Bitter pills for Greeks to swallow

David had loaned his friend John $500 last year, $500 the year before and $500 the year before that. David knows John's income potential is such that he would never pay any of the loans back. David in desperation lastly advised John at least to find a job as he has not been working for years. In reply, John tells David "You are trying to impose your fascist views on my right to be lazy". Should David give John another loan of $500 this year?

"When people get used to preferential treatment, equal treatment seems like discrimination", said Thomas Sowell, an American economist, who is currently Senior Fellow at the Hoover Institution, Stanford University.

As I have of late been following the drama of Greece's tug of war with European Union (EU) the anecdote of the loan transaction between David and John and Thomas Sowell's famous saying on preferential treatment have often come to mind. The drama also reminds me of a child who habitually stomps the floor to demand from his mother something not readily available.

Greece is on the verge of bankruptcy. Whatever trust there was between Greece and its creditors has already vaporised. The Greek banks have been shut down forcing the citizens to withdraw a limited amount of money from ATM machines due to liquidity crunch. With banks shuttered for more than two weeks and the economy on the edge of an abyss, Greece is in desperation. It needs 7.0 billion Euros by July 20, when it must make bond redemption to the European Central Bank (ECB) and a total of 12 billion Euros by mid-August when another ECB payment falls due.

Greece has had two bailouts worth 240 billion Euros from eurozone countries and the International Monetary Fund (IMF), but its economy has shrunk by a quarter since the crisis began, and unemployment has soared above 25 per cent.

Billions of Euros have been loaned to Greece. The puzzle is why more money should be pumped into a country which does not know how to handle the borrowed money. When the country is asked to have a functioning rule of law and governance, raise their productivity, end their nepotism and corruption, make their economy competitive, live within their means and behave like any other decent country in Europe, the Greeks throw tantrums.

How lovely! How pleasant life would have been for those countrymen if their poor country in the developing world could be as lucky to get dole-like loans never to be repaid!

Greece's foot-stomping stems from their getting preferential treatment almost for granted, which they never should have gotten in the first place. Now Greece in effect threatens to set fire to their neighbours if it is not given what it has accustomed itself to. Greece demands constant attention and will not take "no" for an answer. "Give us billions of Euros or we will get violent", they seem to mean by their behaviour.

One beauty about Greek people, however, is their love for democracy. It is after all the Greek people who invented democracy and led the world civilisation in the distant past.

Some Greeks may be lazy at times but they are fiercely democratic. Every time the Greek leaders have to make a decision about their interest in the EU club or elsewhere they come back to their people to give judgment through a referendum or to their parliament for a nod. To Greeks their independence and freedom of choice matters more than the dictates of the outside world.

The resounding 'NO' votes in the latest referendum, held on July 05, against what EU suggested for their country shows how heroically the people in Greece guard their self-judgment and defies the rules the creditors tried to impose on them.

But a democratic verdict in a country cannot mitigate the burden of loans made available by taxpayers of a different country.

Eurozone leaders told Greece at an emergency summit on Monday (July 13) that it must enact key reforms to restore trust before it can expect them to open talks on any new financial rescue to keep it in the European currency area.

After a marathon of discussions, lots of sleep deprivations and hours of tough bargains almost round the clock in a bid to help save European solidarity from reaching a breaking point Greece and its 18 partners in eurozone have at last agreed to begin talks over a third bailout, this time on more brutal terms. Greece had to sign up to a painful agreement with Europe, agreeing to harsher reform proposals. Most of these proposals were denounced by Syriza, the Greek party in power, during their successful election campaign in January and were overwhelmingly rejected by proud Greeks in a referendum just a few days earlier.

For the proposed bailout worth up to €86 billion (USD 95 billion), Greece must, by Wednesday (July 15), pass wide-ranging laws on pensions, taxes and many other austerity measures. Greeks will have to swallow further insults while their country has to commit itself to implement a privatisation programme involving humiliating external oversight. Most painful of all, the country will have to deposit "valuable Greek assets" into an independent privatisation fund with the aim of raising €50 billion over the course of the bailout.

The Greek circus looks ridiculous. Tsipras, the Greek prime minister, just the other day, urged his countrymen to vote "NO" to the demands of the creditors, and said "if you vote "Yes" I will resign". Greek people then voted "NO". EU said to Tsipras on Monday: "Accept all the demands we are asking or get out of the EU". Tsipras replied: "Ok, we accept the demands."

If there was no agreement on Monday morning Grexit [exit of Greece from eurozone] would have been inevitable. But agreement between Tsipras and the EU is not the same as agreement between Tsipras and the Greek people or the Greek parliament. Alexis Tsipras is now required to push legislation through parliament to convince his 18 partners in the eurozone to release immediate funds to avert his state's bankruptcy and expect a third bailout. But, Mr. Tsipras will face an uphill struggle to sell such a harsh prescription made by the EU he would be carrying back home.

Some sceptics fear that the Greek parliament will not pass the agreement on Wednesday and Greece will never reform itself, certainly not in the hands of Syriza. Greeks, they think, who dodged taxes for decades, have been on the dole for years, enjoyed free lunch, and free bus ride cannot be expected to suddenly start paying taxes honestly, doing their jobs diligently, and feeling easy with sudden disappearance of all the free perks and pleasures. Changing Greek minds after decades of mismanagement may not suddenly occur with a simple agreement.

If Greek people or the Greek parliament does not agree to swallow the bitter pills prescribed by the members of EU, Greece may be temporarily or permanently exited from the Euro, the European single currency. And if Greece is shown the exit door, not only Greece that will face havoc, the whole of Europe and, by turn, the whole world may be jolted by an economic tremor. It is better now to handle Greece with utmost care without rocking the boat of European Union where Greece is a passenger, however moody or cantankerous the country is.

Greece should take lessons from Eastern Europe (Romania, Bulgaria, Slovakia, Poland etc.) who signed the "Vienna Agreement" back in 2010 to protect themselves from the world crisis. They borrowed huge amount of money from the IMF and EC (European Commission) in exchange for reforms. And, indeed, all of them are now safely out of the recession, paying their debt without problems. Spain, Portugal and Ireland are out of trouble, too. So many countries received help from EU and used it wisely!

Every observer is pouring opprobrium on Greece for its excessive borrowing and for not behaving as a responsible borrower. Sure, the Greeks deserve a lot of criticism for the profligacy of their spending not minding how to balance their books of accounts. But, the lenders are to blame equally too.

Was it an act of kindness when the troika (European Commission, International Monetary Fund and European Central Bank), led by France and Germany, proceeded to buy up a lot of Greek debt? Were the lenders' decisions based on a collective hope and prayer that everything would come out fine and Greece would have no problem in servicing its sovereign debts? What credit analysis did the lenders do?

The problem was all along staring European Union and the Greece's creditors in the face since the first bailout was allowed. The creditors had to pull the plug years ago before allowing the crisis to fester and grow.

No technocrat of EU looked at the Greek debts with the critical eyes of a competent credit risk manager. And even if some of them saw the problems coming, nothing was done to anticipate the consequences or implement some effective and early remedial actions.

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