Greece will make it through November without default. There is one principal reason -
The economic and political forces are pulling in different directions and they do so
stronger in the European Union than elsewhere.
The late American economist Thomas Sowell summed up this dilemma, which is
applicable everywhere, not just in Europe - "The first ruleof economics is scarity:
everyone can not have enough of everything that they want. The first rule of politics
is to disregard the first rule
of economics."
There is a notion of one monetary policy fits all. This idea created an artifical
environment of low interest rate for high-growth and high-risk countries, such as
Ireland and Greece. Low rates led to excessive borrowing and investment in
unproductive ventures, such as property in Ireland and Spain. These countries
borrow, and continue to leverage as long as the cost of leveraging is lower than
the GDP growth (topline).
However, groth vaporized in the wake of the 2008 economic crisis, debt service
became increasingly difficult and in the end impossible. This in effect led to
delinquent banks and sovereigns in Ireland, Spain, Greece and Portugal -
a solvency crisis.
The bottom line of all this is the PIGS (Portugal, Ireland, Greece and Spain)
countires had excessive borrowing, excessive leverage and massive wealth losses.
