The Versailles Treaty Once More

The overnight Greece-Eurozone "deal" imposes massive costs upon the Greek economy intended to enable Greece to pay off its Eurozone creditors.  Maybe it's time that the world listened to John Maynard Keynes once more.  Keynes began his public career by attending the Versailles Treaty conference that concluded the first World War and wrote: "The Economic Consequences of the Peace." Worth a second read now, with Greece, not Germany, in the crosshairs.

This "deal," which probably will not survive a Greek Parliament vote this week, does two things: 1) it increases Greece's sovereign debt, which had no hope of ever being paid off even before the increases in this "deal;" 2) contains fiscal initiatives (tax increases, pension cuts) that will further devastate an already collapsed Greek economy.  There are no positives for anyone in this deal, which seems designed for the sole purpose of saving Angela Merkel's job as German Chancellor.

The economics underpinning of this deal are ridiculous and totally unrealistic.  World markets are cheering and politicians are slapping themselves on the back.  This is the last gasp of the "extend and pretend" gang.  Realism and elementary economics takes a back seat once again.

Look for this "deal" to come unstuck.

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