David Horowitz

The Greek Crisis and the Reactionary Left

Posted on May 7 2010 11:48 am
David Horowitz is the editor-in-chief of NewsReal Blog and FrontPage Magazine. He is the President and CEO of the David Horowitz Freedom Center. His most recent book is Reforming Our Universities
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I put this question to my investor friend, whom I’ll call Angel Ware, about the situation in Europe:

Any insights into the ramifications of the Greek crisis?

Here is his answer:

“Well, it depends. The first question is whether or not the EU (i.e.   Germany) will successfully be able to bail out the Greeks. There are  some significant forces conspiring to screw this up. 1. The Greek people  and their massive sense of entitlement. Even the threat of an austerity program has caused deadly riots and crippling strikes (including the  internal revenue department going on strike). 2. The German people and their sense of fairness. The retirement age in Greece (as subsidized by  the government) is 54. The retirement age in Germany is 67. You can imagine that bailing out the Greeks, so that they can preserve their retirement plan is not something that sits well with the German people. So, the EU & the IMF have temporarily stopped the bleeding, but will they be able to save Greece? Most people seem to be betting against that. Given that the Republicans have made major hay railing against the contagion stopping bailouts in the US (despite the fact that most were initiated by a Republican president), it’s hard to imagine that any politician will be able to sell contagion stopping bailouts of foreign countries.

The problem with Greece failing isn’t Greece (they are actually a very small economy). The problem is, as I alluded to above, contagion. It  turns out that Greece is hardly the only socialist country in Europe who has been funding massive social programs via massive debt. Specifically, if the bond market learns that the EU does not have the political will to bail out tiny Greece, then it follows that the EU will not have the political will to bail out the larger Countries (Spain being the scariest). As a result, the world may stop buying Spanish bonds. If the Spanish can’t sell massive amounts of new debt, they too will default. If Spain defaults, it’s virtually guaranteed that Portugal, Italy, and Ireland will default in short order. If that happens, all of these countries are the primary lenders to Eastern Europe, so look for a rash of defaults there too. If that happens, the UK is in deep trouble. If that happens, the US may be in serious trouble — if you thought the Lehman failure sucked, just wait for the Barclay’s and the Royal Bank of Scotland to fail as a result of the UK failing.

Now, the good news is that there is plenty of time between here and there for governments to get their acts together and keep the game alive (the game being that people buy bonds from countries with bad balance sheets due to the implication that they will be bailed out by larger governments with bad, but larger and better balance sheets). However, it could get considerably uglier. The other thing to keep in mind is that the last time that large European countries defaulted and couldn’t pay for their social programs, Hitler rose to power and we had WWII.”

Well, there’s a happy thought. It may turn out that the greatest tragedy of the 21st Century is that people failed to learn the lessons of the 20th. But then what else is new?

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