A classical Greek saga for Washington and beyond
According to legend, Cape Sounion is the spot where Aegeus, king of Athens, leapt to his death off the cliff, thus giving his name to the Aegean Sea. Over the past week, the Greek parliament has done plenty of cliff leaping itself…
… not because it believes as Aegeus did – falsely as it turned out – that the heir to the throne, Theseus, had been slain by the deadly Minotaur but because it has been rudely pushed by the equally evil eurozone bail-out conditions.
So, while politicians and markets will be celebrating, to some extent at least, the self-immolation of modern Greece, the same people will be prancing around and praying that the United States does not do the same. Why, I ask myself, is the self-imposition of fierce spending cuts and harsh tax increases in Greece supposed to be so good while even a spoonful of the same medicine for the USA appears to scare the living daylights out of us?
The talk is always of helping Greece to scramble back onto a sustainable path. I can’t see it.
The US “fiscal cliff” is nothing other than the Greece situation in a larger format. As little as the votes in the Athens parliament can make the problem of over-indebtedness and under-productivity go away, so any action by O’Bama to “achieve a compromise” will get us nowhere substantial either. I have been watching the US Debt Clock with some bemusement for years but I have concluded any hope of the trend being reversed is futile.
Greece is clearly back to the wall – which the US isn’t quite yet – and the lessons are there for all to learn. Scale back while you can. But the objective in Washington is once again to find a way not to face up to reality and to sail on, regardless. So the market here will rally because Greece has acknowledged, albeit grudgingly, that the bullet has to be bitten while it will do the same when Congress fails to address is spending addiction and agrees with itself to postpone.
It would appear that if the measure which Athens approved works, it will bring the country back to a primary fiscal surplus. Wow, well done chaps! Alas, there will still be a debt mountain of 200% of GDP. Even in the best case, that must leave 8-10% of GDP leaking away in debt service cost – before a penny has been paid back. The talk is always of helping Greece to scramble back onto a sustainable path. I can’t see it.
The clock is ticking
However, as I look at the rate at which the US debt clock is racing away, I struggle to see sustainable fiscal discipline emanating from there either. If Congress and the White House succeed in avoiding the cliff, what will they have achieved? Answers on a post-card, cc the White House, please.
Meanwhile, on March 3rd, I wrote a piece from a beach in the Caribbean in which I referred to a retired Dorset farmer who had been trying to get his head around the essence of the eurozone crisis. As it happens, I visited him and his wife at their three bed retirement pad in Dorset this week-end. They had kindly invited friends from the farming community to join us for lunch on Sunday and it was fascinated to hear some of the comments. One, tellingly, came in the context of the recession which is currently affecting all of us at a time when the farmers are doing hugely well. One of the guests pointed out that farming had been in recession while the rest of us were “larging it up” on the credit card. As a result, farmers had not been able to borrow when others did but as a result arable farmers are now mainly under geared and doing hugely well – or so I was told.
As a laugh, I pulled up the March 3rd article on my iPad – the miracles of modern technology – and we read it through for the amusement of the luncheon guests at the end of which there seemed to be general agreement that next to nothing has changed.
However, another gentlemen at table is also an elected district councillor. His leg was duly pulled about the inertia of local politics but one thing which left me wondering was when he recounted how development plans for the 2006 to 2022 time scale were still not complete in 2012 and how he had asked for some financial figures, only to be told that they did not exist because “councillors don’t understand numbers”.
District council is, in political terms and in the words of his wife, one from the bottom and not one from the top in terms of the political hierarchy. Nevertheless, how can fiscal discipline, even at grass roots level, be achieved if financial ignorance is presupposed and transparency not built into the system.
More to the point, most national politicians – not of the customary top cabinet variety who have been groomed in the hot-house of party central office but the ones known as “lobby fodder” – have come up through the local council system. If that is the cavalier approach taken to local level budgeting, what chance for the country? Yikes!