Tuesday, February 9, 2010

Berlin to Lead Greece Rescue; How Tough Will the Love Be?

Markets in the United States and Europe rallied today on reports that German Chancellor Angela Merkel's government has finally accepted that it will have to lead a rescue of Greece, according to reports. Financial Times says Germany will seek to build a "firewall" around Greece, so that country's disastrous finances won't contaminate other weak EU states, such as Spain and Portugal. It is not known yet if the assistance will come bilaterally (directly from Berlin to Athens) or if it'll be an EU package.

My question is whether the firewall plan will come with enough strings attached to make Greece play by adult rules when it comes to government spending. In a separate report in yesterday's FT, "Halcyon no More," the paper gives a great in-depth look at how Greece has been a financial house of cards for decades, a disaster waiting to happen. And unlike in the United States, where our current troubles were brewed by private investment run amok, in Greece the culprit was successive governments that bought their popularity at the cost of future prosperity.

When you read reports that Greek public sector unions were going on strike against "austerity plans" that only would have frozen wages and hiring -- i.e., not reduced staffing, not reduced bloated benefits -- then one has to wonder why anyone would want to help them out until they come back to reality. After all, why should other EU citizens, who have had their wages cut or their jobs destroyed, pay to keep radical Greek unions from facing reality?

We'll know in a little while what Berlin plans. But now would be a good time to play to German stereotype and be very detail-oriented and specific in the changes required of Greece to pull its rear end out of the fire.

UPDATE: When I wrote the above, I was working with the knowledge I had gotten from earlier reports that the Greek government was planning freezes but not cuts. According to a report in the Los Angeles Times today, Greece does plan cuts. I think the criticism still stands, though; everyone else in Europe faces cuts, so why should Greece's overpaid unions be sacred? One union member tells the Times, "It can't be that civil servants pay for the mistakes of past governments." But in fact, yes the civil servants should, because if you'll read the "Halcyon" article linked above, you'll see that the civil servants and others on the Greek government gravy train have not been innocent bystanders but in fact were the root of the problem. They benefited. Now it's time to pay the piper. Sorry to sound like an unsympathetic hard-nose, but frankly I'm unsympathetic.

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