Albert Edwards Explains Why Time Is A Killer, Not A Healer, In Greece


Photo: Wikimedia Commons

Kicking the can down the road on the Greece crisis is only going to make things worse, not better, according to Societe Generale’s Albert Edwards.Edwards cites Anatole Kaletsky, a columnist at The Times, who sums up the situation as such:

….as time goes on, a durable solution, or even an orderly restructuring, becomes less likely, whereas EU politicians and most market commentators believe the opposite—that the longer they can keep this process going the more likely a solution becomes. I agree with you (i.e. John Maudlin) not because of Charles’ belief that the euro is inherently an incurable Frankenstein Monster, but for three other reasons:

1. Some powerful elements in the debtor countries will be more likely to stop their adjustment programs the longer the pain continues without sufficient evidence of economic recovery.

2. Some powerful elements in the creditor countries will be more likely to stop their lending programs the longer the lending continues without sufficient evidence that the financial problem has been solved.

3. The passage of time itself is evidence of how difficult it is to reach a political compromise between the debtor countries and the creditor countries. Thus the longer this process continues, the clearer it will become to some powerful elements in either the debtor or the creditor countries that no political compromise can be achieved.

Kaletsky, argues that one powerful political force in any of the debtor or creditor nations in the eurozone could blow up the entire thing by going the other way on austerity or cash payments. Kaletsky says that could be leaders at the Bundesbank, trade unionists in Ireland, or anything in between.

Essentially, the eurozone is a transfer union with a multitude of actors with veto power. If anyone decides that don’t want the money, or don’t want to give it, the whole thing could go up in flames.

From Albert Edwards:

This, I think, is the key point that the markets are missing. Kicking the can down the road in the Mr Micawber-like hope that ‚something will turn up‛ simply will not work. Time here is a killer, not a healer.

The presumption that giving the eurozone more time to heal itself by extending the Greek crisis is false, according to Edwards. It just gives political actors more opportunities to blow the thing up.

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