A lesson for Malaysia: Free ride please, we’re Greek

Achilles, during the war with Troy, took off his armour and refused to fight. This was because of a perceived slight by Agamemnon who was the King of the Greeks. Such titles, of course, meant little to Achilles who fought not for Kings, but for his own glory and honor.

The war went badly for the Greeks without Achilles for he was not only a warrior who could not be defeated, but also a source of inspiration to them. It was not until Hector, the Troy prince, killed Achilles cousin Patroclus, that Achilles would return to batlle, and with vengeance in his heart.

What Achilles would say about the Greek leaders of today, who, armed now with begging bowls, turn alternately from their private creditors to the IMF(International Monetary Fund) and the ECB(European Central Bank), is unlikely to be complimentary. Greece got into difficulties because it kept growing its deficit over the years. Greeks were simply spending more than they were earning.

Public employees refused to countenance any form of wage reductions. And Greece was not improving productivity nor able to find a radical solution to the inevitable crunch that had to come.

Greece’s politicians lacked the moral courage or leadership to confront their voters. Very much like what is happening here in Malaysia under Prime Minister Najib Razak's administration!

Lack of discipline

Byron, a great proponent of Greek freedom at a time when they were under the Ottoman empire, wrote several inspiring works on Greece, including :

The mountains look on Marathon
And Marathon looks on the sea;
And musing there an hour alone,
I dream'd that Greece might still be free

He would have done as well to teach them their sums, before expiring, on his way to attack a Turkish-held fort at the mouth of the Gulf of Corinth, in 1824.

And so we are at this situation the Greek debt crisis has turned into the European Financial Crisis. The economies of Spain and Italy, also with their own problems, are now viewed as the next possible defaulters. Ireland and Portugal had embraced austerity programs but it did not stop Standard & Poors from reducing Portugal’s ratings to junk bonds.

Recent bond sales by Italy and Portugal have been successful but it is clear that the ECB is among the buyers as well as local Italian Banks who are using funds borrowed from the ECB! It is not clear how long these strange houses of cards will hold.

In any event, to return to Greece, they have ended an inconclusive discussion with their private creditors who are being asked to accept a 70% haircut on their loans. And even this will not be able to put Greece in a sustainable debt position!

Compelled haircuts

Disturbingly, the Greek Prime Minister threatened to use legislation to force lenders to agree to Greek terms. This was followed the Dutch Finance Minister who threatened that haircuts need not be voluntary! Now, why would anybody want to lend to the peripheral European governments after this?

In fact, lenders are quite happy to let Greece default, as this would trigger credit default swaps, essentially insurance, which would allow them to be paid in full. They only hesitate because of the fear of contagion to other countries in Europe to whom they are also lenders.

The situation is indeed a tricky one.

And what should the Greeks do?

Attack Troy.

War usually boosts the economy.

Though the Greeks will probably lose this time.

They lack an Achilles.

Malaysia Chronicle