This story has been sent to me by several different people in recent weeks and seems to have persuaded some that this is a real world scenario.
Would that it were so.
How the Greek economy bailout works
It is a slow day in a little Greek Village. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.
On this particular day a rich German tourist is driving through the village, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher.
The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer. The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel.
The guy at the Farmers’ Co-op takes the €100 note and runs to pay his drinks bill at the taverna. The tavern owner slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him “services” on credit.
The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note.
The hotel proprietor then places the €100 note back on the counter so the rich traveller won’t suspect anything. At that moment the traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town.
No one produced anything. No one earned anything. However, the whole village is now out of debt and looking to the future with a lot more optimism.
And that, Ladies and Gentlemen, is how the bailout package works.
Unfortunately, as you’ll have figured out if you thought about it, there is no analogy with the Greek bailout. In this village there is no net debt. It’s all internal within the village and it balances out to a zero sum game. And nobody’s paying interest.
In the case of Greece (and New Zealand) the debt is external and there’s nobody to pass the parcel to.
In the real world, the hotel owner, the butcher, the pig farmer, the feed supplier, the tavern owner, and the local prostitute, each owe their €100 to the Chinese laundry in the next town. The village is in the red for €600 and the only way the villagers can reduce the debt is by creating more economic activity or by blackmailing the ECB into devaluing the Euro.
John Key, Bill English, Phil Goff, et al are all in similar dream worlds. Or they’re liars. Take your pick. Treasury’s economic forecasts are complete rubbish (just as they’ve proven to be for the last umpteen years) and the forecast growth upon which our self-serving politicians are predicating their rosy outlook will not happen. Our saviour China is in deep trouble. Our other saviour, Australia, will inherit that trouble.
We’re in deep schtuck.