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Soccer and the G-8's Greek Quandary

from the May 22, 2012 eNews issue

There was no shortage of inebriated Chelsea fans on Saturday as Didier Drogba scored the final penalty kick after 30 roaring minutes of overtime to beat the German football (soccer) team Bayern Munich. The G-8 leaders took a break from harrowing questions about Greek's potential exit from the European Union to watch the European Champion's League Final. A White House photo shows British Prime Minister David Cameron shooting up his arms in the excitement of a London victory, while German Chancellor Angela Merkel stares in stunned German defeat.

It would be nice if all the troubles of the world could be resolved in the relatively bloodless battles of sports matches. As serious as Europeans can get about soccer, however, the eight world leaders had to turn away from rejoicing Chelsea fans and face the matters that will determine the future of the European Union.
The Euro is close to its lowest 2012 level in the markets due to uncertainty about whether Greece will stay in the European Union. The Greek population has not fully embraced the austerity measures required by its lenders, and upcoming elections June 17 will give the Greeks the chance to choose leaders who will push for continued frugal spending – or not. At stake is another bailout which Greece needs to keep from defaulting.

Former Greek prime minister Lucas Papademos said Wednesday that "the risk of Greece leaving the euro is real," creating even greater uncertainty in the markets. Papademos insisted that Greece needed to stick to the austerity measures or face a much worse situation. The Greeks are not in a convenient position. T hey must either knuckle down and stick with the heavy budget cuts and structural reforms their leaders agreed to as conditions for their more than $300 billion in bailout loans during the past two years, or leave the euro altogether, which could decimate the already hurting Greek economy.

A front-running candidate in Greece, Alexis Tsipras from th radical left Greek coalition Syriza has tantalized many with arguments that Greece neither has to embrace the austerity measures nor leave the eurozone. Tsipras makes the case that Europe needs Greece to stay in the EU lest the whole eurozone collapse. The fact that Greece is an expensive ball and chain that has long engaged in spending that exceeds its income apparently doesn't matter to Tsipras. He wants to renege on the conditions for the past two bailouts, keep the money, remain in the EU, and tell Germany and the rest of Europe to eat it.

Greece is facing hard times. Tsipras blames the austerity measures for the terrible state of the Greek economy with unemployment up over 20 percent. At the same time, Germany has managed its money well over the years and yet is expected to keep pulling this heavy freeloader out of its hole just to hold the EU together. Now that France's Nicolas Sarkozy no longer provides a conservative partnership with Merkel, Tsipras sees an opportunity.

France's new President Francois Hollande wants measures to help the Greek economy grow, rather than force Greece to grin and bear lower governmental spending. The new French president wants all of the eurozone to jointly issue bonds to generate money that could be used to give a little gas to the economies of hurting countries. Germany wants to stick to the austerity measures, however, and force troublesome countries like Greece to get their books order so they don't continue to be a drag on the entire union.

"Talk is cheap. True reform, whether it assumes the shape of austerity or growth, will be expensive on both an emotional and financial level," said Bonnie Baha, portfolio manager at DoubleLine, which has $34 billion in assets under management.

The 27 countries of the European Union will meet briefly on Wednesday to briefly discuss matters and offer their ideas. There is no simple, pain-free route out of the mess.

There are advantages to having a common currency throughout Europe, primarily in the ease of trade and travel it offers. However, Greece has been disadvantaged by the lack of freedom to raise and lower the value of its money. Europe has been disadvantaged by having to deal with heavily indebted countries strapped to its ankles. It requires great effort to hold multiple disparate nations together, complete with their various weaknesses, and it has proved a constant challenge for those 27 countries to reach an agreement when problems arise. These things demonstrate the dilemmas intrinsic in too-large of governments and should give serious pause to anybody who thinks that a global government wouldn't be – at the least – a bureaucratic nightmare. 

At the same time, the whole thing could be resolved by a nice little game of football.  Greece has soccer players aplenty.  If the Greeks win, they get the bailout money regardless.  If Germany wins, Greece has to submit to the austerity measures.  Football could offer so much more than a coffee break in the headache-load of discussions facing the G-8.  Or not.


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