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Archive for the ‘Greece’ Category

Greek Banks Close for a Week as Crisis Grows

Posted by Steve Markowitz on June 29, 2015

The Wall Street Journal reported that Greece has ordered that its banks remain closed for the next week to the stem panicked cash withdrawals by depositors.  This drastic move indicates that the five year long Greek debt crisis is coming to an end game.

After the financial meltdown occurred in 2008, the economic folly of Europe’s single currency, the Euro, became apparent.  The European Union was created in an effort by Europeans to create a political climate that would lessen the likelihood of future wars on their continent.  This desire was a reaction to the carnage that inflicted on Europe during two world wars in the 20th century.  While the political idea was noble, little thought was given to the economic consequences that a central currency would lead to.  Those consequences are now playing out.

The Euro was destined to create an economic calamity because the political union was not accompanied by a truly economic union.  European countries maintain their own banking systems and Euro central bank was weak.

After the European Union and the Euro were created, the more efficient and stronger economies of North Europe, specifically Germany, obtained the lion share of benefit created by the Union. With nearly all European countries having a single currency, less efficient countries had their cost of labor increased in relation to more efficient ones.  As a result, the poorer countries had a artificially strong currency that enabled them to consume increased amounts of the more efficient countries’, i.e. Germany.  Through the Euro, Greece had to access to relatively cheap borrowing via an overall European credit rating that did not reflect the realities of individual countries.  As a result, Greece and other Southern European countries borrowed more funds than they could afford to pay back and use these funds to purchase imports from Germany and other exporting countries.

When the recession hit, Greece and other countries were unable to make payment on their debt.  This led to a battle between the creditor countries such as Germany and debtors like Greece.

For five years the Greece debt crisis has been a can kicked down the road.  Creditors including, Germany, have been unwilling to forgive Greece’s debt, even though Greece is not a position to repay it.  Had Greece continued to have its own currency, it would have devalued versus the German currency making its exports cheaper and more likely that it would have been able pay back its debt obligations.  The single currency has curtailed this natural rebalancing mechanism of sovereign debt.

Greece has been operating under an austerity program for some years in an effort to pay down its debt obligations.  That effort was doomed to fail since austerity does not address Greece’s uncompetitive position.  Its current efforts to stop the panicked withdrawals At the Greek banks will also fail since this radical step will only create more panic in Greece and other southern European countries.

It is difficult to determine how the next few days will play out with the Greek crisis.  There are basically two long-term solutions 1) Greece drops out of the European Union and reverts back to its own currency, while at the same time defaulting on its debt, or 2) Greece’s creditors, mainly Germany, writes off the loans.  Either scenario has very painful economic consequences.  Either would require a realignment of the Euro and the European Union to correct the economic deficiencies of this unnatural union.

Greece is a relatively small economy.  Had it not been for the Euro, its default would have had only minor consequences for the world economy.  However, similar to international banks that were allowed to become too big to fail, the European Union’s single currency has made the consequences of even smaller economies European countries defaulting too big to fail.

Given the hard choices for Europe, look for the politicians and bankers to do whatever is possible to kick the can down the road.  This means that it is likely they will give Greece more loans to continue the illusion that the country is not defaulting on its loan obligations.  However, that bit of alchemy would only push the crisis off for a short period of time.

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Debt, Conflict and the European Dilemma

Posted by Steve Markowitz on January 28, 2015

Europe has is encountering another canary the mine. The Greeks have voted in a radical Leftist party called Syriza. They won as an opposition to the so-called austerity measures placed on Greece since the 2008 economic meltdown that resulted in it not being able to pay its debt.

The 2008 economic calamity was initially caused by a meltdown in the US mortgage markets. Thhis crisis was not by happenstance or caused by normal market forces. It was inflicted on financial markets worldwide as a result of broad-reaching governmental interventions in the economy. This included bailouts of equity markets and industries when the markets attempted to rebalance supply and demand through normal recessionary action. In addition, central banks, particularly the US Federal Reserve, intervened with artificially low interest rates, again in efforts to forestall the normal corrective market actions through recessions.

As a result of the intervention, not only has the recovery been the weakest since the Great Depression, but at the same time the financial imbalances have not been corrected. Instead, they (the debt) have been moved from the private sector to sovereign debt. The most recent economic manifestations that have now become systemic include the significant turmoil in currency markets. However, a potentially more serious issue has surfaced on the geopolitical front, especially in Europe, where the euro and European Union itself is in jeopardy.

George Friedman of Stratfor.com has published an article titled The New Drivers of Europe’s Geopolitics that offers insight into the current building crisis within Europe that is posted in full below. Friedman’s concludes that “I am focusing on fragmentation partly because it is happening before our eyes” referring to the fragmentation of the European Union. In addition, “The coalition of the Radical Left party, known as Syriza, has scored a major victory in Greece.  ….  It is drawing along other left-wing and right-wing parties that are united only in their resistance to the EU’s insistence that austerity is the solution to the ongoing economic crisis that began in 2008.”

Friedman discusses two views within Europe as why the financial crisis of 2008 continues in the EU.

  1. The German version, and the one that became the conventional view in Europe, is that the sovereign debt crisis is the result of irresponsible social policies in Greece, the country with the greatest debt problem. These troublesome policies included early retirement for government workers, excessive unemployment benefits and so on. Politicians had bought votes by squandering resources on social programs the country couldn’t afford, did not rigorously collect taxes and failed to promote hard work and industriousnes
  1. The other version that is beginning to gain traction, especially in the poorer European countries is: “The loans German banks made to countries such as Greece after 2009 were designed to maintain demand for its exports. The Germans knew the debts could not be repaid, but they wanted to kick the can down the road and avoid dealing with the fact that their export addiction could not be maintained.”

Friedman points out that problems caused by government-imposed austerity in countries like Greece have been amplified by governmental intrusion into their economies. For example, many workers in fields such as medicine and other services are state-controlled with these workers being employed by governments. Therefore the austerity programs have more significantly affected the middle class then would have been the case had the private sector controlled a larger part of the economy.

Greece cannot repay its debt. This is not only because they barrowed too much capability under normal conditions, but also because with unemployment rates exceeding 20% in many industries, their economy generates little revenue to maintain critical social services, let alone repay debt.

What started as an economic problem caused by excessive debt is now morphing into social issues that are rocking European stability. This is a major theme Friedman’s article as he concludes:

  • “Europe’s mainstream political parties supported the European Union and its policies, and they were elected and re-elected. There was a general feeling that economic dysfunction would pass. But it is 2015 now, the situation has not gotten better and there are growing movements in many countries that are opposed to continuing with austerity. The sense that Europe is shifting was visible in the European Central Bank’s decision last week to ease austerity by increasing liquidity in the system. In my view, this is too little too late; although quantitative easing might work for a recession, Southern Europe is in a depression.”
  • “Virtually every European country has developed growing movements that oppose the European Union and its policies. Most of these are on the right of the political spectrum. …. The left has the same grievances as the right, save for the racial overtones. But what is important is this: Greece has been seen as the outlier, but it is in fact the leading edge of the European crisis. It was the first to face default, the first to impose austerity, the first to experience the brutal weight that resulted and now it is the first to elect a government that pledges to end austerity.” 
  • The issue then is not the euro. Instead, the first real issue is the effect of structured or unstructured defaults on the European banking system and how the European Central Bank, committed to not making Germany liable for the debts of other countries, will handle that. The second, and more important, issue is now the future of the free-trade zo 
  • “There are then three drivers in Europe now. One is the desire to control borders — nominally to control Islamist terrorists but truthfully to limit the movement of all labor, Muslims included. Second, there is the empowerment of the nation-states in Europe by the European Central Bank, which is making its quantitative easing program run through national banks, which may only buy their own nation’s debt. Third, there is the political base, which is dissolving under Europe’s feet.”

Friedman is concerned about the specter of war once again raising its ugly head in Europe. Most find this a very improbable. However, the history of Europe has been one where peace has not been the norm. Further, during the Clinton administration there was a war in Yugoslavia and today it is occurring in the Ukraine. Add to this history the toxic mix of economic hardship and what is considered unlikely increases in probability.

Today’s instability of Europe, both economic and geopolitical, has its roots in Progressive activism that created unstable borders and economic rules within the continent. This is similar to what the Europeans created in the Middle East after World War I. The resulting mess in the Middle East has led to decades of violence that continues today. Unraveling the mess the Europeans created within its own borders will be just as complex.

The New Drivers of Europe’s Geopolitics is republished with permission of Stratfor.

The New Drivers of Europe’s Geopolitics, By George Friedman

For the past two weeks, I have focused on the growing fragmentation of Europe. Two weeks ago, the murders in Paris prompted me to write about the fault line between Europe and the Islamic world. Last week, I wrote about the nationalism that is rising in individual European countries after the European Central Bank was forced to allow national banks to participate in quantitative easing so European nations wouldn’t be forced to bear the debt of other nations. I am focusing on fragmentation partly because it is happening before our eyes, partly because Stratfor has been forecasting this for a long time and partly because my new book on the fragmentation of Europe — Flashpoints: The Emerging Crisis in Europe — is being released today. Read the rest of this entry »

Posted in economics, European Union, Greece | Tagged: , , , , , , , , | 1 Comment »

Consequences of Europe’s Latest Bailouts

Posted by Steve Markowitz on March 8, 2012

The European Central Bank (ECB) has acted decisively in response to the ongoing sovereign debt crisis facing various countries.  That action included an additional €529 billion of printed money that is on top of the nearly €490 billion printed in December.  The money printing presses of Europe are working more efficiently than even the rapid acting presses in the United States.

The idea behind the ECB’s bailouts goes beyond the obvious, i.e. bailing out Greece who cannot pay back its debt.  However, the actual reason behind the bailout is to assist commercial banks in various European countries that hold Greece’s bad debt.  Once again powerful interest groups are being bailed out by Progressive governments.

It defies logic that a problem of excess debt can be resolved by creating more debt.  To believe this is akin to believing in alchemy.  At best the new debt kicks the can down the road when the problems will once again arise, but even larger.

The potential consequences of the ECB bailout is discussed in detail by economist John Mauldin in his piece titled “Unintended Consequences“.  Mauldin points out the following:

  • The ECB’s holdings of rather questionable debt that has increased fourfold in the past six months.
  • While the ECB has printed substantial amounts of money that has then been loaned at low rates to European commercial banks, these banks are not making loans to businesses.  Instead, they are buying European government bonds and earning the spread that may improve their balance sheets, but not stimulate economic growth.
  • The cost of short-term borrowing by the weak European governments substantially decreased with the ECB’s interventions.  As a result these countries have replaced their more expensive long-term debt with cheaper short-term notes supported by the ECB.  While on the surface this seems positive for the debtor countries, it is creating a dangerous situation whereby their debt will now mature in the nearer term.  This will create another crisis within a few years when the new debt comes due.
  • The bailout of Greece is not being unnoticed in the other problematic countries, including Spain, Portugal and Ireland.  This will likely lead to those countries asking for concessions requiring still additional European bailouts.
  • The ECB bailouts have placed draconian austerity measures on Greece that will further contract their economy making servicing the discounted debt more problematic.
  • Mauldin concludes that in unintended consequence of the European bailout is a higher likelihood that the European Union will be broken up.

As this Blog has proffered in the past, governments are not qualified to efficiently allocate capital (tax dollars), which is what they do when intervening with bailouts or picking winners and losers, such is with green energy companies.  John Mauldin more eloquently states this reality in the introduction to his Unintended Consequences” that is posting below.  Hold on and wait for the consequences.

“For every government law hurriedly passed in response to a current or recent crisis, there will be two or more unintended consequences, which will have equal or greater negative effects then the problem it was designed to fix.  A corollary is that unelected institutions are at least as bad and possibly worse than elected governments.  A further corollary is that laws passed to appease a particular group, whether voters or a particular industry, will have at least three unintended consequences, most of which will eventually have the opposite effect than the intended outcomes and transfer costs to innocent bystanders.”

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Minimum Wage in Greece to be Decreased by 20%

Posted by Steve Markowitz on February 7, 2012

Much of the press concerning the Greek financial crisis focuses on the possibility (probability) that it will default on its debt.  However, a Greek default is but the canary in the mine.  Through fiat (paper) currencies, Greece and other countries have created huge debt obligations that are nothing more than forward taxes on future generations.

History has proved that the cycle for fiat currencies is predictable and repetitive.  Countries initially become successful due to the hard work of its people and/or the export of goods and services.  As countries become more affluent, their governments grow and increase services/handouts to their citizens.  In order to maintain and/or increase their power, these governments then make even more promises to citizens for increased handouts.  Their ability to print money enables such governments to increase benefits to unsustainable levels.  Initially these countries can borrow additional funds pay the promises.  However, at some point they cannot pay back the debt and default becomes inevitable.  This is the situation Greece now finds itself.  Other Western countries are also approaching this endgame.

Not only is Greece the canary in the mine for the end of the debt super cycle, but also evidences the flawed social and economic policies of modern Progressive governments.  Greece is caught in an unforgivable conundrum.  It cannot afford to pay back its debt unless its government’s tax receipts grow substantially, an impossible scenario given the amount of current debt.  Greece therefore requires a bailout by European creditor countries.  However, these countries will not bail out Greece unless it accepts extreme austerity measures that include cutting back on government spending and services.  Progressive governments cannot maintain power should they accept the demanded austerity measures.  In addition, these measures are contractive and will further decrease Greece’s tax receipts resulting in even less money available to pay back the debt.  This is sometimes called the death spiral for good reasons.

One of the austerity measures being demanded by Greece’s creditors is a 20% cut to its workers’ minimum wage.  This demand by the European Union is being made so that Greece will become more competitive versus the northern European countries whose workers are more productive, specifically Germany.  This is a remarkable demand from the Progressive governments of Europe.  It is a clear admission by Leftist economists that artificial minimum wages are a drag on a country’s productivity.  This is a reversal of a 100 year old Progressive axiom that a government created minimum wage stimulates the economy and helps those at the lower end of the economic scale.

As Sir Walter Scott so well said: “Oh what a tangled web we (Progressives) weave, When first we practice to deceive.”

Posted in Debt, Greece | Tagged: , , , , , | 1 Comment »

Greece Calls off Referendum

Posted by Steve Markowitz on November 3, 2011

The ongoing actions by the Progressive governments in Europe indicate that the Greek financial mess is spiraling out of control.  Greece is up to its eyeballs in sovereign debt.  Most unbiased economics concluded months ago that Greece cannot repay this debt and that their default is inevitable.  This reality has not, however, stopped European leaders from continuing the charade that another outcome is possible.

Last week the European Union (EU), with the backing of its two biggest economies France and Germany, came up with yet another bailout plan for Greece.  Equities markets rejoiced with stock prices at first increasing.  Then, on Monday Greece President Pompidou put a crimp in the bailout plan when he announced that he would put the matter up to a referendum by the Greek people.

Frances Sarkozy and Germany’s Merkel went ballistic at Pompidou’s decision and threatened Greece with expulsion from the EU.  Well, today Pompidou abruptly changed course and called off the referendum.  He clearly feared that the referendum would go against the bailout deal, and likely also caved in due to the pressure from France and Germany.

Greece’s about-face came as leaders of the world’s largest economies were meeting in Cannes, France, for the Group of 20 economic summit, as well as for some good food and drink curiously of their taxpayers.  President Obama said at the summit: “The most important task for us is to resolve the financial crisis here in Europe.”  Hmmmm …… nice sound bite, but it does not offer solutions.

Past interventions by Progressive governments in the markets have created not only the current Greek Tragedy, but the financial mess that many Western countries currently face.  But Progressives are an unrepentant lot.  After having their fill of caviar and fine wine in Cannes, these Progressives will undoubtedly offer still more interventions in an attempt to kick the can down the road once again.  Yikes!

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Jobless Benefits Running Out for Spaniards

Posted by Steve Markowitz on November 2, 2011

The financial world is currently focused on Greek’s debt.  On a weekly basis the possibility of a Greek bailout changes.  Last week it looked like the Europeans came to an agreement on this issue.  However, this week the Greeks put the proposed arrangement into turmoil when its Premier Pompidou announced he would put the deal up for a referendum by Greek voters.

While Greece’s debt is a serious issue and threatens the stability of the European Union, it is only a small part of the greater European sovereign debt problems.  The most serious European sovereign debt issues are found in the PIIGS that includes Portugal, Ireland, Italy, Greece and Spain.  Europe could afford to eliminate Greece’s debt and absorb the losses.  However, it cannot afford to absorb the entire debt of the PIIGS.  Should Europe not be able to contain the default to Greece, it is unlikely that the European Union can survive in its current form.

Focusing too much on the sovereign debt issues masks the fact that significant numbers of Europeans are being heard by the lengthy economic downturn.  Last week the Wall Street Journal reported on a problem relating to Spain’s unemployed that has reached 21%, a 15 year high.  Many of the unemployed have been out of work for extended periods, exceeding Spain’s 24 month unemployment benefit period increasing poverty levels throughout the country.  At the same time, Spain is being forced by the European Union to slash its budget deficit from the current 9% of GDP down to 3%.  This will increase downward forces in its economy and further exasperate the problem.

Spain’s unemployment issues are not unique in Europe.   However, it is occurring quicker than in other countries that offer longer periods for unemployment benefits.  The unemployed in those countries will soon face similar problems as their benefit periods expire.  Similarly, the United States will at some point also need to curtail unemployment benefits.

A natural inclination for any caring society is to increase the length of time for unemployment benefits to help those in need.  This solution, however, is only viable if the economic downturn is of limited length and the host country can afford the benefits.  Neither of these items exists in many countries for the current downturn that is approaching is its fourth year.  This is causing a conundrum that will require governments to borrow still more money to continue paying benefits or find other solutions.

Unfortunately, many Western governments that supposedly adhered to Keynesian economic theory have ignored an important part of it.  Specifically, Keynes proffered the view that during economic slowdowns (recessions) when private demand was lacking that governments need to come up with increased spending to make up the difference.  This often requires deficit spending.  The Progressives, however, conveniently ignored the second part of Keynesian theory that states that during strong economic periods, the government must save (creates surpluses) for leaner times.

The result of the bastardization of Keynesian economic theory has led to the current conundrum where more government spending is required, but funds are not available.  Progressives in the United States look to scapegoats to blame for creating these problems in attempt to hide their contribution to creating them.  President Obama’s favorite targets are the “millionaires and billionaires” who he claims are not paying their fair share in taxes.  While it may be reasonable to increase taxes on wealthier Americans, the current tax rates did not create the problem as Europe has clearly proven.  Spain and most European countries have tax rates that are significantly higher than those in America.  Yet their deficits have pushed these countries to the brink of default.

The problem of America’s excessive debt, as well as that of Greece and the rest of Europe, is excessive governmental spending.  No matter how much in taxes governments collect, it is never enough.  Politicians use government spending to pay off constituents and grease their way towards reelection.  Unfortunately, like Spain’s unemployed, many citizens and corporations in Western countries have become the wards of state.  Stopping this dependence is painful and will require dynamic political leadership that so far has not been seen in any major Western country.

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Europe Comes up with Bailout Plan for Greece

Posted by Steve Markowitz on October 27, 2011

European countries, specifically France and Germany, have announced the long-awaited bailout plan for Greece.  The world’s financial communities will rejoice that we have once again avoided the day of reckoning.  It remains to be seen Europe’s debt problem has actually been resolved or the can has merely been kicked down the road a bit.

The announced plan calls for European commercial banks to take a 50% loss on their Greek debt.  While this action will significantly decrease Greece’s debt, it is estimated that it will still remain at 120% of GDP by 2020.

The complex debt plan also requires European banks to raise significant additional capital.  In addition, the European bailout fund will be doubled to $1.4 trillion.  This second item is required due to the fear of other European countries’ (the PIIGS) with huge debt, including Portugal, Spain and Italy.

When announcing the Greek bailout plan, the politicians claimed victory with French President Nicolas Sarkozy saying “The results will be a source of huge relief to the world at large, which was waiting for a decision”.  German Chancellor Angela Merkel said: “I believe we were able to live up to expectations, that we did the right thing for the euro zone, and this brings us one step farther along the road to a good and sensible solution.”

Reality should temper the politicians’ victory lap.  First, it was just few months ago that European leaders estimated the cost to commercial banks for the Greek write-downs to be only 21%.  Now that figure is up to 50%.  In addition, Europe has not yet determined where it will obtain the approximately $700 billion required to increase its bailout fund.  Finally, and possibly most unknown, is the reaction of the remainder of the PIIGS to this deal.  Will these other countries stand by and take the austerity measures required to continue paying back their debt or will they use the threat of default to extract concessions?  The answer seems obvious.

The GDP of Greece is a trivial percentage of Europe’s total.  Still, Greek debt has taken center stage in the European crisis for well over a year.  While it remains to be seen if this Greek tragedy has actually been resolved, more significant challenges remain from the larger PIIG’s.  Equities’ markets will start weighing in on this question in the coming weeks after the euphoria of this Greek deal wears off.

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A Greek Tragedy in Simple Terms

Posted by Steve Markowitz on September 30, 2011

On nearly a daily basis, the news about Greece and its financial problems changes.  One day it is reported that Greece is on the verge of default and the next that they are being saved by some bailout.  In response, equities markets shoot up one day only to take a dive the next.  Today is one of those down days.

While it is not possible for individual investors to understand all of the intricacies of Europe’s financial challenges, it should be evident that Greece’s problems caused by excess debt cannot be cured by still more debt, which is what the Europeans are attempting to do.  That should be enough for all to understand that the Greek situation is indeed a tragedy that cannot turn out good.  The only question for investors is how badly Greece’s default will affect equity markets and other countries’ economies.

STRATFOR.com is a good source of information on international matters.  Today their Vice President Peter Zeihan published a video report on Greece, link supplied below.  Zeihan correctly chides the financial media for not viewing Greece’s overall strategic problems.  He concludes that Greece will ultimately be kicked out of the European Union, but first the EU must be prepared for other Euro-zone failures including at least Portugal, Italy and Spain.  This will require a two trillion Euro fund being created before Greece is thrown out of the EU for this divorce to occur in an orderly fashion.

Stratfor correctly concludes that Greece is going to lead to a painful economic event in many countries.  That is not a good sign for equities markets going forward.

STRATFOR’s Greece Report Video

 

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Moody’s Again Downgrades Greek Debt

Posted by Steve Markowitz on July 25, 2011

The credit rating firm Moody’s once again cut Greece’s debt rating, this time three notches to Ca, just above default.  This gives Greece the lowest rating in the world of any country covered by Moody’s.  Congratulations to the European Progressives that produced this mess.

The Moody’s downgrade comes as a result of the latest EU bailout plan unveiled last week for Greece.  That plan once again kicked the can down to the road for not only the Greek debt, but for other overspent countries including Portugal, Ireland and Spain.  It was tagged a “default” by Moody’s since it required the private sector banks to take a haircut in the plan with Moody’s stating: “The announced EU program along with the Institute of International Finance’s statement implies that the probability of a distressed exchange, and hence a default, on Greek government bonds is virtually 100 percent.”

The Moody’s announcement is a yawner since most economists, except those paid by governments, understood months ago that Greece was insolvent.  Only with bailouts and Madoff-type accounting gimmicks could this reality be forestalled.  But even these actions have a finite end.

As the world watched the EU bail out Greece, other European countries including Portugal, Ireland and Spain took notice.  Europe showed that it was unwilling to accept the reality and consequences of a Greek default.  We should expect other EU countries with excess debt to soon create the next crisis, betting that the EU will bail them out also.  Unless one believes in Alchemy, this will not end without tears.  It is likely that the damage to the EU will be more significant when the day of reckoning occurs than it would have been if Europe would have allowed the free markets to to do there ting with Greece over a year ago.

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French Greek Debt Proposal Aims to Kick the Can Down the Road Again

Posted by Steve Markowitz on July 20, 2011

Most economists agree that Greece’s financial condition is so dire that its default is inevitable.  It is but a matter of timing.  Most also agree that Greece’s default will create significant challenges for not only Greece, but Europe as a whole, especially for other financially stressed EU countries.

It is the fear of repercussions that have lead to one Greek bailout after another, as well as tricky accounting, in an attempt to avoid the day of reckoning.  However, none of these interventions addressed the real issue.  Greece owes more money that it can afford to pay back and these huge loan obligations must be written off or Greece will become a slave state for years to come..

The Wall Street Journal reported in a positive manner yet another grand plan designed to fix the Greek Tragedy.  This plan, originated by the French, would take a Greek default off of the table by giving it the funds needed to pay its bills without requiring Greece to take a haircut.  European banks would be required to foot the bill and a new bank tax would also be used to offset the costs.

While the Journal calls this latest Greek bailout plan “promising”, the German banking federation is balking saying that banks not exposed to Greece’s bad debt will be forced to share in the burden of the bailout.  They also complain that the bailout would weaken their balance sheets.  In response to these concerns, the Journal stated its belief that these problems would be offset by some future benefits that the banks would receive from the resolution of the Greek debt problem.

The Wall Street Journal’s positive conclusion is flawed.  Winding down debt, often referred to as deleveraging, is necessarily contractive and painful.  Any plan that concludes otherwise does not consider the costs and secondary consequences of the bailout.  There is no such thing as alchemy in chemistry, perpetual motion in physics, or painless deleveraging in economics.

We are nearly three years into the lengthy economic downturn that started with the collapse of financial institutions and equities markets.  Governments worldwide responded with historic interventions costing trillions of dollars.  Those interventions resolved none of the underlying problems that caused the meltdown.  Instead, they moved private debt to the public sector and now we are dealing with still larger sovereign debt issues.  It is remarkable given this history that these same governments are now resorting to similar interventions with sovereign debt.  The unintended consequences of these interventions will be significant.

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