by Austin Bay
December 31, 2012
As 2012 ends, the Greek debt crisis continues. In December, the Greek government began restructuring its debt for the second time this year.
"Restructuring" may sound clean and clinical. It isn't. Greece couldn't meet its debt payment requirements, so its lenders agreed to a new repayment schedule.
Occasionally, the term "selective default" appears when restructuring occurs. Finance ministers and treasury secretaries will tell you the term is just credit rating agency lingo, which Wall Street understands, so don't let it scare you. In fact, Greek Finance Minister Evangelos Venizelos said exactly that right after Greece began restructuring. "The word selective default scares without reason. It is not a real event; it is not default."
But if you live on Main Street, and work on Main Street, and pay bills on Main Street, and know that one plus one equals two on Main Street, and ultimately the basic math is the same on Wall Street and in Athens, as well, you might not share the finance minister's confident assurance. Selective default means some lenders get paid now, others later and other others still later. Maybe. For the creditors at the end of the line, and that's usually those who lack the political clout to get paid first, all they've got is a promise.
J. Wellington Wimpy — the gluttonous, globular straight man who appears in old Popeye the Sailor cartoons — is a character from another entertainment era, the 1930s. That decade, however, has resonance for 21st century Greece, the Eurozone and every other nation currently engaged in racking up debt: The 1930s were the worst years of the Great Depression. Wimpy loves hamburgers, an amour that leads to his signature line, "I'll gladly pay you Tuesday for a hamburger today."
The line, a diner's hustle, neatly captures the risk of lending to any individual or national entity who spends loaned money to pay for immediate needs. Wimpy eats his burger today. Then comes Tuesday, goodness, he's hungry again. "Shall we," a not-so-theoretical 21st century Wimpy asks, so sincerely, "restructure the debt? Until next Tuesday? And I'll need to eat, in order to survive, so that I can pay you. So ..."
Greece isn't a cartoon; it's a tragedy. The people of Greece have suffered, are suffering and, unfortunately, will continue to suffer. Their suffering could get much worse.
Extremist political leaders prey on understandable public anger. Violent protests plague Greek cities. Terrorist threats, made in the name of economic justice and national identity, are daily fare. Old-line communists, still active in Greek labor unions, have made political gains. Greece now sports its own neo-Nazi party. Greek Nazis advocate socialist economic populism and Greek ultra-nationalism — in other words, national socialism. The Nazis took power in Depression-ridden Germany. Unlike Wimpy, they weren't conning diners for hamburger money.
The Greek people, however, also bear the major burden of responsibility for their ongoing tragedy. Greek governments, repeatedly, cooked the books when they reported their annual deficits to fellow Eurozone members. Greek governments repeatedly violated fiscal agreements and borrowed money they could not repay. In other words, they flat lied. Greek voters elected the governments and, like Wimpy, enjoyed the immediate benefits. Basic math, and time, has exposed the lies as the hot air they were.
Main Street knows the truth: Greek debt is unsustainable. Based on gross domestic product, resources and work ethic, America isn't as deeply in debt as Greece. However, America's own structural debt is the biggest strategic threat the U.S. faces. It is already eroding America's military power. Soft power advocates had better pay attention. The debt is also eroding America's economic, diplomatic and cultural power to influence and persuade.
Last week, Standard and Poor's credit analysts raised Greece's debt rating to a B-minus. S&P concluded that the latest restructuring effort, combined with more budget cuts (austerity) and the arrival of about $49 billion euros in credit, meant that Greece was no longer in "selective default." At least for a while.
The Greek government touted the ratings boost as an encouraging sign. And it is — at least, until next Tuesday.