If one were to ask why the Grecian economy is failing, one might sum it up in two words, Goldman Sachs and their use of ‘creative = dishonest’ accounting practices. Goldman Sachs helped Greece hide a huge hole in their financial trousers with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules. They got so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period — to be exchanged back into the original currencies at a later date. It was a special kind of swap with fictional exchange rates. The bond maturities range between 10 and 15 years. Goldman Sachs charged a hefty commission for the deal and sold the swaps on to a Greek bank in 2005. Even should the country manage to survive the current attempt to get Germany to bail them out, they face another financial meltdown when the bonds do mature in 2015 to 2020. Greek is just one aspect of a European model gone awry.
The larger picture involves Europe in general. The so-called European model (which at its very essence is a welfare state) is at the heart of growing financial woes. Europe’s present social model is simply unable to tackle the modern challenges of globalization, and this has left much of the continent with gigantic problems: an un-surmountable public debt, a rapidly ageing population, millions unemployed, and an overall youth unemployment rate of 18%. (The unemployment figures may easily be doubled to account for hidden unemployment). The reality is that Europe’s actual unemployment now stands at the level of the 1932 Depression.
Bottom line: The European model is simply unsustainable because it is based on robbery of future generations. (Where have I heard that used before?). Keeping the system in place would jeopardize the next generation’s future with an unbearable and uncompressible tax burden, and would seriously add to the risk of a total collapse of Europe. Moreover these expansionary social policies have not worked so far. In spite of the largest debt buildup in history Europe’s growth has remained weak anyway. Europe’s social model is built largely on credit to be paid back by its own children. That is assuming this mess does not result in a global meltdown in the not too distant future.