Greece Is Being Told To Go Cold Turkey

Here's the latest from our Highly Placed Professional.

'A lot of people find it very hard to make the connection between the world of bonds and the real world outside. I can well imagine the days when 'Father does something up in the City' would have been the stock answer to the children before they were packed off to boarding school. A friend of my son's once made the mistake of proclaiming to his mates that I was a 'bomb salesman' (rather than a 'bond salesman'), which, in the wake of the financial crisis, might not be as far off the mark as it first appears.

It's sad, though, to consider the tragic news that three Greeks have already died (inside a bank as it happens) during the riots and general strike in Athens Wednesday. And here's where the world of bonds, coupons, debt repayments, GDP ratios and interest rates collide with the everyday reality of pissed off, humiliated and overtaxed workers. The Greeks have had enough and aren't going to take it any more. In all likelihood, they would prefer to see Greece default and restructure their government debt, rather than to have to endure several years of massive taxes (for those who actually pay them, of course) and far less public jobs and other state benefits.

Their argument goes thus: 'We didn't vote for all the public spending item by item, so we're not going to pay for it all now, thanks very much'. A simple case of: 'So long, and thanks for all the cash'. But you can see their point. It's suspiciously like the argument we have here in the UK. We didn't actually sanction all the overspending and benefit payments to every Tom, Dick and Harry, and we didn't ask for all those nice teaser mortgage rates which got the property market into a spin and helped create the financial crisis.

But that's the new Realpolitik, and it's an uncomfortable feeling. Greece is being told to go cold turkey. But even if they suck it up and take their punishment, there may be a sting in the tail. As former Bank of England MPC member Willem Buiter has pointed out in The Wall Street Journal,  it's simply inconceivable that Greece can grow its way out of its problem, and in any case the new debt servicing costs may be as high as a full 7% of their GDP! In other words, Greece is screwed whatever it does. And Greece may be just the start. The words 'sovereign debt implosion' are making a big splash.

So it's worth a thought on this Election Day - just what is best for the UK over the next 5 years ? You don't need me to tell you how to vote, but I do urge you to think about the consequences of more uncontrolled government spending and all the waste that goes with it. I suspect it would be better to take a bit of pain now and try to get our house in order, than to wait for some nasty strings-attached IMF rescue package, and all the real austerity problems that would ensue. We're a great country. Let's not let filthy lucre ruin it for the next generation!'.

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