Time for common sense on Greece

27 Jun 2011

I am not normally a fan of the Wall Street Journal because as a general rule its reporting is deeply biased towards its Republic readership. What effect does that have? It means journalists pander to the opinions of their readers instead of challenging their readers egos with reality. However, the Wall Street Journal is changing. Rupert Murdoch, owner of the paper, has found that journalistic bias creates a vicious circle of ever more improbable deception, eventually the reporting gets so absurd that viewers start waking up and walking away, and this paradox has done a great deal of financial damage to Fox News.

As a result of this phenomena, Murdoch is reforming many of his publications by introducing a greater degree of honesty, and his coverage of the Greek crisis is an especially obvious example of the changed mood. For emotional reasons connected with the love of liberty Republicans like to think of the Euro as unworkable, and the idea that Greece cannot possibly pay its debts and would be better off leaving the Eurozone is a very appealing to them. Until recently the Wall Street Journal pandered to these prejudices by encouraging certain myths, but they are now reversing course. Today we have this sober and sensible article which appears in edited form below:

Don't Believe These Greek Myths, Simon Nixon, The Wall Street Journal

As the Greek turmoil swirls, some commonly held Greek myths are worth debunking:

1. Greece is insolvent. No, it isn't. Greece has plenty of assets and huge potential to cut spending, increase tax collection and improve productivity if it is willing to make sacrifices. Rather than solvency, Greece's challenge is whether the changes required are politically possible. In other words, Greece is facing what is called a "solvency crisis" rather than a "liquidity crisis", and bankruptcy is inevitable unless Greece undertakes profound and painful structural reforms, or European neighbours gift Greece large quantities of cash.

2. It is in Greece's interest to default. Hardly. The country is still running a large primary deficit, so if external borrowing is cut off by default, Greece would face huge instantaneous spending cuts an order of magnitude more severe than the current austerity program. Worse, the Greek banking system would collapse as its capital was wiped out and its funding dried up. It would depend on how much help European neighbours offered in the aftermath, but Greek default at this time would probably be catastrophic for Greece.

3. It is in European interests to let Greece default. Not at all. The problem with Greek default is not so much the first-order effects on banks outside Greece with direct Greek exposure, but the potentially Lehmans like second-order contagion effects on governments and banks across Europe. Greek default would also inflict very large losses on European taxpayers outside Greece, because, for example, Greek Banks have borrowed large sums from the European Central Bank secured by Greek government bonds.

4. You can't keep kicking the can down the road. Yes you can. Time is a great healer. Even if a Greek default becomes unavoidable, there are good reasons to delay it both for the sake of Europe and Greece. The euro zone ideally needs to avoid any defaults until countries like Spain and Italy manage to grow their way out of the danger zone. For Greece defaulting now while the primary deficit is so large makes no sense at all, it's much better to pass the austerity program in return for more loans, and default in a couple of years time when government finances have been brought under control and it is scheduled to start repaying the loans.

This easy to read, clear and unambiguous article blows apart all the big myths which used to be endlessly repeated at the Wall Street Journal, and are still being endlessly repeated in other newspapers, including even the Financial Times. Only a tiny handful of people today see the crisis in this way, for example, it is very rare for journalists or politicians to talk about the crisis as a problem of unwillingness rather than inability.

Murdoch's revolution of honesty is not just an internal issue, he is also responding to the emerging shift in world opinion which has been developing since the Credit Crisis. Just as incumbent politicians are struggling to understand the new mood, so are incumbent journalists. Murdoch is sensibly playing safe by adopting an open minded stance until the smoke has cleared. The Financial Times is also aware of the changing sentiment and the problem of group thinking incumbent journalists, and it has tried to bring on board more famous commentators, but unfortunately they often turn out to be famous dinosaurs. For example, today the FT ran an article by the famous Republican commentator Martin Feldstein calling default in Greece, Portugal and Spain inevitable.

Although Mr Nixon's article is to be commended, it not really an example of common sense, so much as simple economics. For example, imagine someone going bankrupt. A bank manager might describe his plight in terms in cash flow, he might say "the problem is his monthly outgoings exceed his monthly income, and that's simple economics". Common sense, on the other hand, is the old lady who has never seen his bank statements but sees him drinking champagne regularly, and says "people who work at McDonalds and thirst for Champagne are in trouble". So common sense doesn't require specialist knowledge, and at the same time it goes beyond the mechanics of external circumstances into the psychology and philosophy of life.

There is a famous story of Margaret Thatcher which testifies to her insight into human nature. One day an Irish business man pitched the DeLorean car to the UK government. He had a slick presentation about how many jobs it would bring to the UK, and he wanted the government to give him some land and some money for the project. At the end of the meeting, after he had left, the politicians sat around discussing the proposal and it turned out that everyone was impressed apart from Margaret Thatcher. Why didn't you like it Maggie they asked. Thatcher couldn't put her finger on it, then she said "I just didn't trust the guy, did you see his blow dried hair?" Everyone laughed and they went ahead with the project, but it turned out that Thatcher was right, DeLorean was a crook who stole a lot of money from the UK government.

This story is usually used to testify to Thatcher's feminine intuition, her acute sense of smell which picks up on the psychological layer of life. Common sense is not as subtle as this example, but it too revolves around human nature. I think Warren Buffet is a master of common sense, he often comes out with great folksy one liners such as "When the tide goes out we find out whose not been wearing their swimming trunks". What are some common sense observations on the Greek crisis? Here is a new version of the article:

Don't Believe These Greek Myths, Grandma Nixon, The Old People's Home

My son, stop acting like a snotty nosed child and get a grip. All this stuff you believe about the Greece crisis is a lot poppycock planted there by corrupt journalists and politicians trying to trick you into buying their paper or giving them your vote. So turn off the TV, put down your newpaper, and listen to what your Grandma has to say.

(1) The Greeks are insolvent. Have you seen Greece son? The Brits paid back a bigger debt in the aftermath of the Second World War. They didn't have islands full of multimillion euro homes, they had half burnt cities, hundreds of thousands of dead, and not enough food to feed the living. It's not that the Greeks can't pay you dope, it that they don't want to suffer the pain of paying! You and your modern world, you haven't got the slightest idea of what hardship even means. Compared to the suffering people endured in WW2 the Credit Crisis is a walk in the park for God's sake.

(2) It's in Greece's interest to default. Look kid, it's in everyone's interest to default as long as they don't get punished for it! Why do you think, my dopey grandson, the half dead Brits paid their debts after WW2? Because they were afraid of what the Yankees would do them if they didn't of course. Also, of course, because people had morals back in those days, not liberalism.

(3) The Greek don't deserve this, they should be allowed to default. Do you think WW2 was the fault of the Brits? Of course not but they still had to pay, because someone always has to pay, and they were the unlucky ones it happened to. That's fate, a fact of life your world has conveniently tried to forget. But look kid, Greece is a democracy not a tyranny. The people voted for the politicians who threw money around like water, who let everyone get away with paying no taxes, who lied about a lot of stuff to get into the EU. It's not like the Brits after WW2, it's not just bad luck, THE GREEKS WERE ACTUALLY BAD. Of course they deserve to pay the money back. Not only that kid, but I have been to Portugal, and I can tell you they have a much tougher life than those spoilt in love with themselves Greeks. So if you are going to let the Greeks off, you had better let the poor Portuguese off too; but then everyone is going to claim to be a special case, and pretty soon there will be no money left. So don't throw the book out the window like some modern happy-clappy liberal priest, respect the bloody law and make the Greeks pay.

(4) It's a democracy and we can't make them do anything. You must be kidding. It was a democracy back in 416BC when the Athenians voted to put every man in the state of Melos to death, and enslave all their women and children, simply because the nice people of Melos wanted to be neutral and refused to join Athens in its war against Sparta. But now no one is talking about doing anything unjust to the Greeks, they are just talking about applying the rules of international relations. Look democracy is capable of anything, it can refuse to pay debts, it can steal from its neighbours, it can even kill its neighbours. You can't say just because a country is a democracy it can do anything it likes or the world would collapse! Countries have to play by the rules or get punished. That's why we have armies you nit wit, to stop other countries doing bad things regardless of whether or not they are a democracy. So now the Greeks are trying to break the law and it's time to fight. So put some hair on your chest and stop acting like an appeaser.

That's an example of common sense. It really comes down to one thing beyond all other things, the thing that Simon Nixon doesn't notice but Granny Nixon never moves past. It's all about what the Ancient Greeks called justice; ie about law and order, morality, what is wrong with people, and how they can become better. It's the most obvious thing in the world, the amazing thing is we managed to see the Greek crisis any other way. But that's what human personality does, it believes things for emotional reasons regardless of how true they are. The word wants to believe in freedom and peace and hedonism etc, so it decided to see the Greeks as powerless rather than criminals. But it won't last.

Post script on a personal note: Politicians and journalists who read this kind of article are terrified by the popular harsh tone. When they see German tabloids criticising Greeks it makes them wince, they worry that even if these things are true, it will damage the social cohesion of Europe and tear their beloved utopia apart. But here is a person message for them: My friends, I believe in social cohesion and utopia far more than any of you, I don't write in a violent way to destroy Europe and the world, but to save it. You liberals need to imagine yourself as teachers at school, but not some modern failing comprehensive, rather something tough, austere, successful and upstanding. In our school we don't want to abolish competition like some 1970s ideologue, the best thing that has happened to Europe in years is the rise of Germany. Now good people are proud of Germany, and inspired by Germany; and bad people are jealous of Germany, and terrified of Germany. There are no excuses anymore, everyone can see that Germans are harder working that Greeks, and more intelligent than the Greeks, and it's time for the rotten countries to change. Liberalism is junk, its killed your schools, its killed your social fabric, now its killing your living standards. Stop trying to suppress the pain of evolution, EVOLUTION IS THE ONLY TRUE JOY IN LIFE. Throw your liberal principles out the window and go back to basics. At the end of the day it's about God, the problem is that you have tuned into nihilist atheists with as much moral fibre as Dominique Straus Kahn. God hates the ugly, weak, feckless, stupid Greeks. God loves the beautiful, disciplined, courageous, intelligent Germans. God wants you to make Europe a place befitting him, not a Sodom and Gomorrah cess pit. For God's sake wake up from this liberal nightmare, you have got to realise that the people of Europe are deeply sick and dying, that the clock is ticking and it is five minutes to midnight, it is time for a state of emergency!