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The Spanakopita Syndrome

By Jonathan J. Ariel - posted Friday, 1 July 2011


It’s been 10 years since Greece joined the Euro. Ten years of opportunity to reform its public sector that have been squandered. Ten years to overhaul poor economic governance have been missed, and 10 years to realise that common public services like the national railways that generate 100 million Euros per annum but cost nearly seven times that to operate is no way to run a modern economy. It is telling that in 1992, a successful businessman turned cabinet minister, Stefano Manos, pointed out that it would be cheaper to put all of the rail passengers in taxis. The situation has only deteriorated since.

Recently Jurgen Stark, a vocal executive board member of the European Central Bank, and a former (twice) Vice-President of the Deutsche Bundesbank told the German broadcaster ZDF that a restructuring debt in any of the troubled Eurozone countries – he proved to be quite diplomatic by not uttering the name ‘Greece’ - could trigger a banking crisis even worse than that of 2008: “A restructuring would be short-sighted and bring considerable drawbacks. In the worst case, the restructuring of a member state could overshadow the effects of the Lehman bankruptcy.”

There is no painless way for countries that sought aid to reduce debt. The only viable path for such countries is to “strictly push through reform programs and repay debt in full”, the central banker was quoted as saying. And Herr Stark is right.

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Before any solution is embraced by or forced on Greece, let’s take a deep breath, several demitasse cups of thick Greek coffee, a couple of Kataifi Rolls and ask ourselves: just who is the real beneficiary of any so-called multinational “solution”.

Is it the major creditor banks? In particular the French banks? Is it the hard working German taxpayers? Is it the man or woman in the proverbial Thesalonikian street holding bank deposits? Or is it someone else? Before such a solution is applied to Athens, let’s closely study it. You can bet your Cochinillo Asado that Madrid will be. Very, very closely. 

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About the Author

Jonathan J. Ariel is an economist and financial analyst. He holds a MBA from the Australian Graduate School of Management. He can be contacted at jonathan@chinamail.com.

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