Some random observations:
- Syriza has just effectively won an election with 60%+ of the vote. The strategy of waiting for a different government going back to business as usual, as some in Europe have done, has become impossible.
- Greece is not going to pay back 100% of its loans, ever. While everybody with 5th-grade math skills has known that for years, pretending otherwise is not quite possible any more either, even for professional cheerleaders.
- EFSF and perhaps others of those special off-balance-sheet vehicles, but guaranteed by member states, are going to call in those guarantees.
- Germany, and the rest of Europe, now have to acknowledge that they have to write off billions of euros, aka their taxpayers are on the hook for billions.
- “Pretend and extend” is over, with respect to Greece.
- There will be major howling in national parliaments. Governments will be held to account for signing guarantees for what turned out to be a non-creditworthy borrower. I wouldn’t be surprised if some governments fell over this.
- All parties and movements in all countries that don’t follow the orthodox Europe line are going to be emboldened. This means both parties in favor of debt relief, and parties in favor of “not a single cent more”. In other words, we’ll see much more polarization in political discourse on European and national levels.
- The European institutions (excluding the European Central Bank) will be utterly incapable of dealing with this situation. Like all “rules-based” institutions, when presented with a situation not foreseen by the rule book, they just sort of stop moving with their mouth open. Some quietly so, some spewing vitriol, and the press coverage in the past few hours proves my point quite nicely.
- The clowns supposedly in charge of European institutions are clearly not going to lead us out of this. (Ok, not all are clowns, but the comparison of some European apparatchiks to first-rate people like Varoufakis is often painful to watch.)
- This is the time for major leadership. There is an opportunity for somebody to step up, and turn Euope into an actual state, in which stronger regions subsidize weaker ones, where pension systems work Europe-wide, and so forth. In which the bankruptcy of a member country would remain ugly, but no uglier than if a state or regional government were to go broke today. Given the realities, this is basically an impossible job description, but sometimes real leadership emerges in the time of crisis.
- If that leader does not emerge, or is unsuccessful turning Europe into a country, I’m afraid that’s the end of the Euro, and perhaps of the European Union. It may be years out, but the dice will have been cast.
But that’s not the worst. I’m afraid more things will break, and then the world will truly become an “interesting” place. Next candidate: the Chinese financial system. Have you watched Chinese stock prices in the last few weeks?