Greece – PM Papademos Appointment Is A Moral Hazard

Athens News appears to support the appointment of Papademos but I view it as a moral hazard, Greece is promoting the person that played part in causing the problems Greece faces today.

Greece is giving bankers an incentive to damage the country by giving them more power.

This video explains what I mean by moral hazard

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Athens News has an article voicing its opinion on why appointing Papademos was a good idea

To go through the highlights of the article piece by piece

THE SELECTION of Lucas Papademos as prime minister of the transitional government represents the last chance for Greece to secure its future in the eurozone.

This paragraph exposes the sadly lacking knowledge of economics by today’s mainstream media.

Greece now has the Euro in circulation, the Greek banks are supposedly independent of government so it is down to the Greek government whether they pull out of the Euro or not. Greece in the Euro or out of the Euro is completely down to the Greek government.

As long as the Greek government only accepts Euros to pay taxes then the Euro will be the currency of Greece and there is nothing that Germany or France can do about it short of a military invasion to oust the government in a coup.

But a degree of domestic political sanity has, at last, been established. Such was the need for stability that, before he had even made a single public utterance, Papademos quickly became accepted both at home and abroad as the most suitable leader of a coalition government born out of bickering and disagreement.

Let people not forget that the reason Greece has a “coalition government born out of bickering and disagreement” is that Papandreou refused to go to election despite the massive discontent with his administration amongst the Greek public.

It is the lack of democratic elections that has led to the coalition government and not the lack of direction of Greek politicians

A former governor of the Bank of Greece and ECB vice-president, Papademos is both a technocrat (requested by New Democracy leader Antonis Samaras) and well-versed in the language of EU bailouts and economic convergence (sought by George Papandreou and other party leaders).

Papademos is “well versed” in “economic convergence”. I don’t think anyone will disagree that Papademos is one of the most experienced people in the world when it comes to merge currencies but you have to look at how he merged two currencies to assess whether his experience is good or not

Let people not forget that Papademos was involved directly or indirectly with Greece’s fraudulent entry into the Euro currency. And this cooking of the books has led Greece to todays problems which people think he can solve. This is a massive, massive moral hazard. The Greek political class is rewarding someone for creating problems in the country. What’s next? Giving bank security jobs to thieves convicted of robbing the same banks? Or maybe promoting people convicted of drink driving to traffic policemen.

The appointment of Papademos sets a dangerous precedent.

Is this really the type of person the greek media should be welcoming?

Unfortunately, as regards the eurozone, Maastricht was all flesh and no bones. The experience of economic integration has been characterised by politicians failing to understand the fundamentals of economics, and economists failing to understand the fundamentals of politics.

So Athens News goes from praising Papademos’s experience with the Drachma and Euro to saying that economists have failed to understand the fundamentals of politics. So now Athens News is criticising Papademos and one paragraph after praising him.

It is clearly not for Papademos alone to cure these ills, but, as a technocrat-cum-primeminister who has the ink of Greece’s very first euro bills under his nails, he has sound credentials to judge the country’s bailout needs.

Back to praising Papademos. Athens News completely ignores what Papademos’s part was in the book cooking that took place in Greece’s entry to the Euro. And which led directly today to Greece’s problems.

Indeed, rather than turning its back on the euro, Germany is considering even tighter European integration through fiscal unity. And if that’s the case, Greece can scarcely hope to make the cut. Long before such considerations, however, Papademos will need to find a way to balance the needs of ratifying the October 26-27 bailout with the further austerity which that bailout will demand.

About Greece making the cut, a Greek default would immediately bring Greece in line with the Maastricht Treaty, after a default the Greek government finances would be among the strongest in Europe when it comes to government borrowing versus GDP.

The biggest plus factor of the Euro is that is allows European governments to default without sending the country’s citizens into poverty.

Some might say that the purpose of the Euro was for this very reason, to allow governments to default without harming the population.

The problem today is due to investors believing that because Greece was in the Euro, that Greece for some bizarre reason should get the same credit rating as Germany.

This mistake will not be made again, people have learned that all countries in the Euro should not get the same interest rates.

Greece should default and I mean a 90% default plus. The default will force the Greek government to work inline with the Maastricht Treaty and the Greek government will also have to start borrowing at interest rates which bear a relation to reality.

The Greek crisis is simply a growing pain of the Euro. Europe should let the markets operate freely, Greece will feel some pain but in the long run the country will have a much stronger economy and an economy which is comparable to Germany regarding government borrowing vs GDP.

To say that no party of the Euro expected some bumps in the road as countries adjusted to the Maastricht Treaty is nonsense and yet that is what we are being told.

We are being told that what is happening in Greece was unexpected. And the countries in Europe are now doing everything they can to stop the benefits of the single currency being realised.

The benefits being government borrowing within their means.

The Greek bailout which we are being told is essential to the future of the Euro is to my mind a false assertion to disguise the real objective which the general public has not been informed of.

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