Monday, January 26, 2015

Greece Turns a Corner

The election Sunday in Greece with Syriza taking 36 percent of the vote will create a new Greek government, unwilling to play ball with the existing agreements with the ECB.  The Greeks voted against economic stagnation and voted against repaying in full their obligations to the ECB.  Syriza is linking up with a right wing party to form the new government with Alexis Tsipras, head of the Syriza party, as the next prime minister.

All of this was inevitable.

A similar pattern will play out in the rest of southern Europe in time.

Unpayable debts need to be "worked out."  Partial defaults are in order.  The "extend and pretend" policies of the ECB have just made Europe weaker, debts higher, and the citizenry more furious.

When debts are unpayable, there are two parties at fault -- the borrower and the lender.  The lender needs to take a hit -- a big hit -- to put Greece back into play.  Greece, itself, needs to reform its economic policies -- especially business regulation and labor laws.  Greece cannot do that at the behest of German bankers, but it can reform as a means to return to the sovereign debt market.

It is still possible for Greek to remain in the Eurozone, but only if it walks away from much of its indebtedness.  That is the irony.  This should have been done four years ago.

No comments: