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Sorry… Greece and Puerto Rico Do Not Qualify for Sovereign Ponzi schemes!

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No; the Ponzi scheme has not been decriminalized for individuals, only for Nation-States and on occasion for colonies, territories and other uncommon political appellatives such as commonwealths. From Athens to San Juan the economic and political realities have confronted one another with anticipated pathetic results; no matter how you shuffle and reshape both Greek and Puerto Rican debts, the end result is the same: Greece’s and Puerto Rico’s economies have been operating on Ponzi’s free lubricating oil for too long; and finally, the day of reckoning has arrived, or it’s about to arrive, and the proverbial scoundrels (politicians, economists and “financial-raters”) are left pointing fingers at each other, or seeking some external scapegoat.

It is not yet a certainty that Greece will become the first developed nation to default on an IMF loan payment – $1.8 bn. due on June 30th. Regardless of any interim solution, where the European sisterhood (EU) comes once again to the rescue, the reality should be crystal clear: unless miraculous reserves of petroleum or natural gas are found in the “mythical” Peloponnesus (what’s one more myth!), a new breed of Greek politicians, not Alexis Tsipras and his SYRIZA-led leftist coalition, will be preaching the austerity sermon, this time around without Angela Merkel, or Germany, to blame.

A year ago, before Tsipras became head of government, I was discussing the heated issue involving Greece and the EU with a former graduate school peer, a Greek national now retired from government service. We touched on the similarities and dissimilarities between the European Union and the United States, both as political blocks similar in economic size and population – US with a $16.8 trillion economy, the EU with an $18.5 trillion economy, for 2014. I was trying to understand why we don’t have a problem in America with large differences in per capita income between states (i.e.: Mississippi $37,000 and Maryland $70,000) while EU members are not so accepting with smaller differences (i.e.: Greece with an annual per capita of $30,000 and Germany just barely reaching $48,000). My friend Stefan was quick to point out the difference in what he termed American and European social and political mentalities.

Size and wealth in natural resources softened Argentina’s pariah status in the financial world community after its default in 2001. But Greece is no Argentina...
According to Stefan, Americans possess a very docile political persona, and conformism almost always rules the day. If Americans don’t like the social or economic conditions which they may have in Mississippi, they just move somewhere else. Not Europeans, he contends; they prefer to bring the change home, rather than to establish a new home somewhere else. My defensive response gave traditional barriers found in much of Europe, principally involving language and customs, as likely accounting for much if not all difference in behavior, but my friend countered with overwhelming logic to each of my points… once again proving that his studies’ period in the US had not been wasted. At the end of the day, Stefan claims, the expectations by pensioners and the population at large can be just as great in tiny, not-so-productive Greece as they are in wealthier and more productive regions of Europe. And Greek politicians have been playing with those cards a masterful Ponzi game, but Greece finds itself playing poker with a lousy hand, and an imminent call to its bluff.

Size and wealth in natural resources softened Argentina’s pariah status in the financial world community after its default in 2001. But Greece is no Argentina… only kept alive by the subsidized camaraderie of its wealthier neighbors in the EU and its membership in NATO, together with the rumored political intrigue of Vladimir Putin entering the fray. Here we go with devilish Putin once again! Yet, Russia may be Greece’s only wild card left, although it does seem farfetched to have the Russian navy anchored at Piraeus or Russian tourists swarming Mikonos and other Aegean destinations.

Greece’s bailout referendum on July 5, regardless of final results, will leave us with the same confusing state of mind of where Greeks want to go. After all, they could be voting Yes by saying né (which really sounds like No), or voting No by saying ókhi (which we in America may interpret as Okay). Yes… the results will be Greek to us; however, the economic impact to US will be negligible to none, even if there’s discomfort to some Pentagon dwellers and State Department empire planners.

Puerto Rico’s inability to handle its $73 bn. debt, as expressed by the Commonwealth’s chief executive, Governor Alejandro García Padilla, is a horse of a different color… and US’ economy will be impacted in both medium and long terms. It is not just another Detroit redux bankruptcy, but one far more consequential. Puerto Ricans’ exodus from the Island in a recession which goes back fifteen years (3-4 fold what it was in the 1980-2000 period) is likely to be magnified again, with as many as 100,000-150,000 Boricuas annually resettling in continental US. And the likely prospect of stateside tourists soon switching their Caribbean destination from San Juan to Havana as Cuba and the US make nice and formalize their five-plus decade feud.

It’s not difficult to envision the Commonwealth of Puerto Rico in a decade aiming to become US’ fifty-first state, a true welfare state, with a shrank population of under 2 million and a bankrupt economy… making us scratch our heads trying to figure out why we were so eager to take custody in 1898 from Spain. Heck, we didn’t even know how to spell the name of the island for three decades, when it finally dawn on us this Caribbean paradise that we referred to as Porto Rico was really called Puerto Rico by the rest of the world.

Moral of the story? Ponzi scheme’s success at the sovereign level only works, and perhaps only temporarily, for nations that back their poker playing with a strong hand in natural resources and/or have convincing militarily weaponry. Neither Puerto Rico, nor Greece can make the grade in that regard as sovereign entities… relying on the good offices of the United States and the European Union, respectively, to arbitrate, even impose, a solution.

© 2015 Ben Tanosborn


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