Going Bust in Greece’s Sunshine May Not Be So Bad: Matthew Lynn

George Papandreou
Prime Minister
Hellenic Republic
Megaro Maximou
Irodou Attikou 19
106 74 Athens
Greece

Commentary by Matthew Lynn
March 23 (Bloomberg) -- Dear George:
I’m sorry I haven’t stopped by for a while. I was thinking of taking the kids to one of your lovely islands over Easter.
But, as you may have noticed, the British krona, as we now refer to the pound out of solidarity with our Icelandic friends, is one of the few currencies even weaker than yours. That may change if you ever have to print shiny, new drachmas, but until then we’ll be holidaying in Cornwall, rather than Rhodes.
And so, completely unsolicited, I thought I should drop you a quick note on how to fix the Greek crisis. This, as is sometimes the case in life, is a moment for supreme selfishness.
Greece is in a fix. What you need to do is start thinking outside the box. And you have to remember that a nation always has cards it can play, even when it’s in a financial hole.
Forget all that stuff about European solidarity. It’s fine for an election year in France. But between serious men, we can surely agree that the national interest is all that counts. And, right now, salvaging the credibility of the euro is hardly what Greece needs.

Stir Up Germans

So, the first thing you must do is antagonize the Germans some more. It’s never too hard. After all, let’s be honest, they aren’t exactly famous for their sense of humor. Some of your colleagues have already had a pop at the Nazis, and that’s always a good start. But, hey, what about World War I? They didn’t exactly cover themselves in glory in that one. And let’s not forget those Goths. Didn’t they rampage through Greece before sacking Rome?
Anyway, the point is to get our German friends so worked up that they refuse a bailout. That’s right -- refuse. A German bailout is the last thing you need. Just think of the last country they rescued: the old German Democratic Republic. The place was a basket case for a generation. If that’s what they did to their own people, think what they’ll do to Greece.

Enjoy Greek Sunshine

It will be years of grinding deflation. They’ll impose strict budget limits, clamp down on corruption, and get everyone working until they are 75. Who needs it? If that’s what they want in Stuttgart or Hamburg, that’s their business. It’s hardly the Greek way of doing things. What’s the point of all that sunshine if there isn’t time to enjoy it? So, that’s what you do. Get them so peeved that a rescue is politically impossible.
Next step, default on your debts. That’s right, default.
Just ask yourself, what’s stopping you? Tell the bondholders you don’t have enough money, offer them 50 cents on the euro, and tell them to go hassle the guys in Dubai instead. What are they going to do? Invade? Sure, Italian, Spanish and Portuguese bond yields will soar as investors realize euro membership doesn’t mean debts are guaranteed. But why should you care about that?
This is about selfishness, remember. How they deal with the bond markets is their problem. As for the yield on your debt, well, if you’ve defaulted on it, that hardly matters, does it?
True, there will be a nasty hit for the banks when they realize all those Greek bonds they bought aren’t worth anything.
But, hey, they’re mostly French, German and U.K. banks. Let their governments pick up the tab for saving them again.

Work the Phones

Now, of course, there’s a problem. How are you going to fund that government deficit, that trade deficit, and a few other deficits that have been conveniently stashed behind a sofa over at the Finance Ministry? This is where it gets interesting.
Here’s what you do. Work the phones.
Your first call should be to that nice Mr. Putin over in Moscow. Those guys have been angling for a port on the Mediterranean since the days of the czars, and, as we all know, Putin is certainly a traditionalist when it comes to foreign policy. You don’t have to promise him anything exactly. Just make the point that with the oil price back around $80 there must be a few spare billion knocking around the Kremlin. Perhaps they could help out with some emergency funding. For which you would, of course, be extremely grateful. Not to say, indebted.
Make sure your press guys tape the call. And make sure they get it on CNN pronto.

IMF Aid

Your next call should be to Mr. Obama. Things are hardly going so great in Washington that turning Greece into a Russian satellite will look good in the history books. Before you can say feta cheese, the International Monetary Fund boys and girls will have packed their shades and sun cream and flown to Athens with promises of unlimited bilateral aid. They’ll bail you out, without all the tiresome restrictions the Germans and the European Central Bank would impose.
Think about it. You’ll get the best of all possible worlds.
You can default on all the debt you ran up in the last decade.
You can keep the euro, which means Greeks can still swank around the place with a hard currency. And you can carry on living way beyond your means, just like in the good old days.
Oh, and it will be a while before Ms. Merkel will lecture you on austerity. With that done, you can relax over a small plate of olives, and a glass or two of ouzo. And I look forward to seeing you again one day. Except it might be a while before the British krona recovers.
(Matthew Lynn is a Bloomberg News columnist. The opinions expressed are his own.)

FT.com

By Quentin Peel in Berlin
Published: March 23 2010 12:46 | Last updated: March 23 2010 12:46

Germany has set out three fundamental preconditions for any rescue package for Greece, including involvement of the International Monetary Fund, and a commitment by its European Union partners to tough new rules to control public debt and deficits in the eurozone – including necessary EU treaty changes.A senior government official in Berlin said there would be no agreement at this week’s EU summit on a specific rescue package for the debt-strapped Greek government.

If there were to be agreement on a “mechanism” to provide such assistance, he said, it could only be triggered once Greece had exhausted its capacity to raise money on the international capital markets; the IMF had agreed to make a “substantial contribution” to a rescue package; and the EU members has agreed to negotiate new rules to prevent any reoccurrence of such a debt crisis.The German position was revealed in response to growing pressure from the European Commission, and other EU member states, to reach agreement on the mechanics of a rescue package for Greece at the European Council meeting on Thursday and Friday.

In an interview with the FT on Monday, José Manuel Barroso, Commission president, said rapid agreement was needed to reassure financial markets, and ensure the stability of the euro. He expressed confidence that Angela Merkel, the German chancellor, would back a deal as a “committed European”.The German response is that the government in Berlin is “negotiating in the European interest, and demonstrating our commitment to Europe in defending the stability of the euro”, the official said.A negotiation (on help for Greece) should only come as a “last resort”, he said, and only happen subject to the three conditions.

The German demand that could meet the most resistance from its EU partners is the insistence that new rules to enforce budget discipline should be negotiated, even if that requires treaty changes. Both France and the UK are passionately opposed to any such suggestion of reopening treaty negotiations.“We must draw the consequences for the future, with the goal of agreeing more effective sanctions and prevention measures against excessive indebtedness, [even if] that should include a treaty change,” the senior official said, speaking on condition of anonymity.Involvement of the IMF in a Greek rescue package is a much more open debate inside
the union, with Mr Barroso himself expressing no objection, provided that any Greek rescue is led by Europe.

There have been clear divisions within Germany on the question, but advisers to Ms Merkel seem to have won the day in a fierce debate with Wolfgang Schäuble, finance minister, and his staff, who opposed bringing in the fund. Although Germany has appeared increasingly isolated in the EU in holding out against any formal rescue package for Greece, there seems no prospect of any deal being agreed without Berlin’s agreement.It might still be possible to agree a first step of a deal this week – setting out the conditions under which an emergency rescue would be launched – but without any direct connection to the Greek crisis, and only if it does not imply that any rescue would be automatic, according to the German view.