Ad Hoc Commentary – Is Greece the North Korea of our times?

“The first proper negotiations between Greece and eurozone finance ministers failed to make any progress or result in a joint statement.”


“…Greece’s radical new government has threatened to seek money from Russia and China to avert a financial crisis rather than yield to austerity demands from Europe…”


Reading the news on Greece somehow reminded me North Korea in the 1950s:

“…Ten years later, Moscow and Beijing still could not agree on which side had actually given Kim [of North Korea] the final green light to launch his invasion. Meeting in Bucharest in June 1960, Khrushchev, who was by then Soviet General Secretary, insisted to Chinese Politburo member Peng Zhen that “if Mao Zedong had not agreed, Stalin would not have done what he did.” Peng retorted that this was “totally wrong” and that “Mao Zedong was against the war. . . . [I]t was Stalin who agreed.”…”

On China, Henry Kissinger, Chapter 5, Triangular Diplomacy and the Korean War


Long story short, Kim Il-Sung went to war thinking that he had the full support of Beijing and Moscow. However, in reality, he was just a pawn caught in a game of strategy between the two giants:

“…Ever devious and complex, Stalin urged Kim to speak about this subject with Mao, noting that he had “a good understanding of Oriental matters.” In reality, Stalin was shifting as much responsibility as he could to Chinese shoulders. He told Kim not to “expect great assistance and support from the Soviet Union,” explaining that Moscow was concerned and preoccupied with “the situation in the West.” And he warned Kim: “If you should get kicked in the teeth, I shall not lift a finger. You have to ask Mao for all the help.” It was authentically Stalin: haughty, long-range, manipulative, cautious, and crass, producing a geopolitical benefit for the Soviet Union while shifting the risks of the effort to China…”

On China, Henry Kissinger, Chapter 5, Triangular Diplomacy and the Korean War


Perhaps, ten years later, Moscow and Beijing would not agree on which side had actually given Greece the assurances to launch a Grexit. A future leader from Russia would probably say that Putin would not done what he did. And a future leader of China would probably retort and say that Xi was totally against a Grexit.


Regardless of the outcome, Grexit is likely good for Russia if she harbors geopolitical dreams beyond Ukraine. If Grexit is good for the Greeks, then the European Union (EU) will disintegrate as the other PIIGS follow Greece’s lead. If Grexit relegates Greece into a serial defaulter (this is a very likely scenario) then the other PIIGS will fear becoming the next Greece. This will ensure more austerity and will likely lead to the disintegration of the EU from within. In both scenarios, Grexit leads to the disintegration of the EU project. Those that think that Grexit will be the Lehman-moment that would scare the Germans to reverse austerity don’t understand history. Germans fear hyperinflations and Americans fear great depressions. Americans, when pushed to fear, will print money to counter their fear of great depressions. In all likelihood, Germans, when pushed to fear, will implement more austerity to counter their fear of hyperinflations.


Some pundits assert that a Grexit is beneficial for Greece in the long term. To these pundits, we remind them that:

“The sad fact related in our work is that once a country slips into being a serial defaulter, it retains a high and persistent level of debt intolerance. Countries can and do graduate, but the process is seldom fast or easy. Absent the pull of an outside political anchor (e.g. the European Union for countries like Greece and Portugal), recovery may take decades or even centuries.”

Page 29, This Time is Different, Carmen Reinhart and Kenneth Rogoff

In all likelihood, without the EU, Greece will relapse into the habit of serial defaulter. If history rhymes, Putin probably told Greeks not to “expect great assistance and support from Russia,” explaining that Moscow was concerned and preoccupied with “the situation in oil”. And he probably warned: “If you should get kicked in the teeth, I shall not lift a finger. You have to ask Xi for all the help.”


The ones who would face the full consequences of a Grexit is the Greek people. Their wish is simple, they want to be part of Europe and they want to contribute to the European society through their daily jobs. However, unless there is a change of heart in Berlin, their wish is an impossibility. The German’s excessive fear of hyperinflation had made austerity a prerequisite to stay within Europe. It is worth quoting FDR here:

“…So, first of all, let me assert my firm belief that the only thing we have to fear is…fear itself — nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance…”


Someone should tell the Germans that hyperinflation will not come from the printing presses. Inflation yes, but not hyperinflation. For hyperinflation to happen in the modern world, you need a military loss, or a revolutionary government that defaults on all previous debts. The sooner Germany recognizes this, the better it is for themselves and for EU as a whole. To counter the risk of hyperinflation, Germans need to put in resources to counter geopolitical threats to her existence. Though it is counterintuitive to the man on the street in Berlin, Europe needs to print money to avoid hyperinflation.


Unless there is a change of heart in Berlin or in Moscow, Athens is probably doomed. Yours truly had been to Greece only once. That was during the mid-2000s, a few years before the sovereign debt crisis. It is a very beautiful country. Contrary to what the mass media would like us to believe, the Greeks are not lazy people. Some pundits correctly pointed this out, but alas they are the minority:


To solve the creditor-debtor problem, we need realistic politics couched in pragmatism and realism rather than idealistic unrealistic politics. Statements like “We don’t do bridge loans” make good headlines, but they only serve to poison the well. The financial elites should be reminded that, for now, the masses are revolting against austerity peacefully through the ballot boxes. If their peaceful voices at the ballot boxes are ignored by the victorious political elites, then it is possible that the masses will just conclude that politics are merely Hunger Games. Voter turnout had declined in recent years, and could turn into a rout if the political elites fail to reverse horrors of underemployment and unemployment in Europe. That is not in anyone’s benefit. The pragmatic thing to do in the short term is to negotiate in good faith and avoid a Grexit.


Good luck in the markets.