“In 2010, the Greek state ceased to be able to service its debt.
Unfortunately, European officials decided to pretend that this problem could be overcome by means of the largest loan in history on condition of fiscal austerity that would, with mathematical precision, shrink the national income from which both new and old loans must be paid. An insolvency problem was thus dealt with as if it were a case of illiquidity.
In other words, Europe adopted the tactics of the least reputable bankers who refuse to acknowledge bad loans, preferring to grant new ones to the insolvent entity so as to pretend that the original loan is performing while extending the bankruptcy into the future.
Nothing more than common sense was required to see that the application of the “extend and pretend” tactic would lead my country to a tragic state. That instead of Greece’s stabilization, Europe was creating the circumstances for a self-reinforcing crisis that undermines the foundations of Europe itself.”
This latest problem is simply another compounding of the original mistaken European dogma. Everyone knew, really, that the Greeks fudged their numbers to be allowed into the Euro project. Those wedded to the idea of European integration wanted them in at any cost, and the Greeks – obviously – wanted in for all the hand-outs that “rebalancing” has entailed and still entails for the failing peripheral economies (typically, the PIGS).
Currently, we have the spectacle of Draghi’s ECB spending well over a trillion euros on what must effectively be worthless government bonds. “Extend and pretend” is right. Aka “kicking the can down the road”. One day, possibly quite soon, it must inevitably unravel. And yet still there are those who urge that we should join this shambles. What are they thinking?