Worstall @ the Weekend As I write we've just got the latest news that Greece has been saved from default, bankruptcy, being thrown out of the euro and everything is going to be lovely for The Men Without Ties. Which is, of course, lovely, but there really wasn't quite as much to worry about as people seemed to think.
It could, obviously, all have gone horribly wrong at some point through misunderstanding or simple stupidity. But the basic truth is that Greece can pay off those debts – and has been able to for some time now. It's also not austerity, or even fiscal policy, that is at the heart of the country's problems, but rather the insanity that is the euro and the associated monstrous monetary policy that goes with it.
Now this bloke is being a bit hopeful in his estimations of the size of the Greek debt:
High in a Morgan Stanley office tower, Paul B. Kazarian, one of the largest holders of Greek government bonds, was recently trying to persuade a room full of investors that Greece’s debt load of €318bn was actually a tenth that size. When you use international accounting standards, he declared, “it reduces the value of the debt”.
Well, it's an interesting take on it – but no, not really. However, it is true that the debt burden isn't nearly as oppressive as most seem to think.
For it was largely cleaned up in the two previous bailouts the government has had over that very same debt. In the first one, the private sector bondholders got shafted to the tune of 70 per cent of their holdings and told to take much longer dated paper for the remainder. In the second, most of the remaining debt went to the balance sheets of the European Central Bank, the International Monetary Fund and the other Eurozone governments: and maturities and interest rates were changed once again.
Debt: It's not about how much you owe...
The important point is that debt has nothing at all to do with the total amount that is owed. Rather, the two important things are: when do you have to pay it back and what is the interest rate until you do? So, we can look at the total debt burden, note that it's 175 per cent of GDP (anything above 120 per cent is normally thought of as being impossible to pay back) and say: "Sure, they're being screwed by that burden." But the maturities on most of it are out at 30 and 40 years. They've had an interest holiday for most of a decade and rates are in the one and two per cent range anyway.
It's a little like that benefits chaser being told to pay a court fine at £1 a week for the next 172 years. Sure, the total debt is vast compared to their income. But the effect of the debt upon their income ain't.
There's no doubt that Greece earning enough to pay back that debt would be painful in some senses. But there's also little doubt, given the concessionary terms on offer, that it could be done.
Don't blame bankers for this one
One other thing: this has sod all to do with “bankers” by the way. They all got bought out in the first two rounds of restructuring. This money is near all owed to the taxpayers of other eurozone nations. There are no plutocratic top hats to be screwed to solve the problem. Either the Greeks stump up the taxes over the decades to pay it off or the taxpayers of Germany, Portugal, Spain and the rest lose money that has been “invested” in Greek debt on their behalf.
But do note the important point here: the debt burden itself has already been solved by changing those maturities and interest rates.
Which brings us to the point of, well, if it's not the debt then what has cratered the Greek economy? And the answer there is that it's not actually austerity, even if that is the the thing that makes Owen Jones cry. It is, quite simply, the idiocy of the euro itself.
Yes, I know, I'm Ukip, I'm not unbiased here, I actually think the EU itself is a bad idea, let alone our membership in it. However, I reached that view as a result of looking at the euro.
The standard theory about currencies depends upon “optimal currency areas”. If the roughly hundred thousand people of Bath all used different currencies, then things like trade and exchange would be rather difficult. But at the other end there are also certain inflexibilities that come with having one currency for the entire world. For one currency means one monetary and interest rate policy. And different parts of the world differ enough that they will require different monetary and interest rate policies. Optimal is thus obviously referring to what is the best point, that Goldilocks position, where we've got the best of the exchange part with the least of the rigidity part.
And the thing is the optimal area isn't actually all that large. Because you do have to have that same monetary policy right over your currency range. It's often asserted, for example, that Britain is too large to be an optimal currency area. The interest rates needed to choke off southern property speculation are too high for the manufacturing industries of the north. Now the size of that optimal area can be changed: an integrated fiscal policy will make the optimal area larger for example. There really is a large amount of cash that flows from the south to the north in the UK and this is, in part at least, making up for the manner in which it's too large an area to be a good single currency.
There's others who insist that the US has only become an optimal currency area in the past 30 years or so - it being the growth of the federal government that has made it so. Pre-WWII, the Feds were really pretty piddly in size compared to the States. Now that they're much more important, that has increased the centralisation of fiscal policy, making it the same countrywide, and thus improved the optimality of that currency area.