Historians consider Greece as the source of western civilisation. It has a great history, perhaps the greatest in the world. It is the spring from which democracy, ethics, philosophy, mathematics, rhetoric and, above all, logic came forth into our lives.
Socrates, Plato and Aristotle played vital and pivotal roles. They were the pedagogues. They were the discussants. They were the propagators of these intellectual contributions.
Socrates was a noteworthy mentor.
Greece has disowned its debt a second time. It knows how to keep its creditors at bay. It has wriggled out of its debt and will continue to do this. Greece's philosophical debt to Socrates will continue to rise while its euro debt to its creditors will be written off.
Brazen borrower
Greece has taught the world how a brazen borrower in default could win the goodwill of the world. The world's principal advocates of probity, propriety and productivity have blessed this deal. Without paying off a cent of its mountainous debt, Greek has impressed a very stern set of standard-setters of the western world.
Ingenious Greece has brought decorum and dignity to default. It has more friends than Germany has. Greece has a history of fiscal profligacy. It has a serious fiscal impairment. It has been grappling with sovereign debt of a very large magnitude for over 14 years. Its debt has exceeded its gross domestic output (GDP) in 11 of these 14 years.
Greece has fought no wars in self-defence. It has not saved lives in the aftermath of an epidemic, a cyclone, an earthquake or a tsunami. It has merely borrowed from the sovereign bond markets to pamper its internal elite.
When the bonds came up for redemption in May 2010, Greece put its hands up and sought a deal. The ingenuous world delivered a deal. The ingenuous world has delivered one more deal. Greece knows how to get away with unpaid debt.
Vicious, slippery deal
Greece's most recent deal with its creditors — old and new — has three components. The first component is the most vicious. It involves the ‘volitional' writing down by its old creditors. Private holders of debt will lose at least 53.5 per cent of their assets. The write-down has a magnitude of €107 billion. French and German banks will lose about €29 billion.
The second component comprises a loan of €130 billion at a very low, out-of-the market interest rate. This loan will enable Greece to make payments to those creditors that could not be compelled to accept a volitional write-down.
The third component requires Greece to implement austerity measures that will bring down spending, including payouts to pensioners. Austerity is the most slippery part. First, it costs Greece nothing to make a promise. Second, any future government — most likely a coalition — in power in Greece could claim that angry protestors from within would make it make most dangerous to implement the spending cuts.
Greece's trade unions and pensioners have been protesting against the spending cuts. They have marched through central Athens. They have torched buildings and cars. It will not take long for the law-enforcing riot police to shift their loyalties to the protestors. Greece's leaders will have the perfect shield and the most acceptable excuse to defer implementing the austerity programmes.
A sapped society
Greece's long-term social stability does not stir optimism. It faces spiralling unemployment. More than 20 per cent of the employable were unemployed at the end of 2011. Greece is in its fifth year of recession.
The young and the employable have shifted their human capital outside Greece. The well-to-do and the entrepreneurial have shifted their financial capital outside Greece.
There is no miracle waiting to sweep through Greece. The slippery deal requires Greece to cut its fiscal deficit to 120 per cent of its GDP by 2020. In the eight years from now, Greece will progressively become a doddering society. It has a median age of 42.2 years now. Its fertility is merely 1.37. With a bleak economy set in an angry society, the fertility rate could drop further, say, to 1.25. The median age could rise to 45 years.
Greece's GDP will not rise in a hurry. There will be fewer taxpayers. There will be more pensioners. The fiscal deficits will rise. Moreover, with shrinking GDP, the deficit will turn uglier. Keynesians will then urge Greece's political leaders and fiscal managers to put off most of the austerity programmes.
Feckless deals
Greece has merely postponed its default. The sacrifices made by its private creditors will count for nothing. Their volitional write-downs were not volitional. The volitional write-downs have turned off private capital.
Greece should have defaulted with grace and honesty. The sellers of credit default swaps would have then compensated its lenders. Foreign bondholders such as Commerzbank, Credit Agricole, BNP Paribas and Societe Generale would have not had to take in the big losses.
Greece has a strong services economy that could have turned around in less than two years. Fishing, food and beverages, tourism, seaports and shipping would have responded to private capital. This would have set off a virtuous cycle of employment, taxes and higher GDP.
The public sector accounts for over 38 per cent of Greece's economy and is a drag on the economy. Private lenders and investors could have revitalised its economic future. Private debt and private equity could have lifted its economy and society rapidly. Greece has chosen otherwise.
(The author is a financial analyst. )