Why is Europe So Delusional on Greece?

Earlier this week I noted that Europe was trying to buy time with this bailout package offer. Here are a couple of more clarifying explanations for why the EU’s economic ministers are lying to us about this bailout of Greece having the possibility of success what Europe is trying to buy. Hans-Werner Sinn being interviewed by Spiegel Online:

SPIEGEL ONLINE: Why are the euro-zone countries so adamant that Greece must remain in the currency?

Sinn: This isn’t really about the country. The Greeks are being held hostage by the banks and financial institutions on Wall Street, in London and Paris who want to make sure that money keeps on flowing from government bailout packages — not to Greece, but into their coffers.

SPIEGEL ONLINE: What about the contagion that a bankruptcy or a Greek exit would involve? Financial markets may speculate that other countries will suffer a similar fate as Greece.

Sinn: There may be contagion effects. But I think this argument is being instrumentalized by people who are worried about losing money. People keep on saying “the world will end if you Germans stop paying.” In truth only the asset portfolios of some investors will suffer.

And then there is Bill Frezza writing for Forbes about the endless attempts to avoid a “credit event”:

Now those same idiotic bankers, along with the French and German politicians they control, are conspiring with the Greek government to pretend they can fix the problem by forcing private bondholders to “voluntarily” swap one set of worthless bonds for another set of worthless bonds, without acknowledging a default that in a sane world would be all but inevitable.

The reason for this urgency? Private holders of these worthless bonds also hold hundreds of billions in insurance that would have to be paid to them should those bonds fail. And who are the sellers of these insurance policies? Why, the same idiotic bankers who control the French and German politicians!

European politicians don’t want their banks going down, and banks figure this bailout is the cheaper option. Sounds like incentives to lie.

Anthony Randazzo

Anthony Randazzo is director of economic research for Reason Foundation, a nonprofit think tank advancing free minds and free markets. His research portfolio is regularly evolving, and he maintains a wide interest in economic policy at both a domestic and international level.

Randazzo is also managing director of the Pension Integrity Project, which provides technical assistance to public sector retirement system stakeholders who are seeking to prevent pension plan insolvency. His research focus on the national public sector pension crisis has a dual focus of identifying the systemic factors that cause public officials to underfund pension obligations as well as studying the processes by which meaningful pension reform can be accomplished. Within the Project he leads the analytics team that develops independent, third party actuarial analysis to stakeholders considering changes to public sector retirement systems.

In addition, Randazzo writes about the moral foundations of economic theory, and is currently developing research on the ways that the moral intuitions of economists influence their substantive findings on topics like income inequality, immigration, or labor policy.

Randazzo's work has been featured in The Wall Street Journal, Forbes, Barron's, Bloomberg View, The Washington Times, The Detroit News, Chicago Sun-Times, Orange-County Register, RealClearMarkets, Reason magazine and various other online and print publications.

During his tenure at Reason he has published substantive research on housing finance, financial services regulation, and various other aspects of economic policy at the federal level. And he has written regularly on labor economics, tax policy, privatization, and Turkish-U.S. political and economic issues.

Randazzo has also testified before numerous state and local legislative bodies on pension policy matters, as well as before the House Financial Services Committee on topics related to housing policy and government-sponsored enterprises.

He holds a multidisciplinary M.A. in behavioral political economy from New York University.

Follow Anthony Randazzo on Twitter @anthonyrandazzo