The Greek Resistance

Glimmers of resistance shine from the cracks in the Hellenic Republic. “Greek entrepreneurs,” reads one report, “rally together to help Greece’s startups through the financial crisis.”

We’ll get to that in a second. But first… stocks were up on the day. Gold’s down. Treasury prices are down. And Greece defaulted on its loan from the IMF.

At the risk of sounding like a broken record, we repeat Jim Rickards’ refrain: “There will be no ‘Grexit.’”

That said, you can see how 19 EU governments using a single paper currency that none of them is able to print leads to problems. Even better, by watching Europe, you can imagine how financial reckoning day in the U.S. will manifest itself.

Case in point: the path forward for Greece over the next month. Just follow the uh… arrows…

GreekReferendum

You’d think they’d just make it a circle and be done with it.

As soon as “the euro was introduced, it did not take long for imbalances to develop and accumulate,” explained Professor Philipp Bagus to us in 2012. We had the good fortune of making his acquaintance at the Mises Institute in Alabama.

A young, thick-accented fellow who hails from Germany, teaches economics in Spain and has authored two books: Deep Freeze: Iceland’s Economic CollapseandThe Tragedy of the Euro, he’s well-versed on EU dynamics.

Bagus related how euro creation worked in the Old World pre-2008. As with any paper money system, he who got the new money first benefited most. “But the only way to get new euros,” he added, “was for a country like Greece to issue more government bonds and give them to the European Central Bank as collateral.”

Issue Greece did, its creditworthiness, of course, never in question, as evidenced by this 2007 “Sovereign Borrower of the Year” award:

EuroWeekAwards

“That led to increased government spending, deficits and debt because of the demand for bonds. A country like Greece benefits by having higher deficits than the other countries.” For reference, Greece’s budget deficit tripled from 5.2% of GDP in 2006 to 15.7% in 2010.

“The wealth redistribution through different rates of money production,” ventured Bagus, “brought on a culture of decadence.”

“Among other things,” chronicles James Dale Davidson in his latest Strategic Investment newsletter, Greek politicians used “the proceeds to lavish generous salaries and even more generous pensions on Greek voters. Although Greek wages were mostly lower than those in Germany, Greek pensions were considerably higher. In most cases, it took only 35 years of work to collect a full pension in Greece, as compared to 45 years in Germany.

“But Greeks who labored in ‘strenuous’ occupations,” Davidson continues, “could retire after 25 years of work on full pensions at age 55. Among those ‘strenuous occupations’ — Greek hairdressers. On the whole, Greeks retired earlier than their European colleagues, on pensions that averaged 80% of wages, as compared to 46% in Germany.”

Hmmnn. That brings us back to the resistance we teased at this reckoning’s start…

“The bloated public sector,” explains a Telegraph article dated June 20, “has been in the firing line of the efficiency drives demanded by Greece’s bailout chiefs.

“Unlike their parents and grandparents, the current crop of young Greeks no longer have the option to spend their working lives as salaried employees of the state.

“Many have chosen to migrate. More than 200,000 have opted for the path of flight in search of better prospects in the European capitals whose governments now stand in the way of a compromise with Greece’s leftists.

“Of those who have chosen to stay are a wave of entrepreneurs whose ambitions extend beyond enjoying leisurely office hours and early retirements of yesteryear.”

One such entrepreneur is Athenian Dimitris Koutsolioutsos. He gave up his preordained gig in his brood’s international jewelry outfit to found the Farmers Republic in 2014. It’s the nation’s first organic farmers market.

“We’re a disruptive initiative,” related Koutsolioutsos. “When I started, I received death threats from the mafia who have controlled the fruit and vegetable industry for years.”

A resistance, indeed. The kind that might help a sustainable, productive Greece emerge from the ashes.

But “with capital controls in place across the country,” reports Tech.eu, “startups are unable to pay for their services in order to stay in business. However, Greek entrepreneurs are coming together to help these companies through this difficult time…

“Capital controls restrict the amount and the freedom of how much money you can access or move around,” continues the report, “especially internationally, meaning that payments for services such as hosting or developer tools may not be possible for startups to make, as they are considered ‘foreign’ payments.” To help, startup owners from around the globe are raising voluntary donations to help these Greek businesses keep their lights on while the capital controls are in effect.

And now you see the problem…

“When I think about my granddaughter’s future,” one 61-year-old Athenian pensioner, Nikos Athanassiou, told the Telegraph, “I panic. I want her to live in an independent Greece — not a protectorate.”

In Greece as in the U.S., wealth will come from innovators, not government. But perhaps more there than in the U.S., Greeks’ resistance to the old paradigm stands to be quashed by the paper pushers and mafiosi in power.

Which force will dominate? And does it even matter?

Our friend Charles Hugh Smith, proprietor of the Of Two Minds blog, offers one sobering outlook, right here.

Regards,

Peter Coyne
for The Daily Reckoning

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