Imagine a national joke about paying taxes, where he who cheats the most is most respected.  Imagine having a job with a month’s paid vacation, where you cannot be fired–absolute job security.  Imagine having the price of foodstuffs like milk subsidized by the government, so you can buy even more.  Wouldn’t all this be wonderful?

Now, imagine somebody tells you the party is over.  GDP drops a staggering 27%, compared to 30% for the Great Depression in the U.S.  Unemployment rises to 28%, compared to “only” 25% during the Great Depression in the U.S.  It drags on for five miserably long years, compared to nine years of the Great Depression.  Even worse, government officials start demanding you actually pay taxes and don’t get the joke anymore.  Now, other nations ridicule you and make fun of you.  They call you “spoiled children.”

Why is everybody so mean to you?  You were happy and not bothering anybody.  What has changed to make the world so mean?  Maybe, we need a new government, yeah, a new government, so we don’t have to change anything nor abide by the laws of economics anymore?

As expected, Greece elected a left-wing semi-socialist political party to protect their prerogatives and pampered way-of-life.  To do so, the new government promised to negotiate with their creditors to reverse the austerity measures that they had previously required.  In response, credit default swaps for Greece rose almost 11% immediately.  They are now the most expensive swaps anywhere in the developed world.  Very few expect those bonds to be repaid as promised.

Unlike three years ago, this did not come as a surprise.  Their debt was 160% of their GDP then, compared to 175% today.  (The U.S. is about 95% right now.)  Because no nation has ever left the European Union, it is not clear what will happen if Greece leaves (the Grexit), but I am not terribly worried about it!  It will be messy and make the stock markets choppy for awhile, but it will be good for the EU in the long run.  It will be good for everybody except the Greeks.

Greece took advantage of the strong currency of the EU to finance their borrowing at lower rates than their individual credit justified.  If they leave the euro, their borrowing costs will go up greatly.
I feel sorry for the Greeks.  (Of course, if they leave the euro, their exports should soar, because their new Greek currency will be almost worthless.)

For those bonds already issued, they are now in “strong hands” of the EU, the ECB and the IMF.  They have largely been removed from the private sector, except for a few courageous/stupid hedge funds.  I don’t feel sorry for the hedge funds . . .

This is what happens when you put your grandchildren into debt to pay for your entitlements today.