Could the Greek Economy end the great Euro siege?
Ambrose Evans-Prichard has a telling factual piece in today's Telegraph. Standard & Poor's list has downgraded the credit-worthiness of Greece (yup, that's the entire nation), because of its soaring public debt.
Greece in its turn is having to use the public finance equivalent of loan sharks to keep the lights on and (presumably) the Ouzo flowing. Its latest bond issues are 234 basis points higher than the equivalent German ones.
What does this mean? A 'basis point' is 1/100th of 1%. So, on new debt, Greece will eventually have to repay at an interest rate 2.34% higher than Germany. If Greece had its own currency still, that would mean its Drachma interest rate would be close to 2x that of Germany's (which, I understand, was paying 3.2% on 10-year bonds, earlier this week).
I'm not defending the British 'government' approach to this (see below), but one small saving grace is that, if we had to do the same in our own currency, inflation could operate to reduce the ten-year redemption cost to manageable proportions.
But Greece is in the Eurozone and thus it doesn't have this option. If its debt is bought by other Euro countries it is stuffed. It's true that inflation will reduce the impact overall, but the piper will still have to be paid.
You can, to an extent, understand German frustrations: their innate prudence means their public debt is negligible in comparison, and it's hard to see why, morally, they should put up with high inflation and interest rates just to pay off Greek profligacy. You'd forgive them, therefore, if they started lighting fiscal fires beneath the underbelly of the Greek 'horse', with a view to forcing a confrontation.
On this occasion, nobody, least of all the Greeks, is managing to fool anybody.
It is very hard indeed to imagine the Euro zone surviving such stresses. Either it will break apart, with the worst affected economies (such as Greece) returning to de-facto local currencies, or some form of EU economic straitjacket will be centrally imposed (Amsterdam and subsequent treaties allow for this).
In the article cited above, Evans-Prichard comments that this is unlikely, given the recent Greek riots, but common sense has never prevented EU bureaucrats in the past, and, viewed from the gravy-marshalling-yards of Brussels, Greece is a far away country about which they evidently know little, and care even less.
Standard and Poors is reported as commenting that Greek debt will exceed 100% of GDP in two years' time. This isn't a magic number per se, it simply means that, to balance the books, the Greek population would have to work for an entire year to pay off their public debt alone. Their credit cards, mortgages, etc. are not included in the figure.
Is Britain in a similar pickle to Greece?
In short, probably yes. So much has been pledged by Broon and Sweetie to their new 'friends' in the city it's hard to say exactly what we owe.
In Summer 08 I 'guesstimated' our public debt at £2.76tn*. This included the second tranche of Northern Rock theft but not subsequent robberies of the public purse by the banks, in which Sweetie was a willing accomplice ('Stockholm syndrome?').Compared to the hapless Greeks however, we have one card left: Sterling. If much of our debt is held abroad (which historically it has been), and we enter a period of high inflation (which we surely will, soon), our debt becomes effectively worthless.
This, of course, presupposes we stay out of the euro, and that our economy is already wrecked, such that stagflation doesn't matter. The siren voices are already sounding on the former issue - BBC Radio 4 is in full euro-propaganda mode already with the Today and You and Yours programmes brashly on-song. This commentator expects Newsnight et al to follow suit over the next few days. The arguments for the euro are, of course, just as facile as ever they were, more so in a depression, but that doesn't stop the fanatics.
What about our public debt though? So much is being stolen now from taxpayers in the UK (and just given away) that it's hard to keep track. On the BBC Newsnight programme last night (12'45" in) , Peter Mandlesohn, himself no stranger to financial "leger-de-main," grinned maniacally and pointedly refused to say where it would all stop.
So how much more of our money is his government prepared to thieve away to the banks?
The clear implication is "lots."
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