Keywords

Drachmageddon; exit from Euroland; uncontrolled exit; cost of exit; parallel currencies; sovereign bailouts; bailouts are not handouts; effect of state bankruptcies; the myth of benevolent Troika

6.1 Drachmageddon

At the time these lines are written, Greece is still in Euroland, but its economic and financial situation has not been stabilized; nor is the broader euro crisis solved. As Chapter 5 documented, Greece did not capitalize on an austerity program to bring itself back to a stable debt trajectory. With Bailouts I and II its debt-to-GDP ratio increased, which means that another default is brewing up.

Chiefs of state, economists, and financial analysts foresee that within 18 months either of two events will happen: Greece quits Euroland, reintroduces the drachma, probably defaults, prunes its balance sheets and, in an unlikely but not impossible move, rejoins Euroland. Or, it defaults within Euroland (Section 6.6), obliging the other member states to ring-fence its economy to avoid contagion. (Though contagion may also come from Spain and Italy, neither of them being in an economic situation much better than Greece.)

The pattern described in the preceding two paragraphs may sound strange but it is not so unexpected given the euro’s twists. In early July 2012, David Cameron expressed his frustration about the lack of progress in putting Euroland’s finances on track, after more than 2 years devoted to the euro debt crisis. A little earlier on Robert Zoellick, who was at the time World Bank’s president, put his finger right where it hurts: “European politicians always act a day late and promise one euro too little. Then, when it gets tight, they add new liquidity.”

The problems confronting Euroland remain daunting and Greece is just one cog in a chain of challenges. The bigger and more general are the salient problems, the less the likelihood of solving them without assuming risks. One of Euroland’s big goals is building up the foundations of a fiscal union; a daunting task. If I remain skeptical about the euro and Euroland it is precisely because what needs to be done to get the fiscal union on the right foot, is not among the EU politicians’ priorities.

Quite to the contrary, the majority of Euroland’s sovereigns have adopted a policy leading off the tracks. “No” to fiscal discipline, “no” to a harmonization of taxes and duties, “no” to a biting form of banking supervision, but “yes” to keeping the banking system afloat at great cost to the taxpayer. Yet, practically everybody knows that a sound policy requires:

The discipline necessary to redress the balance sheet of European banks is just as important for sovereigns. By majority, Euroland’s sovereign Treasuries have to be recapitalized but, given the astronomical sums being involved, this cannot be done by way of presents. Iceland, Latvia, and Ireland (Chapter 13) have shown the way. They have demonstrated that in the absence of political union it cannot be “all in one,” and therefore decided that since it is each on his own they have to do their best.

These three countries did not need to apply Euroland’s Fiscal Compact (which entered into force on January 1, 2013) requiring signatory countries¹ to incorporate into their national legislation a structurally close-to-balance general government budget—as well as debt brakes² which trigger an automatic correction mechanism if targets are missed.

They did so on their own initiative, and labored to put in order their national fiscal policy. Neither did they spend their time in celebrating that the EU won Oslo’s 2012 Nobel Peace Prize³ which makes it a sort of colleague to Barack Obama; a prize which neither in the one nor in the other case was deserved, or for that matter it means anything. Instead, they tightened their belts and worked hard to regain economic independence. (See also Chapter 1 about debt leading to slavery.)

These three small countries did not listen to the trickery song of some economists that “the best way to insure government debts is to follow the example of Alexander Hamilton.” True enough, in 1790, Alexander Hamilton decided to mutualize the debts of the American states in a single US debt. But in 1790, the United States was one nation, and the different states having formed a political union (not just a fiscal union). This is not the case of Euroland, let alone of the EU. Moreover,

Since then each state in the United States looks after its own budget. Washington no more pays the states’ debt (or the municipalities’). Therefore, the Hamilton argument of big spenders (mainly French, Italian, and Spanish) is a fake and it is as well ridiculous.

If by a majestic wand all debts of Euroland’s member states were zeroed out, these would rise again at no time because the Club Med’s (and others) big spending habits have not changed. Only nations⁴ able to confront and solve their financial problems on their own appreciate money’s worth. “Rescue” packages perpetuate slavery, not independence.

An argument one hears about the exit of Greece from Euroland is that the country failed to reduce its budget deficit despite the bailouts. This can be turned around: It failed because manna from heaven saw to it that the deficit remains high. People are not taking their future in their hands, neither do they appreciate that the bailouts are loans not presents.

That’s what Drachmageddon is all about. As with everything else in life, there is a cost associated to it and a will. Some chiefs of state and their economists argue that Greece is unlikely to be better off outside Euroland than in it. They give as examples:

Part of the cost of going back to the drachma will be the forced conversion of bank deposits, and strict capital controls. The latter are required to prevent massive capital flight at two critical times: just prior a new drachma is introduced and immediately afterward. Proper planning and costing, too, is part of drachmageddon.

Forced conversion will present several problems. While Greek government debt might be redenominated with few legal hiccups, private sector debt owed to non-Greek financial institutions would remain liable in euros, dollars, pounds, or whatever the currency of the original obligation. With the new drachma depreciating in the currency markets (why else issue it?), the Greek private sector would experience rolling defaults.

In paper money terms, after decades of current account deficits, Greece, its companies and its residents, owe the rest of the world a lot. Particularly since the euro was introduced, Greece has added up external liabilities well in excess of its GDP. This was highly unwise. A bankruptcy could take care of that, but “exit the euro” and bankruptcy are not the same things even if they might happen simultaneously.

By opting out of the euro Greece (or any other country) needs to redenominate all contracts made under its laws into the resurrected national currency. To avoid legal fights, which last many years and enrich only the lawyers, it should continue to meet its nonnational law obligations or at least try to do so.

For its part, the Bank of Greece needs to assure that all foreign branches of Greek banks balance their foreign exchange positions. As for the government, as briefly mentioned, it will have to impose temporary capital controls necessary because the drachma would immediately fall against the euro—possibly losing 50 percent or more of its value within a rather brief period of time.

The government will have to redenominate domestic bank assets and liabilities into drachma and insist that domestic contracts, such as pay and prices, be set in new drachmas. All this suggests the need for minute preparation. A precipitous exit without studying and planning every detail would leave the country not only without notes and coin but as well without the financial links necessary for the new drachma.

As long as external debts remain at their current or, even worse, higher levels, both the Greek financial sector and the nonfinancial would confront the risk of collapse. Credit may well evaporate, with a deep recession following on its heels. Moreover, given an economy open to trade, drachma weakness will result in rising import prices, eroding domestic purchasing power and (up to a point) undermining the hoped-for competitiveness from depreciation of the currency.

Sound financial management will require that prior to the opt-out announcement, the government deposits its portion of foreign exchange reserves held by the ECB with the Bank for International Settlements. While the new currency is minted and till it is supplied to bank branch offices, it should also declare a temporary bank holiday.

The EU and Euroland, too, will be confronted with a mare of organizational problems. There are good enough reasons to believe that once Greece opts out of the euro other countries using the common currency will adopt the same policy. The same will happen if Germany leaves the euro, followed in the exit by Holland, Finland, and more—except that in the latter case Euroland member states opting out will be those economically stronger. By contrast, in the case of Greece, Italy, and Spain the opt-outs will come from southern Europe and their finances will be weak.

6.2 Exit from Euroland?

Jens Weidmann, Bundesbank’s president, believes that Euroland’s current framework for bailing out distressed member states will weaken the common currency’s stronger economies. Germany has pledged a lot more than euro 300 billion ($400 billion) in loans and guarantees to bailout Greece, Ireland, and Portugal—not even counting ECB’s OMT. With ECB’s “unlimited” buying of distressed nations’ sovereign bonds, Euroland’s taxpayers will be financing mismanaged states like Spain and Italy till bankruptcy dawns upon the EU. This is not what the single European currency was meant to be.

For his part, in mid-October 2012, Adair Turner, chairman of the Financial Services Authority, argued in a London speech that Britain has an enormous national self-interest in Euroland either taking the steps required to succeed or, if that is politically unattainable, dissolving in a controlled rather than chaotic fashion. This will help to avoid a catastrophic outcome and it’s what a controlled bankruptcy is all about.

Decades down the line, economic historians will debate how did happen that since the common currency came into existence in 2001 a debt virus spread through southern European governments. Politicians have been struck by that virus of spending well beyond their country’s means, by amassing unpayable liabilities.

This reflects a deeper malaise which seems to accompany the euro, and is fed rather than cured through bailouts. As The Economist put it: “The euro is a troubled child, a single currency without a single state that is questioned by the markets.”⁵ Weidmann is right when he says that, if things stay as they are, the consequences of unsound policies (by some member states) will be passed on to others. Instead of putting their house in order, the profligate states depend on Germany to be both:

To the twisted mind of profligate politicians and pseudo-Keynesian economists, a German inflation will be instrumental in rebalancing competitiveness within Euroland. That argument is silly, and Weidmann is right when he says that an increase in wages of even 5 percent would damage Germany but have no impact on resurgence of profligate countries. The latter might, only might, become more competitive versus Germany, but not against states outside the euro.

One does not come up from under by damaging others. He does so by exercising cost control and self-discipline necessary for cleaning up public finances. If a Euroland country which is under bailout is unable to put itself together again, or finds it too difficult to regain competitiveness within the currency union, exit is the remaining option. This can be achieved under either of three conditions:

A managed process will be, first and foremost, based on the other member states’ agreement. Conditions will most likely include rules of disengagement; haircut on debt which includes the so far “untouchable funds”⁶: surely ECB and probably IMF, and conversion of all remaining debt into a new currency, for instance, the drachma.

It is quite probable, but not sure, that a managed process would require that the IMF acts as advisor and controller, particularly, controller of conditions aiming to avoid, or at least limit, contagion to other member countries.

Some of these conditions will probably involve ESM and ECB, including support to other at-risk member countries who, otherwise, might plausibly conclude they are the next to go. This effort will be more effective if it addresses the worries of both the sovereign and the citizens. Short of that, after a run on their domestic banks common citizens will be sending their wealth abroad, precipitating a collapse of the financial sector and, by extension, of the economy.

As the issues associated to a Greek exit intensify, the rest of Euroland must make preparations for the case other peripheral countries want to exit. Even if no other Euroland member state actively contemplates quitting the common currency, the way to bet is that market pressure may force it to do so, soon after Greece leaves.

The cost to European banks and insurance companies will, as well, have to be accounted for. An orderly exit process must pay attention to the expected and unexpected effects on the banking industry. Credit institutions will have important treasury problems to attend, and the stock market may see a major correction.

Economists believe that an uncontrolled exit of Greece from Euroland would lead to a selloff in financial markets, particularly hurting the most risky asset classes even calling into question the stability of the European financial system. Even if the credit market does not freeze (which is a remote possibility) there will be deep recession causing default rates to substantially rise in Euroland.

The way to bet is that the credit market will demand higher yields from the sovereign of the exit country as well as from the country’s banks (resulting in structurally lower profitability). Other Euroland member states leaning toward exit will also be affected. In terms of credit, the exiting country’s ability to market its bonds, a managed approach will probably be characterized by a two-phase reaction:

Even if the exit is properly managed, the turnaround will come only after uncertainty about its aftereffects subsides, there is evidence that contagion to other peripheral countries has been prevented, and there is no pickup in default rates. To enhance the capital market’s willingness to buy the country’s debt, the government will have to:

Clearly enough, the beneficiaries will oppose any attempt to water down pension and health care entitlement, arguing that “the constitution guarantees that the benefits of pensions and other state spending cannot be diminished or impaired.” If I am not wrong, however, former state employees currently receive free health care benefits while in retirement, and there is no constitutional right assuming unstoppable benefits from unaffordable and unsustainable sovereign expenditures.

Always under caution of a managed exit process, not only the new drachma but also the euro might lose market value. “How much” will depend on whether Germany and other core countries maintain their safe-haven status relative to the highly indebted Euroland members, and on whether short-term liquidity needs of the global financial system prop up the euro.

As Section 6.3 will document, unfavorable economic and financial aftereffects will increase with an uncontrolled exit which will see further pressure on the sovereign’s and banks’ ability to buy money. The quality of their collateral will evidently be affected, and will as well experience significant deposit outflows in the other countries in a way that has already happened with Greek and Spanish bank deposits.

The outflow of bank deposits from Greece and Spain in 2011 and 2012 are just a glimpse of what can be expected for weaker countries in case of uncontrolled exit. Its aftereffects will, by all evidence, last longer and put under severe test the politicians’ ability to limit contagion, not only in Euroland but in the global market.

An uncontrolled exit will increase by so much the tail risk scenario with a very negative impact on markets because of sharply rising uncertainty about the medium-term future. The general opinion is that markets will question the function of the ECB as lender of last resort, while European and international investors will search for protection in the dollar, pound, other hard currencies and gold.

Globally stock markets would correct heavily, the conversion risk premium on Club Med bonds will surge, and investors will demand greater compensation for the risk that a country may leave Euroland.

“Only at a later stage, once the fate of the “leftover euro” becomes clearer could a gradual buildup of European assets again become attractive,” said one of the analysts participating to this study. When and by how much will exposed entities: sovereigns, banks, institutional, and other investors as well as common citizen recuperate a good part of their losses will depend on so many factors that at present time it is impossible to predict. In 11 years the cost of Afghanistan has been $1.5 trillion. Who would have predicted that at the beginning?

6.3 Cost of an Uncontrolled Exit

One of the major banks looked into the cost that may entail an uncontrolled Greek exit from Euroland, over a 7-year time frame: 2013–2020.⁷ Its estimate is that this would stand at more than 30 percent of the 2011 global GDP, with Euroland countries footing much of the bill followed by America and China.

For Greece alone, economists have estimated that the cost of an uncontrollable exit might amount to between 40 and 50 percent of GDP in the first year.⁸ This is an approximate figure which assumes that Greece would have to leave both the euro and the EU, which most likely would not happen at the same time. But nobody can be sure, either.

Even if approximate, the stated GDP figure suggests that for the exiting country itself, the cost of drachmageddon⁹ is an important, indeed a crucial issue. This is true not only of Greece but of all Euroland’s cash-short Club Med member states contemplating exit. They simply may not have the funds to pay for it and nobody is likely to lend them that money in view of the opt-out’s debilitating costs, which were in no way known or even guessed at time of entry into Euroland.

It is most likely that the ECB will make it a matter of principle not to lend, or permit the Bank of Greece to lend to the country’s banks against collateral consisting of bonds and guarantees from a government going out of the monetary union. This, in turn will cut Greece off funding, with serious consequences because (by late 2012) Greek banks relied upon some euro 130 billion of central bank money. Without ECB’s cash the entire banking system might collapse.

It might sound exaggerated but Greece, Spain, and Italy may find themselves obliged to live with the euro because they lack the liquidity (and the capital) to do otherwise. An important issue for the sovereign is to have enough hard currency reserves to pay for the essentials which have to be imported. This is far from being self-evident; Euroland’s bailout comes drop by drop, leaving no chance to build reserves.

In June 2012, DEPA, the Greek state gas utility, battled to raise euro 120 million to pay Russia’s Gazprom for natural gas supplies,¹⁰ as the country’s public finances come under strain in the run-up of a general election.¹¹ The state gas utility was seeking an emergency loan from banks to keep supplies flowing while it tried to collect debts owed by the loss-making Greek electricity grid operator. The utility’s last-minute borrowing illustrates the pressures on public sector corporations as:

As the knock-on effects of DEPA’s financing problems were felt PPC, the Greek state electricity utility, stated that it had shut down all its gas-fired power stations as a protective measure. To compensate, it boosted production at units fueled by locally mined brown coal. (Environmentalists may object to this, but whether they like it or not coal is rebecoming a major source of electric power.)

For state enterprises, liquidity is a problem even under the bailout. In the words of a PPC official: The liquidity squeeze is getting worse, we don’t know what the situation will be next month, so we took action. This highlights the cost of political and economic uncertainty. Think about the case of creating a new currency and implementing the changes required by drachmageddon (briefly reviewed in Section 6.1), and of being controlled by the fallout of exit (Section 6.2).

Another example on liquidity woes is provided by inability to meet health care costs, because of the cash crunch damaging effect. The Greek state’s health system cannot pay arrears owed to pharmacists and medical suppliers. Pharmacists and pharmaceutical companies have appealed to the head of the EU’s taskforce, assisting Greece with reform, for emergency assistance of euro 1.5 billion to rescue the health care system.

“That would keep the system working for the next three months,” said Andreas Galanopoulos, president of the pharmacists’ association. He added that his association’s members were owed a total of euro 70 million, adding: “That’s euro 100,000 for each of us.”¹² These are the collateral costs of a situation which is not even drachmageddon. The way to bet is that:

A different way looking at this problem is that no cost estimates will really worth their effort unless political risks and social costs are taken into full account. Many social costs revolve around adverse reactions to redimensioning of endowments.¹³ Collateral damage, too, must be paid due attention. As long as political uncertainties put in doubt Greece’s next loan tranche from the EU and IMF, there exists the risk of bankruptcy by default.

Resetting health care and pensions at sustainable level is one of the limits in search for compromises. Today without the EU and IMF money, Greece will be unable to meet even the trimmed pensions, salaries, and health costs—let alone debt commitments. As a financial analyst put it: If income from taxes is not enough to pay pensions and wages, this would speed up the day of truth.

What Brussels and some of Euroland’s sovereigns particularly fear is that the first forcible exit of a country from the common currency would create profound uncertainty and difficulties for the entire Euroland. It will provide both pressure and an excuse for other peripheral sovereigns who contemplate leaving the single currency but are afraid to take that path all alone.

There exists a contrarian view to this argument. It states that the markets gave up on Greece some time ago, and it does not really matter what happens next. It is all down to politics now, and if the politicians or public opinion are not prepared to accept wide-ranging cuts on government expenses, then they have little choice but to leave Euroland.

It would be unwise to discard a contrarian opinion; still I do not subscribe to this argument. For reasons explained in this and the preceding two chapters the amount of preparation put into an “exit” strategy matters a great deal. Several of senior international bankers I met in the course of my research, now think that they may be able to cope with the fallout of a Greek departure—which they see as highly likely.

The better-managed big banks have what they call a Plan A for orderly departure with advance notice, Plan B for uncontrollable exit, and Plan C for surprises involving adverse events. Their planning depends a great deal on the dynamics of Greek exit. Therefore, subjects that used to be taboos are now openly being discussed. Government officials of different Euroland states have started to talk in public about Greece leaving the euro. Many corporations have analyzed the consequences creating emergency plans.

Reportedly the ECB is establishing support measures like bond purchases to mitigate the impact. While this is not enough to turn a Greek euro exit into a “nonevent,” it could create conditions which are (at least) manageable enough to be considered an option.

According to one of the bankers I was talking to, this change in perception about future course of events came with the realization of an awkward truth: That when it received its first bailout the Greek state was broke. Even after a default that more than halved the face value of private bond holdings and reduced their net present value by 73.5 percent (Chapter 4), the IMF expects Greek government debt in 2013 to be over 160 percent of GDP where it stood in early 2010. (The way to bet is that it will be in excess of 190 percent.)

There is still another issue to consider in respect to the prevailing situation dynamics. The rising likelihood of bailing out Italy and Spain has most reduced the core countries’ interest in saving Greece. One of the many arguments being heard is that for Spain and Italy, a Greek exit will be even positive, since it would lead to increased readiness on the part of core countries to support them. This does not really make sense. An uncontrollable Greek exit would, most likely, have dismal and dangerous consequences for Italy and Spain, as well as for the ECB and the rest of Euroland.

6.4 Parallel Currencies

Belatedly economists have come to recognize that the world in which we live is nonlinear. Linear thinking doesn’t work in a nonlinear world. As Section 6.2 has shown, a Greek exit is likely to produce quite a set of higher order outcomes making it nearly impossible to guestimate with a certain degree of accuracy economic and social costs—even more so to decide about the “right” asset allocation in the event of Euroland’s breakup.

The reason for such complexity is that a breakup runs the risk of becoming one wretched scenario where everyone is on his or her own. The fear of dismantling a huge (though shaky) edifice may lead to alternatives which necessarily lead to compromise(s), and compromises have their own downside.

Greece may eventually find a compromise with the EU authorities, but it is wise to know in advance that this will (quite likely) mean more muddling through, the way it has worked over the last 3 years. As with all compromises many questions will remain unclear for the Greek citizen, while investors will be tempted to avoid Greece because there may be bank runs and other problems brought to the reader’s attention in the preceding sections.

One of the compromises that has been discussed as a rather remote possibility is that of parallel currencies. Greece could keep the euro, but also get the drachma. This is a major change from the current approach of bailouts which appears to have reached the end of the road. The concept of a dual currency was not invented last night. In the seventeenth and eighteenth centuries, under Louis XIV, France had a dual currency. In the second half of the twentieth-century France and Belgium had a “franc commerciale” and a “franc financier.”

The challenge for sovereigns, central bankers, and economists is to find a dynamic balance between the two currencies. Over time, any solution which systematically gives an advantage to the one over the other, or to particular participants, will harm both currencies’ relative position. Theoretically,

The drachma will be subject to upward and downward changes in rates of exchange against the euro, with a high probability of devaluation at issuance. When in September 1931 Britain came off the gold standard, sterling depreciated immediately from $4.86 to $3.97, and continued depreciating till November 1932 by which time it had fallen 30 percent. A successful dual currency solution will account for the fact that:

In addition, a dual currency solution will have a chance when the public and the market have confidence in it. If the drachma becomes subject to speculative frenzy, then the only possible outcome will be failure. To avoid it will require great care in the planning phase identifying in advance all possible Ponzi games and making them subject to criminal prosecution. When asked whether the stock of the South Sea Company will continue rising, Isaac Newton, who was Master of the Mint¹⁴, answered that “he could not calculate the madness of the crowd.”¹⁵

It needs no explaining that a thorough examination of “pluses” and “minuses” of a dual currency for Greece may provide useful scenarios for Italy, Spain, and Portugal. It will as well respond to current Euroland worries that if Greece falls out of the euro then a chain reaction may follow. By contrast, with a dual currency, which has to be clearly defined in its details, it might be possible to avoid:

Furthermore, the ECB would not need to print tons of paper money—the 300 wagons of Weimar Republic—to make good its promise of “unlimited firepower” to support Italy and Spain, whose bonds already holds as collateral on loans to banks.

In a way this would mean being in and out of the euro at the same time. If Greece stays in the euro without an alternative currency, then the country’s depression, now in its 5th year, will never end; this is by no means a pleasant prospect, says Thomas Krümmel, a UBS analyst, in his short paper on the dual currency option.¹⁶

A variation of this option is the real-time OUT/IN switch. According to this theory, there should be a weekend exit where Greece leaves the Euroland, devalues, and rejoins, all by breakfast on a Sunday. The idea is not stupid, but I don’t think it is practical. Since there exists no such precedence, at least to my knowledge, it is hard to know where to begin with the critical analysis of instantaneous exit and reentry.

In addition, a fast switch may raise legal and other challenges, including Lisbon Treaty changes and the need to re-denominate private sector assets in one go—a task which is tough though not impossible. The reason for bringing these issues up is to provide out-of-the box ideas. If they are properly analyzed, then they may suggest ways to:

If a dual currency, or a snap OUT/IN, presents challenges and risks which are still unknown, so does ECB’s (and the Fed’s) unstoppable money printing policy which leads to currency debasement. This is treason to their statutes which specify currency stability as topmost goal.¹⁷

The first irony with this sort of currency debasing is that the United States and Euroland, respectively, pursue a secret aim at dollar and euro devaluation not versus one another but versus emerging currencies—to support United States and European exports. The second irony is that both the American and European monetary authorities failed in their devaluation objective. The wanted currency depreciation proved to be a nonevent; a road which went from nowhere to nowhere.

Along a similar vein, Greece’s fiscal austerity measures are also offtrack because of similar reasons. The dynamics of a situation cannot be properly studied only by looking at numbers and in the books. Major errors can be made when the bookkeeping entries (which are often massaged) are taken as God-given, while capital analysis (and judgment derived from it) takes the back seat.

Frequent risk-on/risk-off changes in the global market see to it that uncertainty becomes the status quo, obliging those in charge of countries, banks, and other entities to account for Euroland’s breakup distracting them from other duties. Stories appear in the press about foreign exchange brokers and treasurers of multinational firms mobilizing teams to figure out how to:

Contingency planning is, of course, a prudent and necessary move. But what sort of contingency are we planning for without having analyzed the dynamics of different scenarios? For instance, which new currencies are more likely to be introduced? Which may trade freely? Will capital controls accompany them? Is there a risk of not getting paid at all in one or more of the postbreakup new currencies? Will forwards, futures, swaps, options and other currency derivative contracts materialize? Which will be the most likely constraints in current account transactions?

Another critical issue which may radically change the dynamics of the situation is whether the IMF ends its involvement with Euroland. (Already in mid-October 2012 it gave a signal that it will not participate in new Euroland bailouts.) Still another is: Which core European countries, possibly including Germany, would most likely end their support for bailouts? Will parallel currency solutions relieve some of the aforementioned constraints?

6.5 Myths and Realities About Sovereign Bailouts

If the institution of parallel currencies seems to be far-fetched, so is the decision to salvage countries which cannot pay back their debt through rescue packages. Let me put this statement in a little stronger term: The rescue of sovereigns with long histories of devalued currencies by way of loading them with more debt is a myth.

Since the end of World War II, Italy has been making ends meet through steady, soft devaluations. As the lira floated, the first question asked at top-level banking meetings was: “How the market treated our currency today?” For the government in Rome this was a nice way to avoid hard decisions, but the sovereign’s public debt continued to mount.

This is precisely what happens with Euroland’s bailouts. With the first rescue package of April 2010 Greece got an envelope with euro 110 billion in loans. The second bailout contained even more cash: euro 130 billion. So the handout was roughly euro 24,000 ($32,000) for every Greek man, woman, or child. True? False!

First of all, these are loans not handouts. Hence, they have to be repaid. Second, and equally important, while the price tag attached to the two “rescue plans” is euro 240 billion, the average Greek, who just experienced a sharp income reduction, would not see a cent of it:

Another fiction associated to these rescue packages is that because of them and of the 73.5 percent haircut connected to PSI (private sector involvement, Chapter 4) Greece is no longer headed for default. This is absolutely nonsense. Greece defaulted the moment ISDA decided that the PSI has been a credit event.

In the last analysis what has happened with PSI’s big haircut was the result of an ill-studied, forced agreement which replaced one creditor group (the banks) with another (EU/ECB/IMF). The haircut did not take Greece out of its ongoing depression; neither have the bailouts done that miracle.

That much about rescues. Another myth is associated to Euroland’s ability to pull the Greek economy up from under as (supposedly) by 2020 public liabilities will shrink to 120.5 percent of GDP from the 160 percent at bailout time. The fact that at end of 2012 Greek public debt-to-GDP rose to 179.8 percent speaks otherwise. It proves that such claim is plain smoke and mirrors, no matter how many economists subscribed to it.

The dismal science of economics, John Maynard Keynes used to say, finds it pretty difficult to forecast the next 3 months. Adds “ifs” and “buts” in forecasts and what you find is that many of them are an exercise in futility; a way to lie with numbers. Forecasting what will be happening 7 years later with the public debt: from 2013 to 2020, is not the stuff serious people deal with.

This leads us to the conclusion that, with so many unknowns in the recovery equation, there is practically no chance that the second salvage plan is the last one. At best the rescues allow Greece to buy time up to 2014, or so. No virtuous economist will stick out his head to prognosticate what might happen then. The main two variables influencing the sovereign’s future are:

Unavoidably, this will be painful. Restructuring and restraining must be watched carefully over the medium to longer term as their effect will rest on the ability of successive governments. Those governments’ performance must be far better than that of their predecessors which run Greece after the end of World War II, and brought the country in the mess it finds itself at this moment.

Equally important to the success of any sovereign plan is the attitude of common people—particularly if these were corrupted by unstoppable entitlements. Let me take a brief example to illustrate this point.

My 80-year-old aunt, who lives in Athens, was telling me on the phone that the medicines she needs to take are no more “free.” I reminded her that in the 1940s, when we were young, the medicines were not “free” either. We had to pay for them and yet we survived better than what people manage to do now. She answered: “Yes, but the government took upon itself the responsibility to provide free medicine for all.”

True enough the sovereign did so, and it went bankrupt. What many people don’t appreciate is that the government has no money of its own. It gets its money through taxes and by means of the central bank’s printing presses, which contribute to inflation. If the list of “free” goodies increases then taxes also must increase to a level which crashes personal initiative. In some Scandinavian countries personal taxation is up to 80 percent, and (contrary to the Club Med countries) the people pay their taxes.

The government, any government, has no major wand to make ends meet when expenses increase but its income shrinks—anymore than a household can perform that miraculous act. If weak governments have allowed endowments to skyrocket, then the political leadership must have the courage to cut them down to affordable size, defined by the standing of the economy not by politics.

This downsizing is resented by the public and is exploited by the media as sensational news. Even serious people fall into the trap of thinking that unsustainable endowments can be preserved. Here is how Nikos Xydakis, chief editor of Kathimerini, looks at the future of endowments in Greece: “Abiding by the terms of the new bailout agreement … will inevitably lead to the shrinking of the Greek welfare state and sweeping changes in social structures.”¹⁸

It would have been better if Greek governments had downsized the unsustainable entitlements (which have become a second income) and cut down other unsupportable expenses—but it did not happen that way. As in all Western countries the State Supermarket¹⁹ kept on increasing the public debt, which led to the current depression (or, if you prefer, major recession). Therefore, it’s good news that by the force of things the nanny state will be slimming down. Xydakis makes two points:

True enough, redimensioning entitlements is neither a popular nor an easy job. There will always be people who say that “downsizing the access to publicly paid medical care runs against the concept of “equality” (whatever that may mean). But it is no less true that prior to WWII and immediately thereafter there was no publicly paid, medical care—yet people lived nicely. What’s more at that time there were plenty of jobs (see also in Chapter 10 the trend toward high cost in abused health care).

What is described by these two bullets can be said of every western nation which has espoused the policy of living beyond its means. It is not only the Greek, as Xydakis says, but every welfare state that is too expensive, corrupt, and ineffective at the same time. Every State Supermarket is characterized by:

Here is an example. Four female employees of Greek Social Security (IKA) in Kalithea, an Athens suburb, and two of the women’s husbands faced an Athens prosecutor in connection to a benefit scam believed to have cost the public institution as much as euro 20 million ($26 million). An arrest warrant was also issued for a seventh suspect, a woman who had been employed at an IKA branch in the Peloponnesus.

Allegedly, the suspects had illegally assigned benefits to people not insured with IKA, taking a cut of that windfall money. The police found in a diaper box of one of the accused euro 960,000 in cash. Its owners and accomplices now face multiple charges of fraud, embezzlement, and money laundering. That’s far from being the only case of fraud in social net benefits.

State Supermarket and fraud are nearly synonymous. If one thinks that he can stamp out corruption, and squeeze out of the health care system, or any other endowment, profiteers and crooks, then he or she is living in a cloud. Profiteers got their schooling in the snake pit of politics and are protected by politicians elected by the people.

The talk that public health care is an “inalienable right” is made by those who profit from it, and it is patently false. Life has never been a “right,” let alone an inalienable one. We know nothing about why we are on this planet, or where we go afterward (if anywhere). As for the argument that “the only survivors will be those who have money,” is still another myth.

The healthier people are those who know how to regulate their life, their body, their mind, and their assets. After all, it has been the ancient Greeks who have said: “A healthy mind can be only found in a healthy body.”²⁰ Reading obesity statistics I doubt whether the majority of people heard of it.

6.6 Bankruptcy Is No More a Dirty Word

The view taken in this section is contrarian to the one Section 6.2 has presented; it is based on the opinion of people who maintain that early on a Greek bankruptcy would have been manageable, if approached by way of a thoroughly studied and coordinated program. The public debt problems of Greece were magnified as the terrible ifs accumulated and guts to take bold decisions were as scarce as chicken teeth.

The IMF executive made no reference to Greek bankruptcy if restart and recovery were not on call, but in the back of his mind he did not stay fenced-in. He got out and interacted with the problem. When this statement was made, 2 full years had passed since Bailout I and nearly 2½ years from the time the budgetary deficit of Greece stood at a stratospheric 12.5 percent of GDP.

According to an article published in The Financial Times, on October 19, 2009, George Papaconstantinou, then Greek finance minister, informed his Euroland colleagues that (in that year) his country’s public deficit would be 12.5 percent of GDP. This was more than 300 percent higher than what the government in Athens had estimated for 2009.

Behind the scenes Papaconstantinou’s admission set off alarm bells. Still it took from October 2009 to April 2010 till Euroland leaders presented an ineffective crisis response. The latter included the bailout fund’s launch. In Euroland, chiefs of state and their advisors knew that by that time the Greek sovereign was bankrupt, but nobody dared to say this aloud.

“They are all irresponsible, none of them is capable of ending this crisis,” said Aristomenes Antonopoulos, a lawyer,²¹ expressing in a dozen words what the majority of Greeks thought about the government(s) and their role in the crisis. We live at a time when even the meaning of the word: bankruptcy is no more what used to be.

In America and in Britain this transformation of bankruptcy’s concept and meaning has been a political maneuver to advance the private agenda of speculating big bank managers and that of their lobbyists and political friends. Though some bankruptcies such as Lehman’s might have rocked the global financial system, in the end the results were attenuated as the US Treasury saved from the ropes everybody else than Lehman.

Some sovereigns, for instance Argentina, capitalized on this change of attitude toward what bankruptcy means, and used the new definition (legalizing theft) to their advantage (see Chapter 13). In October 2009, Greece too could have done the same if Papandreou Junior had the guts to do it. Argentina recovered from bankruptcy in a mere 2 years rather than going for 4 more years through the tunnel without seeing an exit. Several economists say that for Greece things were not that simple, because:

This is questionable because, after the multiyear absurdity of the currency board, Argentina’s economy was in very bad shape indeed.

This argument forgets how eager bankers are to put their institution’s money to work, incorrectly discounting the risks they are assuming. According to several opinions, in the case of Greece the failure to declare bankruptcy in October 2009 has been a lost opportunity. It was much better to do so and then use the EU/ECB/IMF money to restructure and to invest in industry and jobs.

Such a contrarian move had chances to succeed provided that it was accompanied by fiscal discipline and zero new debt; also, that a new Heracles showed up in Athens to clean out fraud and scams. In his letter to The Economist, Greece, A. Manthos suggests that Greece has a corrupt political class, people who:

Bankruptcy or no bankruptcy, as long as these ills persist neither the economy nor Greek society will recover. The change must come from within. Foreign pressure for clean-up will not work because those who profit from the status quo and the State Supermarket’s goodies will be quick to cry against “foreign intervention” and “the way to slavery”—while the real slaves are the majority of Greek people and the masters those Manthos calls volevomenoi—loosely meaning those “made comfortable” as recipients of state favors and patronage by the politicians.

The volevomenoi are by no means only in high places. They support their political friends and cronies all the way down the social ladder. Another letter to The Economist looked at this issue: “It must surely seem “austere” to cut by 30 percent the pension of a Greek civil servant who was undoubtedly counting on that income to live out the next 25 years … But when the pension is a monthly euro 1800 ($2300) paid to a retired assistant garbage truck driver in the Peloponnesus (I kid you not), perhaps some other term would be more appropriate.”²³

In Italy and in Spain, too, the young are counting on grandfather’s pension so that they don’t need to work. It does not take a genius to understand that compared to the might of some emerging countries (like China) which are in their way to conquer the global market, Mediterranean economies are weak. They simply cannot afford excesses and survive.

If Greece had defaulted (which it may still do; Section 6.7), it would have been the first developed country to default for 60 years. A bankruptcy would have cost the EU/ECB/IMF much less to ring-fence (to avoid contagion) than the euro 240 billion, with plenty of money left to help in restructuring of the Greek economy, provided the aforementioned cultural change became entrenched and well-documented.

An article in The Economist has pointed out that, as hard numbers “suggest a Greek default would do little lasting harm to the rest of Europe’s financial system … What is more worrying for Europe’s policymakers is the thought that Greece’s affliction would spread not just to foreign banks but to foreign governments. Just as Lehman’s collapse told investors that a Wall Street bank could fail, a Greek default would tell them that a Western government could renege on its debts.”²⁴

This point is well-made. Fear rather than facts led to the tandem of bailouts and from there to bailout fatigue (Chapter 5). One of the opinions heard in the course of my research is that those who engineered these bailouts will live to regret them. Not only for Greece but also for Spain, Italy and other countries in trouble, bailouts will not avoid sovereign bankruptcies.

In itself the fact that progress toward the economy’s ability to stand on its own feet is being watched is a positive act. The downside is that it adds to the risk that a protracted liquidity crisis turns into a solvency crisis. On October 18, 2012 the evening bulletin of Euronews pointed out that in a month’s time (mid-November 2012) the Greek government will be short of liquidity and that’s the fourth liquidity crisis since January 1, 2012. If bankruptcy came as a result of such successive liquidity crises, where is the positive effect of the bailouts?²⁵

If the purpose of a bailout program is to redress the economy and win back the citizens’ confidence, then the Greek bailouts were a failure. Capital markets are still afraid of Greek debt and economic recovery—in real life sense—is nowhere to be seen. The goal of a rescue program should never be to leave the economy in a condition that it is not capable of reviving through its own forces in the foreseeable future.

6.7 The Difficulties Greece Encounters Are Extreme, Not Unique

Sovereign leveraging was invented 25 centuries ago by Pericles, as an instrument to assure his re-election year-after-year by the demos of ancient Athens. What he spent was public money and when the wealth of the city-state of Athens could not afford anymore his handouts, Pericles paid for them with the wealth of the Alliance carefully kept in the Parthenon.

As it should have been expected, the other city-states objected to this cavalier use of their money, and some quit the Alliance. Pericles started military expeditions to subdue them and with this he ignited the Peloponnesian 30-year civil war which signaled the end of ancient Greece and opened the road to Roman conquest. Let’s make sure not to repeat the same mistake.

Nowadays, like practically all other western countries, modern Greece has suffered from spending beyond its means, a direct result of total lack of political leadership. Nikos Xydakis, of Kathimerini, is right when he writes in an article that “Greece has been in a state of emergency for some time now, and it must be addressed. The people have a duty to themselves to reevaluate their priorities with a view to the future, without, however, compromising democracy or breaking society into so many pieces that it can no longer be put back together.”²⁶

There is plenty of work to do to come up from under. “The reason Greece has caused such difficulty is that the country’s failings are extreme, not unique. Its plight shows that the Eurozone still seeks a workable mixture of flexibility, discipline and solidarity,” wrote mid-February 2012 Martin Wolf, the economist, in The Financial Times.²⁷ Wolf’s words have been tough but prophetic.

By early October 2012, not quite a semester after the PSI, Greece’s official unemployment rate rose to 24.4 percent, the EU’s second-highest after Spain. The jobless rate among young Greeks hit a depressing 55.4 percent, overtaking Spain’s by a fraction. A lot of private-sector workers, among them teachers and nurses, complained of not being paid regularly by the sovereign (who allegedly used some of bailout money to pay salaries and pensions).

A decision on disbursing the new bailout funds for Greece has been time and again delayed until the Troika, and then Euroland’s finance ministers, approve—and they approve only if they believe the Greek government has lived up to its promises. These are the bailout’s conditions which include deep wage cuts and plenty of layoffs in the outsized public sector.

The difficulty to make ends meet at national budget level led to renewed uncertainty over whether Athens will default or will not, even if debt restructuring theoretically cut the amount due on public loans. The Greek finance minister believed that cuts of almost euro 5 billion in pensions and public-sector salaries, included in the draft budget for 2013, were deep enough to achieve a primary budget surplus of 1.4 percent of GDP.²⁸ The Troika was concerned that because of the economic situation:

To the opinion of some observers, the government shied away from reducing the bloated number of civil servants, despite a commitment to cut public-sector payroll by 150,000, with civil servants taking early retirement after a year on 75 percent of their previous salary. A not-so-satisfactory solution reached to accommodate the government’s coalition partners.

The multiplying budgetary difficulties brought under question the wisdom behind the chosen course of rescue packages, which did not assure that Greece was not going to default or leave Euroland. On these two subjects the economists’ opinion was and remains divided.

Several experts think that Greece will default on its debt following an insufficient overall debt reduction and the fact that there is no economic resurgence. Moreover, the second aid package left the country in an unsustainable debt situation. There is a difference between accepting 12th-hour financing conditions and returning to growth potential.

If the management of the Greek economy when it was still growing left so much to be wanted, the management of the austerity program, imposed since the first bailout, has been worse. The way an article in The Economist had it: “The biggest blows have fallen on small family businesses (with 50 employees or fewer), which make up 99 percent of enterprises and employ three-quarters of the private-sector workforce. Many have closed (and) sacked most of their staff … the entire private sector is hemorrhaging workers.”²⁹

If Greece had its own currency it would have needed to devalue by at least 40 percent to get itself into a growth path, provided that other clauses like restructuring the labor market and promoting competitiveness are fulfilled. Of course, what is written about Greece is equally valid for Spain, Italy, Portugal, Slovenia, and Cyprus. With Ireland that makes 7 out of 17 Euroland member states. That’s contagion and the trouble with high debt is that it tends to remain excessive.

According to economists and financial analysts, even if a Greek exit from Euroland did not materialize, it would not be the end of the European debt crisis. Negotiations will have to be undertaken with Spain and Italy. Both are over the cliff—but ask for conditions better than those provided to Greece.

“Better terms” is what Spain’s Mariano Rajoy is asking—which is an expression of a hope rather than a vase backed by solid argument, and “hope” is not a strategy for sovereigns. What the case of Greece, Portugal, Italy, and Spain has demonstrated is that politicians can become a destabilizing force on the country’s prospects. The public knows that a survey by Edelman, a public relations firm, found that only 13 percent of the people trust political leaders to tell the truth.³⁰ Lying to the public and spending beyond the state’s means:

A mistrust of politicians is representative of the postwar spirit in Europe where democracy, wealth, and prosperity have been used as being synonymous—which they are not. Spending way beyond the state’s means eventually leads to bankruptcy.

The social net and its entitlements have nothing to do with democracy. They saw the light under an autocratic regime. Pensions have been first established in the nineteenth century under Otto von Bismarck. Prussia was no democracy. The entitlement Bismarck instituted at his time was affordable by the state, because retired people would live another 2 or 3 years, not 20 or 30 years as they live today.

6.8 Conclusion: Oedipus at Colonus?

In ancient Athens, the role tragedy cast upon itself was one of knowledge and explanation of the human psyche. Dramatic authors made an analysis of a mortal’s soul and of the role of destiny. Usually, though not always, their thesis contrasted to the role played by science and philosophy. Science searches into the physical unknown while philosophy’s contribution is speculation and examination of alternatives in ways of life, in an effort to provide an integrative approach and more comprehensive course.

As a dramatic author, Sophocles is a believer in the role of the divine and at the same time an analyst of the ambiguities of destiny. The myth of Oedipus has accompanied the dramatic author’s long career way into old age. At 75, Sophocles wrote Oedipus Rex with the hero falling from the pinnacle of power to the trough of misery. Fifteen years later, at the age of 90, he produced Oedipus at Colonus.³¹

In this second Oedipus, Sophocles’ aim is to meditate, and then explain, whether or not the Gods can punish an innocent; to clarify what may become of the human soul (and of the body it inhabits) in a world governed by deities who define the destiny. To do so in a way leaving few doubts about the forces behind the outcome, events develop slowly along Oedipus’ life till the blessed death of the tormented sufferer whose place of disappearance from Earth (the sacred precinct of Eumenides) will bring blessings to the country and people who received him—Colonus and (ancient) Athens in particular.

In a way emulating what has happened in Greece after World War II and prior to Euroland’s bailouts, in Oedipus Rex events go to the hero’s head, sometimes with sorrow and in other times with joy. Nothing informs in advance about the divine’s next move and the spectator’s mind moves between three stages which follow one another. The one is revolt against a diabolical trap into which an honest man has fallen. If Oedipus is innocent then who is to blame? The Gods?

The second stage is fear. The main player in this is Iocaste, who does not believe in oracles. She thinks of herself as being a woman of experience and of sound advice: What’s the use of being scared when the hazard is the sovereign master? The best is to show no resistance she counsels Oedipus, who now feels that he has been abandoned by the Gods.

The third state is catharsis. “Apollo, where is Apollo the only author of my miseries,” Oedipus asks. He knows that other Gods, too, hate him. His tragedy is that of the human race, it’s not that of a single individual. In searching for what may lie in the human soul, no ancient tragedy is more penetrating than this one.

“Apollo dedicated me to misery,” Oedipus says. “But it is myself, and by my own hands, who punctured my eyes.” No other ancient Greek tragedy can describe in a more eloquent and pragmatic way the status of modern Greece. Globalization made life difficult for the Greek industry which was not so secure of its standing, but there was a textile, chemical, and mechanical industry offering; they were wiped clean by the developing countries’ competition.

As the chances of the Greek economy standing on its own feet in a globalized market waned and incapable governments were unable to redress the situation, the public pressed on with its demands for “more and more” goodies provided free of cost by the nanny state. That’s what Theodoros Pangalos called “We ate it up together” (Chapter 5). Getting deeper into debt succeeded in puncturing the Greek economy’s eyes.

“Guilt” or “innocence” was not touched upon in Oedipus Rex, but in Oedipus at Colonus he assures that his frightful sins were not his fault. Literary critics say that, in this, Sophocles was dealing with an important theme widely discussed at his time and, as matter of fact, ever since. Guilt or innocence is a question always present, and the chorus of the economic drama offers divided advice.

Argentineans visiting Athens suggested that Greece should default the big way, like their own country did in 2001. This argument forgets that in 2011 Argentina’s condition was singular because of strong export prices and sustainable external surpluses. By contrast, today’s Greece cannot rely on favorable external conditions in case it opts out of the euro and at the same time declares bankruptcy. Moreover, it is already in a deep, fiscally induced recession.

Other voices are contrarian to “the big way” bankruptcy. To the opinion of Mario Blejer, former governor of the Central Bank of Argentina, and Guillermo Ortiz, former governor of Mexico’s reserve institution, exiting the euro at present time would require the compulsory redenomination of:

In Argentina, where dollars were widely used as a unit of account, redenomination took the opposite road of “pesification.” This had quite significant redistributive consequences. Argentina’s experience also demonstrates that exiting a long-term peg³²—which might be compared euro membership—tends to sink large private corporations with access to international financial markets, because their foreign currency liabilities cannot be redenominated.

As far as redenomination in a drachmageddon is concerned, the condition of Greek companies may be even worse because Greece would have to deal with a universe of covenants since every contract is in euro. By contrast, Argentinean contracts had continued to be denominated in pesos, since the currency board did not eliminate the local legal tender.

Ernst Juerg Weber, Professor of economics at the University of Western Australia, suggests that leaving Euroland is no option for Greece. The new drachma would be valueless, as there would be no demand for it, and it would stay in circulation only if the Greeks were denied access to foreign exchange, preventing the informal use of the euro. That would require draconian exchange controls.

It is always rewarding to examine alternative courses of action because the scenarios can become eye-openers. With an early bankruptcy, the crucial question would have been how to regain competitiveness as early as possible. Whenever this is being asked costs and benefits pop up, as well as drastic measures. The head of the IMF mission to Greece said that even after 5 years of recession, Greece needed another 15 percent cut in labor costs, adding that this could best be done by attacking the rigidities imposed by vested interests. If that proved politically impossible, then it had to come from real wage cuts.³³

Larry Summers, former US Treasury secretary and former president of Harvard University, told the 2012 Aspen Ideas festival that the different rescue plans only bought Euroland a bit more time to sort out its longer-term structural woes. Summers is right. More doubtful is whether the time being bought served in correcting Euroland’s woes, and the answer is not positive.

On July 6, 2012, Jens Weidmann, Germany’s top central banker, criticized the decisions of the preceding June 28/29 Brussels summit to help debt-laden Euroland members, warning that the bloc was constantly mutualizing risks and weakening the agreed rules. “Fiscal aid should be the last resort of crisis management,” the president of the Bundesbank said. “This position has by now been recognizably weakened.”³⁴

Less than 3 weeks later, on July 25, 2012 José Manuel Barroso, EC president, arrived in Athens to face a 1-month-old government that had yet to agree on a plan to fill the euro 11.5 billion budget hole identified in 2011, plus an additional shortfall estimated at euro 20 billion which EU officials believed Greece will confront during the next couple of years. That meeting also brought in perspective that, till that date, Greece had completed only one-third of some 300 benchmarks for fiscal and structural reforms detailed in the second bailout.

The Oedipus story in search of a psyche³⁵ is being widely repeated in the West: from neighboring Italy to Spain, France and all the way to the United States.³⁶ Western societies have reached the state of inability to decide what they want to achieve, a situation reminiscent of an answer Stalin gave to Mao during their interminable negotiations in Moscow. Mao suggested to send for Chou En-Lai. Stalin answered: “If we cannot define what we want to achieve, why to call Chou?”³⁷

That is, indeed, the question. What do we really want to achieve? A political and economic resurgence of the West? Another “do good” and “be good” nanny state society, like the one just descended to the abyss? A way to enter immortality so that 1000 years from now, if Homo sapiens are still in charge, people will talk of Greece in 2113?

Oedipus King and Oedipus at Colonus don’t have the same ending because the second time around Sophocles searched behind Oedipus psyche and on the role of destiny, with the result that the scenario has taken a different road. With hindsight in Oedipus at Colonus the ancient dramatic author looked for clues about what constitutes the change in his main actor’s psyche, and its opposite a thinly veiled fallacy.

Oedipus is no more cursed for crimes committed in his youth, but neither is he the mighty king of Thebes. In his new status he has become a fragile person who lives a curious life in the land of Attica. Between these endings, Oedipus’ death comes in the middle of two currents: That of combat (Oedipus King) and the alternative of fulfilling a long but peaceful time (Oedipus at Colonus). For mortals and for nations that choice is always present. The latter, however, requires a much greater strength of the soul than the former and a great deal of more patience.

End Notes