EXPECTING GREECE OR ANY MEMBERS TO IMPOSE FISCAL SELF-DISCIPLINE
(…wss to believer the EU was capable of herding…cats)

The resounding NO vote result of Greece’s referendum brings their country’s situation and the EU/IMF to the brink of critical mass…which could implode the entire current economic and political structure of Europe.

Frankly, expecting Greece, or any members, to impose fiscal self-discipline was to believe that the EU was capable of herding…cats. The reason for that being, as things stand, the EU seems more dedicated to the proposition that a good mama never lets any of her babies suck a dry teat, than anything else, thus making the “bail-out” option de rigeur whenever any of its members have an overdose of deficit spending and accrue a mountain of debt. That’s not a viable way to manage a common currency system, and suggests either the EU’s fiscal responsibility standards are anemic, if not irrelevant; or else, their common sense and expertise with such matters is…non-existent.

The Greeks have had two bail-outs in the last three years accruing a massive debt obligation so far beyond their GDP capacity to repay it that it leaves them between a rock and a hard place to come up with a debt-repayment plan which won’t further strangle their economy to the point where it will be totally incapable of meeting that obligation.

For their part, the EU’s fiscal hierarchs have to decide whether the Greeks even have a viable GDP to sustain any kind of repayment plan which won’t stretch to infinity…or even worse…require another bail-out…just to keep them afloat. While the two main pillars of the Greek economy, tourism and shipping, remain strong and active, without a proper tax structure and a more pragmatic and less ideological approach for government performance, little progress to resolve the current crisis can be expected.

Economies are not static systems, but rather, dynamic organisms, whose energy and vitality conditions constantly fluctuate at any moment in time, depending on a complex and wide array of factors, few of which are ever in perfect synch with each other. Thus, relying solely on bail-out options, as a sort of morning-after-pill to cover such moments of not being in synch, simply exacerbates any resulting fiscal malaise.

The Greeks are not the only member in trouble (others are hovering in the wings), so the EU needs to consider re-vamping its current one-size-fits-all fiscal structure, with a more flexible one, along the following lines:

1. Require members to have an equitable tax code for both individual and business taxpayers, with perhaps 5 brackets for each, with a flat-tax percentage rate based upon gross income from all sources, for both categories of tax payers.
   
2. Require members to pay such taxes on a pay-as-you-go quarterly basis, thereby stabilizing their respective governments’ cash flows and reducing their borrowing needs.
   
3. Require members to set aside 5% of their gross tax revenues, making the remaining 95% as the limits of their annual budgetary caps.
   
4. Require members to apply that 5% set aside as follows:
   
   1. 3% of it to pay down on any debt obligation.
      
   2. 2% of it to accrue compensating reserve balances as collateral against such debt obligations. The key thing here are not the specific amounts but the fact that there is a systematic method in place to progressively reduce whatever debt loads, and, that there are accruing compensating reserve balances as collateral for these. An old-fashioned fiscal concept, no doubt, but one which has been time-proven as most secure.
      
5. Establish a policy of 2:1 loan limits against such members’ reserves, as incentives to control spending and accrue such reserves.
   

Since all of that would be directly tied to any member’s GDP, as that expanded, so would everything else. Such a common fiscal structure for the entire euro-zone membership would allow greater flexibility in meeting individual members’ economic needs, while energizing and stabilizing it into a much more dynamic and prosperous economic entity. Over time wayward spendthrift members would have much stronger incentives to become much less so, and their “bail-out” addictions could soon become bad habits of the past.

All that remains to resolve the current crisis is for both the Greeks and the EU to quit mutually fiddling and posturing about it, and get serious about making constructive efforts to do so. The question is…does either of them have the will to make it happen?

CENTURION