Greek Bail-Out Destined To Fail

Now that the collosal bail-out of Greece has been enacted, it's time to take a step back to analyze both the prospect for success and examine the appropriate remedies. 

As has been written in Marko's Take numerous times, the problem with Greece is its system.  The problems in Athens were decades in the making and can NOT be fixed by throwing around a few measley hundred billion dollars.

Greece suffers from an entitled population that has been coddled by the promises of socialist governments - allowing the people to expect to be taken care of.  The problem with that reasoning is that the more people who are recipients of the government dole, the less productive they become.  The people who are pulling the cart are taxed into oblivion and eventually wonder why they should be made to support the corrupt and lazy.

Greece is known for its corruption.  It has a very high proportion of it work force employed by the government.  Many government employees have been given lavish early retirement packages. 

The rather modest budget cuts will NOT fix the problem.  The only impact of these cuts in the short run will be to remove stimulus from the economy and facilitate a further downward spiral.  Greece has one of the largest deficits as a proportion of Gross Domestic Product (GDP) in the world.   Unless the economy grows, this will only grow worse. 

The formula applied to Greece is hardly novel.  The identical remedies were tried with Argentina in 2001, which suffered the world's largest debt default in 2001.  They failed.  According to Cristina Fernandez, Argentina's President, the bail-out repeated "the same recipes they applied to us, which provoked what happened in 2001". 

Argentina, as an IMF member, voted for the Greek bail-out, but “critically”, Ms Fernández said, adding that the enforced austerity will have “terrible consequences” on the economy.

In the 1990s, Argentina was a devotee of the pro-market Washington Consensus and pegged the Peso to the Dollar.  But it racked up debt and its economy crashed.  Argentina savagely devalued its currency and became a pariah on international financial markets.

Speaking at an event on Monday night to refinance debt for Argentina’s provinces, Ms Fernández defended the demand-driven economic model, which has delivered several years of high growth, championed by her husband, Néstor Kirchner, in his 2003-07 government and which she has continued since.

The long-term solution for Greece is a complete overhaul of its economy and changing the mind-set of the population.  This will be no easier there than here in the United States, where out-of-control social programs like Social Security and Medicare threaten to bankrupt us.  Socialism has NEVER worked and NEVER will.

Only a return to a market-driven model, after a period of austerity, can possibly return Athens to a positive trajectory.  Let's hope that Greece gets the message, the rest of the Euro-Zone gets the message and American gets the message.  If we don't, we will suffer the same fate as Greece.

Marko's Take

Please visit us on You Tube at http://www.youtube.com/markostaketv.   Our lastest video, on that Ponzi Scheme also referred to as Social Security, can be accessed by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI.   Our 7-step solution to this mess will be uploaded shortly.