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He Said, She Said . . .

02/12/2015

Negotiations are underway to resolve the Greek Debt Tragedy, version 3.1.  Unfortunately, it has become a Greece versus Germany battle.  Greece argues that one-third of their debt should be forgiven.  After all, one-half of Germany’s debt was forgiven after World War II.  In addition, Germany inflicted immeasurable destruction on Greece during that war and never paid a penny of reparations to Greece.  In other words, Greece is not the debtor, Germany is!

Germany argues that their forgiven debt was a result of war, not of profligate spending, i.e., lavishing entitlements on its citizens, as Greece has done.  Apparently, debt to kill people is forgivable while debt to spoil people is not?

Another problem is that Germany conflates economics with religion.  Germany is home to Austrian economics, which believes every budget must be balanced every year.  They insist, with a missionary zeal, that Greece do the same.  And, we all know how much more difficult it is to negotiate with “true believers.”

Greece also argues that Germany’s many export industries have benefited from having Greece in the European Union.  This is because the euro would have been stronger without the lousy credit of Greece.  While there is probably some theoretical truth to this, it’s significance is academic and tiny.

The reason Greek Debt Tragedy, version 3.1, will be less damaging than previous versions is that Greek bonds are no longer owned by weak European banks.  Those bonds are now in the strong hands of the ECB and other government agencies.  In other words, a default by Greece will no longer have a fatal domino effect.

Greece also argues that the European Union will disintegrate without them, which is analogous to saying the United States would disintegrate without Rhode Island.  Our stock market will be volatile and messy for awhile, but it will also be a good time to invest more cash.

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