Things fall apart;

....................... the center cannot hold;
Mere anarchy is loosed upon the land...

It's really disheartening how frequently and aptly one can quote Yeats these days.  What passed for the center in Greece took a clobbering as Greek voters moved both left and right.  In a couple of days, we'll get to find out if the leftist coalition, Syriza, can form a government now that New Democracy has failed to do so.  It doesn't look good; both because New Democracy was awarded an extra fifty seats in the 300 seat legislature because it squeaked into first place, and because the Communists refuse to join any coalition government.

Next, the Socialists get a turn to fail, and then there will have to be a caretaker government while new elections are held.  At that rate, it doesn't look good for Greece getting the next installment on its bailout.  A Greek default — which just about everybody expected was inevitable anyway — might do the trick of loosing "mere [economic]  anarchy upon the world."

François Hollande disrupted a decades-long pattern of French incumbent victories by defeating Sarkozy — despite Sarkozy's pandering to first round supporters of Marine Le Pen.  In both Greece and France,  "the worst," demonstrating quite a bit of "passionate intensity" helped the quasi-fascist Golden Dawn and National Front parties lay claim to influence that will not be ignored.

Yes, left and right, voters were voicing their discontent with German dictated austerity measures — and, in a larger sense, with the plutocracy that came to replace the natural "center" over the past three decades.  They are tired of having their lives twisted this way and that for the sake of a cabal of big banks, hedge funds, and multinational corporations.  The question remains, though: do they truly understand who they hate and why they hate them?

Greeks v. Banks

We'll see tomorrow if the Greek parliament approves the austerity measures and the deep-discount privatizations the ECB and the richer European countries are demanding for another alleged "bailout." To me, the most likely scenario floating around is that the Greeks will go along with the demands for legislative actions tomorrow, and then just not implement most of them as they come due.

If the parliamentarians are paying attention to the riots in the streets, though, they just might say "no" to the package. If that happens, we'll have to see what ensues. A collapse of the Eurozone is a real possibility, and that certainly would be disruptive to the world economy.

Of course, there are some of us who think it just might be time to do it and have done with it. Having a single monetary policy and more than two dozen fiscal policies, from my perspective, is not a formula for success. It worked well enough when credit was cheap, borrowing standards were lax, and government leaders could buy support with all that borrowed money. Granted, the Greeks went a bit more overboard than most — and lied their way into the Eurozone to begin with — but the system was and is essentially flawed.

Whatever the original sins of Greek leaders, though, I could not condemn them if they tell the rest of Europe to screw itself. The interest Greece has to pay on the debt it incurs right now is in the junk bond category. How much higher could it go, and would it really make a difference? Greece can't afford to pay current rates, so higher rates mean nothing. The only sensible thing to do is default now, rather than enter into dubious refinancing schemes and then default for even more later.

The popular jargon for the current bailout proposal is "kicking the can down the road." It makes sense, though, to look at how the road might change a few kicks ahead.

Sarkozy has worked out a deal with private French banks that hold Greek debt to, essentially, roll it over — offer new loans to pay off the old ones (only at higher rates.) The immediate advantage of that for the banks is that it would mean they will not have to write down the bad debt for another three to five years, leaving their balance sheets looking healthier for a while. If the bailout deal goes through, we can expect other private holders of Greek debt to do the same.

Look back a little bit, though, and we see what French, German, Swiss, Belgian, and other private European banks have been doing since the last bailout — that is, selling off their Greek debt to the European Central Bank. If they can continue to do that, private losses can be minimized. Losses by the ECB would have to be offset by infusions of capital from European governments — in other words, by the European people as a whole. Fat cats, hedge funds, and corporate investors will transfer their gambling losses to ordinary people.

For the Greeks themselves, selling off public assets like their ports, utilities, railroads, etc. at this time seems like an especially foolish move. As the people in the streets and squares of Greek cities understand very well, not only would the sale of those assets sharply increase unemployment, but they would bring only a fraction of what they're worth. It makes a lot more sense to default first — tell their creditors they're not going to be paid — and save the assets for later sale, when Greece really needs the money. Cut off from credit, Greece finally would be forced to slice away the corruption and patronage from its economy. The nest egg provided by asset sales, if they turn out to be necessary, could be the country's key to survival.

US exposure to Greek debt is quite small, and the predicted domino effect on Portugal, Ireland, Spain, and Italy also would not have great impact on American holders of European debt. What we don't know, however, is the exposure of US banks and related corporations in the form of credit default swaps. How much of the impending European losses are insured in the US, or in European subsidies of US banks?

Well, we're still kind of in the process of writing the transparency rules on derivatives, so nobody actually knows.

Greece and the Eurozone

The street protests in Greece continue, as more and more Greeks figure out that they are being asked to transform themselves into citizens of a third-world country for a generation or so for the sake of minimizing losses by the banks of Europe. US exposure seems to exist mostly in the form of credit default swaps; how many, one wonders, were written by taxpayer owned AIG?

All in all, it looks like Greece, shortly followed by Portugal, Ireland, Spain, and Italy, soon will be forced to accept "bailouts" of the very rich by the middle classes and the poor.

Forced? Uh huh. If it turns out to be "politically impossible" to persuade ordinary outer-edge Europeans to vote for governments that will impose the requisite "austerity" measures needed to keep the super-rich fat and happy, the availability of governments (through coalitions and similar tricks) will be sharply reduced — leaving only those "democratically elected" governments willing to play along.

Can it be stopped? Can the megacorps be compelled to take "haircuts" for fear of far greater losses, perhaps to neck level? It may depend on the Greeks.

From my perspective, it would be better to take our chances on a Greek default — and see what shakes out — than to keep the bailouts going and spreading until the eventual default becomes devastating to the point of worldwide depression. The Greeks, of course, will not be letting me write their economic policy — but maybe somebody that somebody listens to will start the conversation, and quiet the whining of the Germans and the European Central Bank.

The Eurozone — like NATO, perhaps — just expanded too fast. Letting Greece in in the first place was a sure indication of poor oversight. Right now, Greece really needs the drachma, Portugal needs the escudo, and Ireland needs the Irish pound You can't have a unified monetary policy without a unified fiscal policy — and for the Eurozon, such a policy is far, far away.