The € crisis; farce or tragedy?

 I don’t know whether to laugh or cry over the European debt crisis because I can’t make up my mind whether it is farce or tragedy. At this time it’s the former but on my prediction that Greece will default in less than a month it could rapidly become the latter.

It’s definitely déjà vu all over again.

When the banks went tits-up in 2008, the ‘moral hazard’ question was why should the US taxpayer prop up Lehman Bros and its creditors when great reward for great risk have gone hand  in hand. Isn’t this reducing banking to a casino where if the bankers win they keep the moolah but the taxpayer picks up the losses?

Now the question is why should the northern taxpayer pick up the tab for Greek incontinence?

In the earlier case, the US Government let Lehman go to the wall pour encourager les autres (which of course was overseen by Hank Poulson, latterly boss of Golden Sacks, Lehman’s biggest competitor).

The outcome was a collapse of confidence in the whole banking system, not quite what was intended

In the current case, the plain answer is that if Greece makes a disorderly retreat there could be another run on the banks and on the debt of solvent countries that have liquidity problems, especially Italy and Spain.

One outcome of all this is that the European leaders have shown that not one of them is fit to lead a pig to market, as my old man  used to say.

At the outset they maintained that Greece wouldn’t need a bail-out. It has had two.

They maintained that the Greeks would not infect other countries. They did.

They said that the banks would not need to be re-capitalised because European countries never default. Don’t hold your breath.

The US government is in competition for the pusillanimity prize.

It supported a private-sector rescue plan for Bear Stearns. It nationalised Fannie Mae and Freddie Mac. It delivered the coup de grace to Lehman whilst rescuing AIG.

But at least it did something. The European leaders can’t agree on a single thing. National governments, the ECB and the European Commission all seem to be going off in different directions. Coats are now being trailed that bond-holders may have to take a bigger haircut from Greece than they have already signed up to.

That’s pretty good way of further damaging confidence in the banking system.

But ‘Keep buggering on, Inches’, as Winston used to say to his valet.