|'Real austerity' is what Greece needs...
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- By Bill Bonner
Rancho Santana, Nicaragua
And then democracy comes into being after the poor have conquered their opponents, slaughtering some and banishing some, while to the remainder they give an equal share of freedom and power"
A snow stormed battered the East Coast of the US yesterday. Politics rocked Southern Europe.
- Socrates (Plato's Republic)
Sitting here on the edge of the beach, a gentle breeze stirring the trees...birds singing...surfers carrying their boards across the sand...
...it's hard to imagine the tempest in North America, let alone the swirling clouds over the Parthenon. The leftist Syriza party won in Greece. Once again, Greece is a victim of democracy.
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What this means, exactly, is anybody's guess. The Wall Street Journal struggled:
"Within minutes of the close of the polls, Germany's powerful central-bank chief, Jens Weidmann, pushed back. "It is clear that Greece will remain dependent on support and it's also clear that this aid will be provided only when it is in an aid program," he said in an interview with television broadcaster ARD.
Increased uncertainty is a good bet.
A message on U.K. Prime Minister David Cameron's usual Twitter account, meanwhile, warned that the Greek result will "increase economic uncertainty across Europe."
Meanwhile, the papers reported that Europe's apparatchiks were working overtime to accommodate the new government so as to keep the system functioning. Also reported was the fact that Greek voters were fed up with austerity.
As to the first bit of news we have no doubt. All the powers-that-be don't want to become the powers-that-used-to-be. They'll do whatever it takes to hold onto their authority.
It's the second bit of news that makes us say "huh?"
Not that we haven't heard it before. The Greeks...the Spaniards...the Italians...the Portuguese...the French...they're all supposed to be tired of 'austerity'.
But what austerity?
According to our sources the Greek government currently spends 59% of GDP - a figure even higher than in France. Like France, Greece has plenty of civil servants enjoying a cushy life at taxpayer expense. And in the private sector, too, the cronies get their favors, privileges and tax breaks...while as much as half of tax revenue goes uncollected. Which is probably a good thing. Were it not for the black market and tax evasion the economy would probably fall apart.
Elsewhere it is reported that 45% of GDP is collected by the Greek government. The difference between collecting 45% and spending 59% is apparently the source of the problem. But we're not sure. All of the numbers we see are a little fishy.
It was thanks to fishy numbers that Greece was admitted to the EU in the first place. The European Union insists on a certain standard of financial integrity, or it won't let you in. (Fearing that it might have to bail you out later). Greece managed to get in thanks to the clever legerdemain of Goldman Sachs which effectively disguised some of the nation's debts.
Then, with no more fear of getting paid back in Greece's dodgy drachma, lenders were happy to open their wallets to Greek borrowers. Government debt increased from 100% of GDP as recently as 2006 to 174% this year.
Spend, spend, spend. Pensions. Health care. Education. And why not guns too? Greece is even one of the biggest military spenders (as a percentage of GDP) in NATO.
This is austerity?
Real austerity is what you get when you spend no more than you make...minus what you need to pay to service yesteryear's excess spending. Real austerity is what you get when lenders wise up, realize you'll never pay them back, and don't lend you anymore money. Real austerity is what you have when the Germans say 'nein' to any more financial support.
Real austerity is not what the Greeks have. And not what Greek voters voted against.
It's what they need.
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.
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