Saying No!

Guest post from friend of Alhambra, Brian Cronin:

Greece has to be the only country in the world that actually celebrates the beginning of a war rather than the end of it as its national day. On October 28th 1940, Prime Minister Ioannis Metaxas rejected an ultimatum from Italian Ambassador Emanuele Grazzi to allow Axis troops to occupy certain strategic locations in Greece or face war. The answer was reportedly a resounding “’Οχι!”  – “No!” and ever since, Greeks have celebrated Epeteios tou “Ochi”, the anniversary of the “No”. It has the same force as the celebrated and more colorful one word response of General Anthony McAuliffe to a German surrender ultimatum during the Battle of the Bulge in December 1944.

Modern Greece has had a turbulent history particularly since the Second World War. It was a focal point of the Cold War as the US and British backed army of the Greek government fought communists in the hills. The coup by the colonels in 1967 and the exile of the monarchy, then the overthrow of the military junta in 1974 and the restoration of democracy eventually led to their application to rejoin the community of nations via the European Union albeit on the periphery in 1981. It accepted the euro and gave up the drachma in 2002. It was, in a way, a grasp for maturity and an effort to mask the deep divisions of the previous forty years. But the divisions are never far beneath the surface and the scars remain.

Some Greeks can be stubborn and fatalistic as I know from personal experience. My late father-in-law was first generation Greek from Saco in Maine. He always seemed to be drinking from a glass that was half empty and thought that tragedy was just around the corner. The elections in May saw the end of those parties who had signed on to the austere terms of the bailout by the troika bankers. The question, widely asked, after each party in turn, except the neo-Nazi Golden Dawn and the Communist KKE, tried to form a government, was whether in the June election, Greeks would be stubborn again and say NO to the bailout parties. In the meantime, a caretaker government made up of technocrats and academics is in place until the middle of June.

Greeks do not want the austerity that comes with getting them out of the mess they are in. So their dilemma is that despite what cooler heads may urge them to do, they might just be bloody minded enough to say “we don’t care” and damn the consequences. If NO is the path they choose then it is almost certainly farewell to the euro.

Upwards of 70% of Greeks say they want to stay in the euro and not return to the drachma. That would mean certain devaluation and a loss of their savings. On the other hand, the government would be able to pay off their euro debts in drachmas, though there is no provision for doing so. Something else Maastricht never envisaged and definitely terra incognita..

Even as late as a couple of years ago, there were no contingency plans in Germany if one or more members were to exit the euro. That is certainly no longer the case.  It may be that Germany and the stronger nations would be glad to be shot of Greece. Too much aggravation. But if Greece goes, what are the chances that Italy or Spain might take the same route and at a faster pace? Then the whole European Union experiment, beating the swords into plowshares, will go down the drain. The dream was all for one and one for all, Musketeer like. What they definitely did not want was a two tier Europe but that scenario is a distinct possibility if the weaker brethren depart.

There is another scenario too: that Germany wouldn’t mind seeing Greece go because it would shock other nations and show them what chaos would look like and make them toe the line. German Finance Minister Wolfgang Schäuble has yet another solution: political union. While that might make sense logically, that is essentially what Margaret Thatcher always railed against: a United States of Europe, federalism by the back door. It will never happen.

Most people in the United States identify themselves first as Americans, and then tell you the town and state they come from after that. In Europe, it’s the other way round. Being a European comes last. Political union would inevitably see Germany as the focus and the anchor of such an arrangement and I suspect that since Europe has seen that film recently, it would be unwilling to sit through it again.

The leaders of the G-8 reaffirmed their commitment to Greece staying in the euro at Camp David but it didn’t look like Chancellor Merkel had signed on to the part of the communiqué that affirmed growth as well as austerity. Her view is that austerity means not spending more money you don’t have. You play by the rules or you don’t play at all. President Obama and France’s President Hollande held that growth via government stimulus should be in the mix as well.

The trouble is that G-8 these days amounts to nothing more than gee-whiz. The bland communiqué is written by the sherpas before the principals ever come together and everybody gets something out of it for home consumption but these meetings have lost the value they once had.

So, it remains to be seen whether the Greek electorate, bloody minded, stubborn and fatalistic or not, choose to dive into the abyss with all that that entails or pull back from the brink. It has been characterized as a Greek tragedy which is an understatement. The image I have in mind is Leonidas and the 300 Spartans holding off the Persians at Thermopylae. That didn’t turn out too well.

On May 28th, 2012, posted in: Currencies by Tags: , , , , ,
3 Responses to Saying No!
  1. Thurston Howell, III
    May 28, 2012 at 11:05 pm

    This highfalutin prose is worthy of a raised glass of chilled chardonnay.

    Reply
  2. Well written and characterized, I think. I’m hoping you will put the whole story together, Brian, and take it a step further. Tell us what might happen when a significant fraction of the sovereign bond debts of European countries go into default. Does anybody understand the term “dis-intermediation”? Does it apply?

    Regards,

    Reply
  3. Joseph Y. Calhoun
    May 29, 2012 at 4:18 pm

    Red,

    I assume by disintermediation you mean that there are some bank nationalizations coming? Cut out the middle man so to speak?

    Reply

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