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Cleaning up Greece's Augean Stable

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One of zillionaire Warren Buffet's best "bon mots" was that when the tide goes out, you can see who is not wearing a bathing suit.

The financial tides just receded in Greece, leaving its new government naked and embarrassed.

Today, Greece's public finances are an Augean Stable. In Greek mythology, the hero Hercules cleaned up 30 years of accumulated manure from thousands of oxen by diverting two rivers through the notorious stable of Augeas. Greece now needs a second Hercules to deal with its current financial mess.

In spite of being a small nation of only 10.7 million, Greece's financial mismanagement risks igniting the biggest financial crisis since the Dubai crisis, or even the collapse of New York's Lehman Brothers bank in 2008. The world financial system is still so shaky than even a small jolt could send it into crisis. Recall that the 1930's, the international depression was triggered by the collapse of a small bank in Vienna.

Greece's new socialist prime minister, George Papandreou, will need all his strength and wits to restore Greece's economy and prevent its crisis from infecting other financially weak members of the European Union. But his socialist government is beholden to Greece's public service unions who are very much part of the present crisis.

Greece is rich by people, but historically impoverished by poor government. Greeks are very smart, tough, and fiercely hard-working. When Greeks settle abroad, they excel. For example, Greeks are believed to own over 25% of all restaurants and eateries in America.

But at home, in the cradle of Athenian democracy, Greeks have long been cursed by corrupt governments, political tribal warfare, mutual suspicion, and disreputable finances. The same holds for most other Balkan nations.

In fact, Greece's finances have been in the red for at least half of the time over the past two centuries. Interestingly, in the Ottoman Empire and Soviet Union, ethnic Greeks formed, along with Jews and Armenians, their principal money managers and financial experts. But not, alas, in Greece's government.

Greece's economy was unready to join the European Union when it was too hastily admitted in 1981, and remains equally unready today. Nor was Greece ready to join the euro zone. Bulgaria, Romania and the Greek portion of Cyprus were and remain similarly unprepared. Yet they were all welcomed into the union while Turkey's 70 million citizens were given the cold shoulder.

In retrospect, it is clear that the EU was expanded too far, too quickly.

Now, the new government in Athens has admitted that Greece met the EU's financial admission standards by falsifying its books.

Greece's alternating conservative and socialist governments were both responsible for its dishonest finances and for pandering to every kind of special interest group they could find.

A third of Greek workers are employed by government. Belligerent public sector unions threaten paralyzing strikes and riots if they don't get fully paid retirement at 61 to 63 years, generous wages, and long vacations. Athens in bracing for more violence as public sector workers refuse to accept necessary austerity measures.

Half of Greek taxpayers reportedly declare annual income under 12,000 euros, and pay no tax. Greek business is adept at evading taxes. Government corruption, both petty and grand, is ubiquitous.

Like President Barack Obama, PM Papandreou inherited a monstrous financial mess from the previous conservative government which claimed Greece's deficit was only 3.7% of GDP, thus in line with EU regulations.

But the budgetary figures put out by this bunch of pirates of the Aegean were fraudulent. Greece's real budget deficit was at least 12.7%. Athens owes billions in loans it can't repay. $30 billion in loans alone are due this coming April. Athens will have to beg or borrow these funds somewhere.

A century ago, a fleet from western creditor nations would have bombarded Piraeus and Salonika, or seized the Partheon and carried it off, unless the Greeks paid up. Today, the EU does not even have an official mechanism for dealing with deadbeat members.

We also learn with Wall Street's increasingly notorious Goldman Sachs bank reportedly helped Greece hide its debts through opaque financial derivatives worthy of Enron. So not only did Wall Street cause the current world financial crisis, New York's money wizards also exported their sleazy alchemy around the globe.

In fact, previous delinquent Greek governments look like mere Aegean beggars compared to the titanic con game run by Wall Street and their well-paid enablers in the White House and Congress.

Europe's weak financial sisters, Portugal, Italy, Ireland and Spain risk infection from Greece's crisis. Their debts are far too high, and financial reporting deeply unreliable. Britain, another major financial malefactor that became dangerously addicted to debt, also faces its own looming day of reckoning.

Meanwhile, Papandreou has had the hubris (a good Greek word meaning overwhelming pride) to demand the EU pay Athens' debts.

In mythology, Greek gods destroy those with hubris.

It looks as if EU bigwigs Germany and France will have to rescue Greece. But their voters are just as outraged as angry Americans by growing governments debts and have zero sympathy for Greece.

Polls show 70% of thrifty Germans and French oppose rescuing the profligate Greeks. Chancellor Angela Merkel rightly asked why Germans, who must work until 67 before retiring, should bail out Greek workers so they can retire at 61.

And who else, asked German officials, would have to be rescued next? Italy just reported its public-spirited citizens have avoided taxes by stashing away at least $80 billion in Switzerland alone.

Russia's PM Vladimir Putin just cuttingly observed that America is no better than Greece at handling its financial mess. In both cases, supposedly conservative governments permitted massive financial fraud and left an Augean stable of debt.

Putin's comment is interesting. Russia has the world's fourth largest monetary reserves. Moscow is expanding its political and military presence in Serbia, and could conceivably rescue Greece, thus renewing its influence in the Balkans. That would be a real strategic coup.

In the end, France and Germany will probably have to hold their noses and somehow underwrite Greece's Mt Olympus of debts even though doing so would violate EU rules. The alternative is risking the spread of financial contagion or a hugely humiliating IMF rescues for an EU member.

Meanwhile, the continuing crisis is depressing the euro and undermining the entire EU. The first result is not so bad, since the overvalued euro hurts European exports. But the Greek crisis is also opening dangerous fissures in the already rickety structure of semi-united Europe.

If the crisis infects Italy, Spain and other Mediterranean miscreants, watch out. The EU was expanded too quickly. A smaller EU would be a stronger European Union.