Greece votes ‘No.’ Grexit, ‘Plan Z’ to follow?

Greece’s Communist government ready to give the people what they want, good and hard after big "No" vote Sunday. Hold onto your hats. It could be a wild Monday on Wall Street. UPDATED.

Blake's Urizen.
Looks like Zeus is about ready to zap the Greeks with a lightning bolt for today's shocking display of hubris. Actually, this is William Blake's Urizen, and he's holding a compass, not a lightning bolt. But it was the closest public domain art we could find to support the metaphor. (Via Wikipedia)

WASHINGTON, July 5, 2015 – By an apparent 20 percent margin, Greek citizens voted “no,” in support of their Communist-led government’s intransigent position against the Eurozone’s current bailout deal, virtually guaranteeing that some kind of Greek exit from the Eurozone will take place.

Sadly, the only thing Greek voters had to choose today was the method by which they would commit fiscal suicide:

  • Would the Greeks allow the European Community to impose much-needed fiscal discipline on their bloated and overpaid public sector by maintaining a Greek indebtedness that mathematically can never be repaid?
  • Or would Greek voters choose to fall back on their own historic currency and resources and continue their failed, big-government, tax-evading traditions, the better to support the Greek oligarchy even as the average citizen would be condemned to a lifetime of low wages and servitude?

Evidently, and perhaps understandably, Greek voters decided it was better to be repressed and lied to by their own, even if they didn’t understand that’s what they were voting for. Hence today’s vote, which has the potential to seriously damage the Eurozone’s single currency if there’s not a firm plan for containing the fiscal fallout that’s almost sure to follow.

Will Europe’s governments − already furiously meeting by telephone and likely getting together tomorrow in person − reward Alexis Tsipras’ premeditated defiance and attempt at extortion by throwing that country a lifeline, even as pointless negotiations with the Communists continue without realistic possibility of resolution? Or will they simply cut the cord?

There’s a good argument to be made for the latter choice. But in today’s interconnected world, there always seem to be those “unforeseen” consequences one always has to worry about. (If governments today would worry a bit less about “consequences,” we might actually get something done besides negotiating our own defeats.)

The stronger members of the European Union have been developing contingency plans to contain the Greek contagion for quite some time. What the current plan happens to be has not been made public. But Wikipedia still posts interesting information on “Plan Z,” developed three years ago in 2012 to address a situation such as the scenario the Eurozone is facing Sunday evening.

‘Plan Z’ is the name given to a 2012 plan to enable Greece to withdraw from the eurozone in the event of Greek bank collapse. It was drawn up in absolute secrecy by small teams totaling approximately two dozen officials at the EU Commission (Brussels), the European Central Bank (Frankfurt) and the IMF (Washington). Those officials were headed by Jörg Asmussen (ECB), Thomas Wieser (Euro working group), Poul Thomsen (IMF) and Marco Buti (European Commission). To prevent premature disclosure no single document was created, no emails were exchanged, and no Greek officials were informed. The plan was based on the 2003 introduction of new dinars into Iraq by the Americans and would have required rebuilding the Greek economy and banking system ab initio, including isolating Greek banks by disconnecting them from the TARGET2 system, closing ATMs, and imposing capital and currency controls.

In the face of looming disaster, however, Greek finance minister Yanis Varoufakis has proved to be a surprisingly effective master of standup comedy. Interviewed by CNBC earlier today, he claimed with great confidence that if the Greek people ended up voting “no” today, his government “would be able to get a deal with lenders in 24 hours.” As if.

Not for nothing did the ancient Greeks coin the term “hubris,” which, roughly translated, means “excessive pride,” or worse, “defiance of the gods leading to personal downfall.” Varoufakis’ absurd statement proves that hubris is indeed alive and well and living robustly on the left side of Greece’s political spectrum.

Rather than indulging in condescension toward the hapless Greeks, however, this columnist would like to point out that essentially all Western democracies, or what’s left of them, need to learn a larger lesson here before it’s too late. Every single one of these governments, including that of the U.S., has been indulging to a greater or lesser extent, in ruinous Greek style games with their constituents, lying all the way to protect themselves from the consequences they hope they won’t be around to see.

Since at least the late 1960s, Western economies have collapsed into an unsustainable but ingrained habit of crony capitalism. Governments have gradually raised individual and corporate taxes to support an increasingly indolent underclass for whom there really is such a thing as a free lunch, however meager it might be.

Contrary to popular opinion, most of those higher taxes have been paid by an increasingly beleaguered and endangered middle class, while the wealthier classes (the oligarchy or 1 percent) exploit their paid-for political representatives to gain tax breaks for themselves and all those who, like them, possess excess capital.

Politicians in the meantime have permitted absurd extensions of credit to the average consumer, encouraging him to “consume” as many goods as possible, leading to greater indebtedness and an increasing inability to pay it off. Yet, until recently, most consumers tended to perceive this untenable situation as “being better off.”

When economies worldwide collapsed under this bloated system’s unsustainably phony weight in 2007-2009, it became clear to anyone who would look that collective corporate, family, and individual debt—not to mention bloated government debt—could never be repaid under normal circumstances unless at least one generation willingly consents to working, effectively, as slave labor. Revealing this, however, is no way to win an election, so this cynicism has been concealed.

As a result of this subterfuge, a quiet decision was made to manipulate the markets and steadily “inflate” currencies, the better to discharge this unsustainable debt over time with cheaper fiat money. This would effectively finesse the issue over time and avoid what might otherwise be an inevitable peasant revolt that would occur once enough peasants had wised up.

Meanwhile, the peasantry would be encouraged to pile on the debt they’d discharged all over again, thus indirectly helping the government “consume” its way out of the mess with cheaper dollars as businesses once again began to grow by gorging on this expected new consumer expansion.

Problem is, the average family, in the U.S. at least, when confronted by an overly-high level of indebtedness, stops spending and starts paying down debt rather than doing its duty by continuing to borrow and consume. Chastened and fearful, the cannot be persuaded to make that overspending error a second time−at least until they’ve discharged the last of their old debt. We saw exactly this kind of behavior when we finally escaped the Great Depression.

Neither the U.S. Federal Reserve nor European governments anticipated this level of rationality on the part of contemporary consumers. But this has confounded government plans to inflate currencies, making it impossible, under current circumstances, to clear all this unwanted debt even over generations.

Thus, inflation is stubbornly refusing to grow, as is evidenced by the static to negative pricing that’s persisted for years now in a wide range of raw materials. If there were an inflationary demand for consumer goods, those raw material prices would go up. Instead, they sit there or decline, which tells us that the inflation game is not working because consumers are not playing.

Greece is a small country with what amounts to a negligible economy. Its bloated government sector is richly compensated, can retire on absurdly high pensions at a ridiculously young age, and essentially stifles entrepreneurial possibilities for the average citizen. The situation is made worse by scofflaws, mostly wealthy Greek oligarchs, who manage to evade their taxes and avoid penalties for doing so.

It’s a cynical system, and the discipline of staying in Europe’s single currency has exposed Greek economic failure for what it is: an impossible, arguably tragic, social construct that simply can’t go on, at least in its present form.

Only a fool would continue to support this kind of consistent failure. And, at least as of Sunday evening, Europe’s stronger economies are choosing not to be fools, saps or suckers and are expressing that they have no intention of caving in to Tsipras and his Communists, if they’re to be believed. It’s game over. But no one really knows what will happen next.

The larger problem is, all Western economies, including ours, are in the same boat as Greece. It’s just that in larger economies such as our own, there are far more resources that can be deployed to conceal just how dangerous this situation has become for everyone.

The developments in Greece may be telegraphing to us all that what some call late-stage capitalism may very well be in its final innings. It’s all a result of an increasingly complaisant public feasting on taxpayer-supported bread and circuses that produce nothing, save fatter and fatter bank accounts for the wealthy and the politicians they have on payroll—nearly all of whom, BTW, are Democrats, contrary to the media which has been in bed with them for a generation now.

We are devolving back to an oligarchy, if not a feudal structure in which social classes are once again rigidly defined and enforced. It’s all going to end badly because no one has any intention of changing and saving what was once the distinctive U.S. style of democracy. We know this when we hear pronouncements such as the Greek finance minister’s asinine yet sweepingly confident declaration noted earlier above.

What these problematic developments in the faltering Eurozone will do for European and U.S. stock markets and traders as they open for business Monday morning is anyone’s guess. We’ll look at the futures around 10 p.m. tonight and post an update, which is unlikely to be encouraging.

UPDATE: As of midnight Monday, Dow Jones Industrial futures are down a whopping 200 points, indicating a nasty opening trade that could waterfall down from that point. Asian and European markets have been getting hammered, and the euro has experienced a sharp decline against the dollar vs. last week’s close. We’ll be back later Monday, as soon as we can assess both the damage to the U.S. market as well as the possibility that the negative trading atmosphere will prevail for an indefinite period of time.

If we had a clue what to do at this point, we’d tell you, but we don’t. So we’ll all find out tomorrow and play it by ear from there.

In the meantime, always remember these three simple, inviolable rules:

  • Something that can’t go on forever, won’t.
  • Debts that can’t be repaid, won’t be.
  • Promises that can’t be kept, won’t be.
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