The
Greek financial/political crisis is becoming an annual event. For a sense of
just how long this unfortunate little country has been struggling to survive under
the relative sound money regime of the eurozone, here's a Greek
Crisis Timeline that CNN published in 2011. Even back then the pattern of
near-collapse followed by temporary respite had been repeating for seven
years.
The
most recent lull seemed longer than usual, so long in fact that many people
probably assumed that Greece had been "fixed" and was now a
more-or-less fully-functioning member of the eurozone, ready to settle back
into its enviable lifestyle of hosting tourists, drinking ouzo and avoiding
taxes.
But no.
Nothing has really changed. Youth unemployment remains around 50% -- which is
even more astounding when you consider that tourism is generally a pretty good
sector for young people looking for entry-level service work. And the
government is still running deficits, piling new debt atop its already
unmanageable 175% of GDP.
As a
result, anti-euro political parties are still gaining adherents and now seem
to have enough clout to start dictating terms. This month a series of
elections are being held that, if I'm understanding correctly, have to go the
government's way to avoid regime change in which the far left takes over and
pulls Greece out of the eurozone. The first round in this voting trilogy
didn't go the government's way, making the next two highly problematic. And
last week the situation got even more complex:
Greek lawmaker alleges bribery attempt in
presidential vote
ATHENS,
Greece (AP) -- A lawmaker from a small right-wing party claimed Friday he had
been offered a bribe worth up to 3 million euros ($3.68 million) to vote in
favor of electing Greece's new president, in the latest twist in the
bailed-out country's fraught presidential vote.
Greece
faces early general elections if its 300-member parliament fails to elect a
president by the third round of voting on Dec. 29. In Wednesday's first
round, the sole candidate and government nominee garnered 160 votes; 180 are
needed for election.
Actor
Pavlos Haikalis of the Independent Greeks claimed during a phone-in to a live
television program that he was offered about 700,000 euros in cash, a loan
repayment and advertising contracts, with the alleged bribe's total value
amounting to about 2-3 million euros ($2.4-$3.7 million). He didn't identify
the person, but said he had informed a prosecutor about two weeks ago and had
turned over audio and video material.
Haikalis
later alleged that the man who contacted him claimed to be acting on behalf
of Prime Minister Antonis Samaras and a banker.
So,
let's take the status quo's worst-case scenario, in which Greece ditches the
euro and returns to the easy-to-manipulate drachma. It converts all its
outstanding euro-denominated debt to drachmas and then devalues its new/old
currency by 30 or so percent, pricing its hotel rooms, charter boats and
restaurants back into attractive territory. That's okay on balance for the
Greek people, who benefit more from rising tourism than they're hurt by
devalued savings.
But
it's very bad for European banks and US hedge funds that now own tons of
Greek debt and will therefore suffer big losses. More damaging still, once
the precedent is set everyone will start looking around for the next domino
to fall and will find plenty, with Italy (now in the throes of a
political crisis of its own) leading the list. That's a much bigger
economy with way more euro-denominated debt, so an Italian exit from the
eurozone would be apocalyptic for the whole global financial system.
Will it
come to that in 2015? History says probably not. Remember, Greece has been on
the verge of imploding for a decade, and each time the money has been found
to save it. With the ECB inching towards a multi-year, multi-trillion euro
debt monetization plan, the entire Greek economy could be tucked into that
expanding balance sheet without a ripple. So expect another wealth transfer
from Germany to Greece in the near future. And then perhaps one from Germany
to Italy. But also expect some drama along the way.
