Time For Europe To Cut Its Losses

George Yacik - INO.com Contributor - Fed & Interest Rates

One of the most exasperating novels I've ever read is Of Human Bondage by W. Somerset Maugham. The "hero" of the novel, Philip Carey, is hopelessly infatuated with Mildred Rogers, an unattractive, sickly, boorish shop girl several social rungs lower than himself. She takes horrible advantage of the good-natured generosity and sincerity of Carey, who time after time bails Mildred out of one self-created problem after another, only to be kicked in the pants (figuratively, of course) for his trouble and good intentions. And yet he continually comes back for more.

While you're reading the book (or watching one of the movies based on it), you keep asking yourself: When the heck is Carey ever going to wake up and smell the coffee?

Does this sound like any current European crisis you may have read about recently in the financial media?

On Sunday Greeks voted overwhelmingly, by more than a 6-to-4 margin, to kick their creditors in the pants yet again, only to have their lenders huddle up and try to come up with a plan to shovel even more money to Athens.

I seem to remember pretty much the same thing happening a few years ago. Greece couldn't pay back its astronomical debt load, promised to behave, won a lot of debt forgiveness, and got new loans to replace the old ones. Now here we are with Greece owing even more money, which, of course, it's unable to pay back.

The only difference now is that the Greeks are telling their lenders beforehand that they're not even going to go through the pretense of agreeing to abide by any rules (i.e., austerity measures) the lenders may set as a precondition for getting more money. Yet their creditors are busily trying to find a way to accommodate Athens.

It was Albert Einstein himself who came up with this definition of insanity: Doing the same thing over and over again and expecting a different result.

Yet, it doesn't take an Einstein to figure out how to fix this once and for all. At some point, you have to bite the bullet and cut your losses and move on. Governments – including ours – have blown a lot more money on other things and had nothing to show for it. This is no different.

A good friend of mine, let's call her Mary, was approached for a loan a few years back by her nere-do-well brother who had fallen on hard times (yet again). Needless to say, he failed to pay back that loan and came back looking for another one. Mary told him no, and she hasn't heard from him since. She lost some money, but she's happy.

But the Einsteins who run European finances haven't yet come to this conclusion. Maybe they need Mary to help them.

Indeed, rather than have a group of European statesmen (and women) trying to figure this out, maybe they should put together a representative group of people off the streets of Berlin, Paris and the capitals of the other Eurozone countries and try to iron this out. I'll bet the issue would be solved before they broke for lunch, if not for mid-morning coffee.

In last Sunday's vote, the Greek people (or at least 60% or so of them) told the rest of Europe to stuff it. It's about time for the rest of Europe to take the Greeks at their word and kick them out of the Eurozone since that's basically what the Greeks are daring them to do.

The question is, will the rest of Europe have the stomach to do it?

The initial reaction from Berlin and Paris isn't very promising on this score. They stand ready to "negotiate" with Greece on another deal, even though Greece has spoken loud and clear that it doesn't intend to make a deal other than on its own terms. If they do come up with some kind of deal, rest assured we will be back here again a few years from now when Greece can't make the payments on its even larger debt load.

Yes, Greece owes a lot of money: About 380 billion euros, or about $340 billion. The issue is serious, and there will be a big mess to clean up afterwards, but the vast majority of it will be Greece's problem, nobody else's.

I'm not sure exactly what the rest of the Eurozone is afraid of. They have a remarkably strong currency that all of the problems with Greece have been unable to wreck. Losing Greece can only make it stronger, not weaker. It's time to move on.

Spoiler alert: Eventually, Philip Carey does eventually give up on Mildred, meet a wonderful woman – not the woman of his dreams, perhaps, but a loving one all the same – who bears him several children and they live happily ever after. But sometimes you have to go with your head, not your heart.

Visit back to read my next article!

George Yacik
INO.com Contributor - Fed & Interest Rates

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

7 thoughts on “Time For Europe To Cut Its Losses

  1. My guess would be that Europe does not want to deal with the credit default swaps that will be in play when the debt is not paid back.

  2. A lesson in Greek Economy

    It is a slow day in a little Greek Village. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.

    On this particular day a rich German tourist is driving through the village, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.

    The owner gives him some keys and, as soon as the visitor has walked upstairs,
    the hotelier grabs the €100 note and runs next door to pay his debt to the butcher.
    The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer.
    The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel.
    The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the taverna.
    The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him "services" on credit.
    The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note.
    The hotel proprietor then places the €100 note back on the counter so the rich traveller will not suspect anything.

    At that moment the traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town.
    No one produced anything.
    No one earned anything.
    However, the whole village is now out of debt and looking to the future with a lot more optimism.

    And that, Ladies and Gentlemen, is how the Greeks will pay off their Euro zone debts.

  3. Europe wouldn't still be offering to throw yet more good money after bad unless there was something in it for them. Something big. Otherwise, it would be a case of the dumbest SOBs rising to the top of the European financial elite, and somehow, I don't think that's the case. I don't know, but suspect, that there has been a lot of mutual exploitation here, not just by the Greeks, and both sides are still trying to come out on top.

  4. We were chatting about this Sunday afternoon as the results came in, my son-in-law suggested, astutely, that if they put a supermarket chain executive in charge of Greece, they would get the place cleaned up in a couple of years.

  5. Excuse me, but the Greeks don't want to be kicked out of the Eurozone, that's why there was such acrimony over the vote itself. They want a re-structuring with their creditors who've been kicking them in the balls for the last 5 years with nothing to show for it but suffering and degradation.

    In case you forgot, it was Germany who asked for the same bit of financial mercy when it asked for debt forgiveness after the end of World War 2 and GOT IT!

    If the Greeks left the Eurozone they would ultimately still be in a better position then now because they'd have their financial sovereignty back just like Iceland did when they told the Brits and other creditors in 2008 to go to hell when they were telling Iceland they had to pay back their debts.

    The Greeks were seduced into joining the Euro and then they were rewarded by being encouraged to go into debt to buy largely German exports with German loans while killing their own productive capacity in the process and surprise, surprise the whole thing collapsed.

    The Europeans are just as much if not more to blame for this calamity then the Greeks are but it's easier to spin it as being due to lazy Greek bastards, so let's go with that narrative.

    The Euro will collapse regardless of Greece, it was an ill-conceived notion from the start.

    1. God forbid anyone should ever have to pay back their debts, right? Everyone should just run up their credit cards and then some, then say screw you to everyone. Try running your own business like that for long, claim that you were "encouraged" and just could not help yourself, and see how it turns out. But of course big govts. do it so you follow by example, that's how it works. The old time Soviet Politburos were good about lying, running up unsustainable bills they never intended to be paid back, and then some. Since then the U.S. and others have perfected the plan, having no intention of ever being solvent. The lies about non existant inflation and more, are part of the delusion.

  6. The Greeks have played the "Trojan Horse" card over and over and over, again! Move on! Quit feeding the PIG.

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