Huffington Post
November 4, 2011
Wall Street has rallied on news of the European Union's latest intervention, an initiative that many are hoping will avert both a Greek default and an EU banking crisis. Key to understanding this most recent legerdemain is that it has temporarily avoided a chain reaction of insolvency yet solves precious little.
The latest agreement involves three components: leveraging the power of the 440 Euro already committed to the European Financial Stability Facility (EFSF), erasing 50 percent of Greek debt and requiring European banks to significantly boost capital levels. Putting aside the question of where the money will come from, it seems that, if successful, this plan should be enough to calm the markets in the near term. However, the plan should be viewed as a temporary solution to more systemic problems in Europe.
It is temporary because it treats symptoms and not causes. In Greece, the tax system is a sham. For many years the liveliest party-talk in Athens and Crete has been about delicious and entertaining ways to avoid declaring income or disclosing assets. Two things necessary for an effective tax system are a sense of shared responsibility by citizens and effective enforcement. Greece lacks both. Moreover, chicanery and bribery are de rigueur. If you have to deal with the government, Greeks will recommend a "fakelaki," which means little envelope.
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