Finally, someone at the European Central Bank has hinted that a baseball bat may be what's needed to fix the never ending Greek debt mess.
The hint was couched in polite Euro-speak, mentioning a "second stage of bailouts," where the Eurozone would take some control over a country's [read Greek's] economic policies if it could not do so itself. Hours later, the Bank's economist was more blunt and stated that if Athens doesn't take the necessary measures then other parties would "interfere."
Translated into plain and simple English, it looks like the Euros are finally realizing what has to happen. Greece needs to undergo a severe "workout," which is banking jargon for lenders commandeering a profligate's management. Put another way, on the streets of Calabria or New York City, it is time to bring in the "muscle" because the loan "sharks" want their "juice."
More genteel lingo and methods have been applied to no avail. This is because Greece is not a country, it's a party.
Taxes have gone uncollected forever or have been short stopped by corrupt tax collectors. For decades, Greek governments have paid civil servants bonuses for showing up to work on time and 14 months' pay for Christmas. Retirement has averaged at 53 years of age. The other members of the "Club Med," or Club Nearly Dead, include Portugal, Spain and Italy which have soaring costs and gigantic underground, tax free economies.
There's also Ireland with governments that behaved as if their entry subsidies to the EU would never end.
The Greeks are the worst of the lot, and the Euro lenders should get in there and undertake a couple of obvious reforms in the absence of any Greek political leadership. Tax collection there should be outsourced to independent collection agencies, which know how to deploy tried-and-true measures to get taxpayers to pony up.
One condition of this latest, the fourth, bailout should stipulate the transfer of title of all Greece's publicly-owned assets so they can be foreclosed and sold to cover deficits and pay down debts. Greece, as one German legislator suggested two years ago, has hundreds of beautiful publicly owned islands and other assets that should be privatized to fix the fiscal mess.
By the way, these poorly managed nations are not going to sink the global economy but they should be of concern to everyone. Greece is economically the size of Denmark or Maryland; Ireland the size of Israel or Alabama and Portugal the size of Hong Kong or Louisiana. But if the Europeans keep tiptoeing around this situation, the unraveling of the European Project will unfold, with grave and negative ramifications geo-politically.
The root of the problem is that the euro experiment was badly designed: One cannot have monetary union without political integration, at least when it comes to fiscal and economic policies. So the fixes are obvious and anything less will fall short:
-- All euro countries must scrap their national central banks and bank regulatory systems in favor of one central bank and financial system.
-- The subsidized members must submit to stringent workouts by this new entity and avoid the embarrassment, and risk, of public bond markets. This means the crisis can remain "in house," which is where it belongs for the sake of properly managed members.
-- A portion of the workouts should include loan restructuring and a significant haircut to bond holders or banks who have known for a couple of years the risks involved. They've been betting the Euros will never stop putting bad money in after good.
It all sounds very severe, and there are Greeks protesting on the streets every day. But they were protesting when the retirement age was kept at 53 years of age and when civil servants, who were already underworked and overpaid, wanted more year after.
At least, tough remedies will give them something legitimate to protest in the streets about. That's because the Greeks, and all Euros, must realize that when a client owes a bank one million dollars and cannot pay, the client is in trouble. When a country owes its partners hundreds of billions and cannot repay, the partnership is in trouble.
From Diane Francis and appeared in The Financial Post