29 June 2011

A Greek Tragedy

 "The people of Greece are fed up of bailouts and fed up of austerity" - Sky News 28th June, commenting on the street protests outside the parliament building in Athens.
 
This recent trip to Europe has been fascinating and illuminating as I'll explain in more detail in Friday's Update.

For now we have protesters on the streets of Athens as the Greek government remains trapped in a semantic argument about whether debt is something that has to be repaid (the German's banks' understanding) or something more akin to a gift (the historic Greek interpretation). Either way, while the events on the streets of the cradle of democracy might well make great TV, we still think that this is a prelude and not the main event. The Sky news commentator may well be right and for now with a recessionary economy, high levels of debt and a society gorged on the consumption and wealth ethos of the last decade we may well see further escalations to the protests and strikes - it would take a huge political blunder for this protest to amount to anything meaningful in the long term (that's not to discount the possibility of political blunders). Greece still remains a manageable size for the extend and pretend practitioners to prevent coming to its natural conclusion.
 
But it is just the thin end of a very fat wedge and an early warning sign of the impossible challenges faced by administrations around Europe - if, as we expect, the problem is brushed under the carpet a little longer it will simply continue to grow bigger and bigger and soon, whether in Greece, Ireland, Portugal, Spain (as we have consistently believed since 2008) or anywhere else, it will erupt - what we at MBMG term vulcanomics - and it won't be manageable any more.
 
Of course the likes of Jean-Claude Trichet don't believe this. But then when I bumped into him yesterday all he could say was "Aw gawsh, Mickey, what a mess!!"

And that was before Lagarde's appointment was confirmed by the IMF - the kind of job Trichet will soon be looking for himself if he can keep his remaining credibility intact until November when he'll be succeeded by Mario Draghi.