from the ECB, what chance did the Greek government – a government that has lived in a perpetual state of default for nearly 200 years – have of ever repaying these loans (let alone borrow the money in the first place)?

Many European countries are culturally attuned to bankruptcy. Indeed, Greece has spent approximately half of the 182 years since it achieved independence from the Ottoman Empire in a state of default and therefore denied access to international capital markets

Too many hands are dirty in the creation of the European Union and the Euro.  Trying to create a balance sheet for each nation that has agreed to join the common currency – did it gain or lose in the process – is a fool’s game.  Merkel’s protests in hindsight don’t ring true – in this, she is no different from any politician.

As is almost always the case, such schemes are meant to skim wealth to the benefit of those closest to the source of political power – and then backstop those who made the bad investments.  Making excuses after the fact is a small price to pay for the wealth already pocketed.

The price is paid by the rest of us.

(HT Ed Steer)


  1. Wrong people saying FU to the EU. Of course the Greeks would have to say FU to the so called government that is said to be theirs, and mean it. They haven't done that very well since before they said it to the Turks.

    1. The Greeks have said FU to their overlords more than most in the west recently. But this points to the crux of the issue - it is only when the state is seen as no longer providing the goodies that people will speak out.

      This day hasn't come for many in western Europe and North America. But it is coming.

  2. I found this paragraph interesting in your link:

    "By contrast, Anglo-Saxon countries rarely, if ever, default. In this country, we haven’t reneged on our debts in nearly 1,000 years, though there have been close shaves. The same applies to Canada, Australia and the United States."

    They of course completely ignore the money printing, change of currency, etc. that in my mind qualifies as a form of default....if Greece had the ability to print up a solution no doubt they would and possibly not be labeled as "serial defaulters".


    1. i would only seems to me that Roosevelt's gold confiscation and Nixon's closing of the gold window both constitute real, no kidding defaults (not just the money-printing kind of default).

      One more example of definitions being distorted in order to obfuscate, perhaps.