Wednesday, September 28, 2011

EU Handling of Greece Bailout is Dumb

I was struggling a bit to come up with the right word to describe how the EU is handling the whole Greece/Euro situation. It's not really 'dumb' in the intellectual sense, since a certain amount of dancing around issues and obfuscation seems somewhat necessary to try to get public buy-in to their policies (that is, the only way their people are going to support what they are doing is if they don't really understand it). It's also not dumb in the end-goal sense: if you want to preserve the nominal stability of the monetary union, and prolong Greece's national default by stealing wealth from the other countries in the EU, this is a good way to do it.

No, what I mean by 'dumb' is that this whole process exemplifies most of what I find distasteful about politics in general. First you have a political system which is very popular among the people, but doomed to economic failure like every other attempt before it. Then you have this effort to prolong the problem, by "bailing out" the country, which really means just postponing the default of the country's debts by stealing wealth from people in other countries. Of course, you can't state that directly, so you have this whole elaborate charade of "support funds" and "emergency loans", and all the other facades to disguise the process. On top of that, you have an excellent excuse for all the other countries to print massive amounts of money, which doubles as a huge hidden tax on anyone with savings, and a means to funnel money directly to government members/allies ("stimulus", "banking support", "job creation", etc.).

Of course, the US is doing a very similar thing; replace Greece with "housing bubble", or "stock market level", and you'll get the idea. The only difference is that Greece is generating more debt as time goes on, rather than something which will eventually become "normal" if you just debase the currency enough. Moreover, I'm sure the policy makers know exactly what they are doing, and are proceeding very purposefully; they have an agenda, and these actions support it.

I guess I just find the whole process rather distasteful, stomach turning, frustrating... "dumb".


  1. It's not very popular with the German folk either...

  2. Update:

    I do have to give props to the EU governments, though, for finding a very creative way to push a lot of the losses out of their banking sector and onto private investors. By forcing a mandatory "voluntary" write-down, and replacing a portion of the resulting debt with EU-backed debt, they create effectively a net-neutral debt swap on the EU banks which purchased the debt (that is, they take a large write down, but the overall expected return including risk is relatively steady).

    However, the genius is that by labeling the plan "voluntary", they allow the banks to not pay out any of the derivatives protecting external investors from losses on their holdings of Greece's debt. Effectively, that means the banks get to compensate for any losses with the revenue from derivatives, while simultaneously screwing anyone who bought Greek debt while hedging against default (ie: everyone who was not the big banks). Let this be a reinforcement of an age-old lesson to anyone thinking of investing in issues which the government has a hand in: if you are not a crony with your lobbyist bribes paid in full, the government will find a way to screw you.