Greece, money and morality

If the Greek government were sane it would leave the Eurozone, suspend its membership of the EU, and invite in experts from Hong Kong to produce a monster package of reforms to make it the most open and least corrupt economy in the West. if that's fantasy, the reality is far more improbable

Greek_flag_and_eu_flag
Greece has too much of a bad thing
92846a58059fa2adf7a5cbd17c0209783b140f86
Charles Crawford
On 4 July 2015 09:16

Did Albert Einstein ever say, “compound interest is the eighth wonder of the world -- he who understands it earns it, he who doesn’t pays it”?

The Internet isn’t sure. But it doesn’t matter. The basic point is sound. Compound interest is an astonishing force, the more so when it comes into play with the large sums of money representing national debts. Seemingly small changes in low interest rates make a huge difference when the sums of money involved are themselves huge.

If a government allows its borrowing to run out of control, the absolute sums of money needed to pay off the debt start to outstrip its capacity to extract that money from taxpayers or economic growth.

This is why the world has always had strict rules on national borrowing: the compounding consequences of messing up national finances are startling, both for the hapless country concerned and for the lenders who have subsidised its fecklessness.

Pacta sunt servanda. If a country borrows a lot of money from the open market or other governments, that country has to pay it back, even if that takes many decades. In 2014 the British Government politely settled some debts dating back two centuries or more.

Countries earn credit ratings based on their record of behaving honourably and wisely (or not) when it comes to spending money they have not earned.

It follows from all this that when a country gets into difficulties, the international financing system and (crucially) other governments reasonably expect that country to take tough medicine and get its affairs back into trustworthy and creditworthy shape.

There is no sane alternative: why lend more money to a government that has shown itself to be incompetent, lazy or dishonest, or all of them at the same time? Every country in the world, regardless of its political system, accepts this principle. It’s common sense.

So to Greece. Greece has long been seen as a disaster waiting to happen, and that disaster is now happening. Greece for far too long (a) has spent beyond its means, but worse (b) has not invested borrowed money wisely, and worst of all (c) has set up its internal affairs to make it easy for the mass of Greeks to avoid paying the taxes needed to support this situation.

True, successive attempts to bail out Greece in the past few years have made footling mistakes. Once the sums of money involved compound up to levels that are not going to be paid back under any conceivable scenario, the time comes ruefully to write off some of those debts and start again.

Everyone involved is poorer, sadder and -- in principle -- wiser. But in return for this strategic concession international lenders can insist, nay demand, that Greece implement radical reforms so as not to end up in the same absurd situation again. What if Greece’s leaders and system won’t or don’t or can’t deliver that? Chaos. A fine University of Chicago round-up of it all is here.

All this would not matter so much if Greece were not in the Eurozone (and in the European Union and NATO). Bad-tempered defaults could take place at arm’s length as has happened plenty of time.

But a Greece in the Eurozone is a different matter. The Greek government thinks that it has negotiating levers denied to non-Eurozone defaulters, namely to threaten to wreck all sorts of EU processes if it does not get its way.

This of course infuriates top EU leaders who are already scrambling to find ways to give Greece money on a scale far exceeding the sorts of money available for normal development assistance for (say) Africa, and who have been startled by the failure of successive Greek governments to fulfil many reform promises that are clearly in Greece’s own interests.

Right at the highest level of EU policy-making, the vital ingredient of personal trust between key people has gone. Hence the omni-shambles of the improvised Greek referendum, where voters are being asked to vote on options that may not exist as banks and other vital functions of a modern economy start to seize up across the country.

What is the morality of all this? Leftist commentators insist that the Greek masses are being bullied and impoverished by heartless capitalists. How dare the EU defy genuine Greek democracy? Time for Greece to leave the cruel Eurozone?

Rightist commentators point out that Greece and the Greek problem have already had staggering sums of money thrown at them, to no avail. Time for Greece to leave the sensible Eurozone?

Probably.

But beyond that are unspoken assumptions about what level of wealth Greece and Greeks ‘ought’ to have. Is it not unacceptable that Greeks as Europeans apparently face the prospect of slumping backwards towards the meagre living conditions and wretched health-care of (say) Africans?

Or put it another way. Don’t Europeans merely by virtue of existing ‘deserve’ to be richer than (say) Africans? And don’t all other Europeans owe Greeks a duty of solidarity to stop things getting that bad?

The answer is a resounding No. It makes no moral sense to subsidise Greeks to live beyond their means when there are far more far poorer people in the world also needing support. The more so when probably every single Greek family is implicated one way or the other in cutting corners, or not paying taxes, or voting for corrupt, lazy governments. Not just now and then, but over decades.

There are options. If the Greek government were sane it would leave the Eurozone, suspend its membership of the EU, and invite in experts from Hong Kong to produce a monster package of reforms sweeping away thousands of footling rules and restrictions and slashing government functions.

The aim would be to make Greece within weeks the most open and least corrupt economy in the western world. Armed with that clear signal of a clean start mobilising every Greek citizen to work hard and start behaving honourably, the Greek government could return to the word’s financial markets and start cutting smart deals.

Will that happen with the motley eccentric far-Leftists now running Greece? No. Instead we’ll get more evasive vainglorious grandstanding and accompanying anguish and stupidity, whose unpleasant consequences will echo on down the decades.

Oh, and Greece should not expect Russia and/or China to offer fat cheap loans so that Greeks can live at higher standards than their own citizens without working hard and paying taxes.

Conclusion? Don’t ignore laws of nature. The only thing separating any of us from living in caves and chewing grass is the compounding wealth arising from self-discipline, human inventiveness and hard work.

Smart policies have compounding effects that make you rich. Wasteful or stupid policies have compounding effects that make you poor.

It can’t be said often enough:

Man is free to evade reality, he is free to unfocus his mind and stumble blindly down any road he pleases, but not free to avoid the abyss he refuses to see.

Charles Crawford is a Contributing Editor to The Commentator. A former British Ambassador in Sarajevo, Belgrade and Warsaw, he is now a private consultant and writer. His website is www.charlescrawford.biz. He tweets @charlescrawford

Comments
blog comments powered by Disqus

We are wholly dependent on the kindness of our readers for our continued work. We thank you in advance for any support you can offer.

 
Options
Advertisement
Recommended
Advertisement
Advertisement