Why Greece Is Doomed

Greece has about 10 million people living in a country the size of Alabama. It owes so much money that no one really knows how much it owes. Out of 127 countries with rated debt Greece ranks 127. It is also ranked dead last as being expected to pay back its debt.

Since its independence Greece has defaulted five times, Spain 13 times; and Germany & France eight times. But Greece has always been in, what is termed, perpetual default. Having spent over 50% of the time since 1829 rescheduling its debt or defaulting on money it has borrowed.

The problem is not with Greece owing money but the European banks who hold Greece’s debt. If Greece decides to leave the European Union and return to use their original currency (drachma) they will effectively be defaulting on all the money they owe. That they will be ostracized from the rest of the world will mean little to Greeks or the rest of us as they produce little in enough quantity that the world either needs or wants. It is the real fear of very large European banks going under because of the amount of Greek debt that they own. And, because it is in the nature of bankers to lie no one is certain how much debt each bank holds.

Any attempt to organize in Greece a strategic plan to increase taxes and reduce costs is doomed before it starts.

Corruption and theft are common. Doctors in Greece, who actually earn millions of euros, report, on average  12,000 Euros a year income, meaning they owe no income tax because they fall under the countries minimum income wage. Income tax fraud and avoidance in Greece is winked at and has no penalties. It is considered almost a sport. The people of Greece have never been forced to pay taxes. It is almost against their culture to pay taxes of any form.

When Greece’s new Prime Minister took over he wanted a complete understanding of the country’s debts. What he found was that in addition to the growing 400 billion Euro debt Greece owed about another 800 billion in pensions for a total of 1.2 trillion Euros. There did not seem to be any type of accounting system to keep track of what was paid, the total owed and who owed the government what. The Greek system was and is to pay the bills as long as they have the money with little governance as to the total amount they owe. In fact Greece was and is so backward regarding finances that it is not even on par with many third world countries let alone emerging markets or sophisticated Euro Zone countries.

The average government job pays three times as much as a private industry occupation. It is no wonder that most Greek people want to get on the public dole.

Public works are mismanaged. The national railroad has an income of 100 million Euros against an annual wage bill of 400 million Euros Plus another 300 million in expenses. This is due and payable each year! Yet, for years regulators and those with any oversight completely ignored this anomaly.

The average railroad worker earns 65000 Euros a year.

The Greek public school system ranks dead last in the Euro Zone but nonetheless employs four times the teachers as does the Best European school system.

There are three government defense firms that owe billions. The normal retirement age for men is age 55 and for women is age 50. The average lifespan is 80.2 years while in the U.S. it is 78.7. The annual funding for pensions is astronomic.

In addition to government spending and waste the biggest problem is that the Greek banks lent 30 billion Euros to the Greek government where it was squandered or stolen. Stealing is considered a perk or benefit of public service in Greece and stories abound of workers taking what they want by simply walking out with their arms filled. The banks in Greece did not get on the mortgage default express ride as did the United States, Iceland and other countries. Their only fault was lending to their own government.

In a nutshell this is a country that has been victimized by its government and nothing else.  The population has no understanding of taxes, budgeting or finance. The fact that Greece will default is about as sure a bet as anyone can make. The Greek citizens have taken to the streets and rioted their displeasure at any attempt at cutbacks. Some people have committed suicide in protest. They also blame other people for their troubles; the Turks, foreign bankers and even monks. The question is when and how the European banks who own the Greek debt are able to hold together during the cash crisis.

And from everything I have read the average Greek citizen has little interest in reform. 

I believe that the Europeans are finally opening their eyes to the reality that no matter how much money they toss at Greece it will be lost money. I don’t care what they eventually call it- an organized reorganization or simply a default the case is crystal clear. Now the question is how to save the European banks. Greece is a total write-off and only Greeks can pull themselves together from this nightmare. The next step in the possible contagion collapse is Spain and Portugal.

Much of this information came from Michael Lewis’ new book, ‘Boomerang’. Other bits and pieces were googled and formed the balance of this blog.

Questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.