Eurozone and Greece: another round of Greek-Card Monti ...
“It is always so pleasant to be generous, though very vexatious to pay debts.”
-Ralph Waldo Emerson
Each morning we wake to another round of Greek-Card Monti, a con game played on the streets of New York which almost always ends badly for those risking their money. Thing is, everyone that knows anything about the con understands the outcome before the game begins. Is the Greek situation any different?
Well, the difference between the real game and the Greek inspired Troika version is the fact the players are using taxpayers’ money; otherwise the outcome is the same. We all know it will end badly. The only questions: How much longer can this con by the Troika go on, and will it lead to contagion?
This is what a death spiral looks like.
It is what can happen if you join a fixed exchange system, then take out very large debts in what amounts to a foreign currency, and then have simultaneous monetary and fiscal contraction imposed upon you.
Germany discovered this on the Gold Standard when it racked up external debt from 1925 to 1929 (owed to American bankers) in much the same way as Greece has done.
When the music stopped – i.e. when the Fed raised rates from 1928 onwards – Germany blew apart in much the same way as Greece is blowing apart. This is not a cultural or anthropological issue. It is the mechanical consequence of capital flows into a country that cannot handle it, as Germany could not handle it in the late 1920s.
By the way, Greeks work an average 42 hours a week, one of the highest in Europe. Just want to put the record straight on that.
Interestingly, there are not many players picking at those Greek certificates of death after the first round of long-term re-financing from the ECB. But there are those who decided Portugal is a good bet, despite the fact they are travelling down the same road as Greece and are the likely contagion candidate should the Troika not get what it needs—more time in order to prepare for an “orderly” default of Greece which has likely been the game plan for many moons now (a full one today in fact; how fitting if Greece were to howl, “We are better off outside the Euro ... at least we go down with some dignity intact instead of under the whip of Brussels wine and croissants crowd.”)
Greek versus Portuguese 10-year “Sovereign” Bond Yield:
For now the bet is the charade continues ... long euro, long periphery debt, and small short in bunds. But in the end, all cons end badly for someone. This public relations process is once again a way for the big boys to reduce exposure and come out of this more whole before the Troika began shuffling the cards.