Q. Like an extreme version of what happened in the U.S.
A. I had a tour of a very nice, big upper-middle class home in Dublin, and this house had just changed hands nine months before: $80 million. The prices of Irish real estate went berserk. The story they told themselves was that this was the natural extension of their prosperity.
Q. The Greek case was different, wasn't it?
A. In Iceland and in Ireland, the banks fueled the mania. In both cases, the banks sunk the country. In Greece, the country sunk the banks. The banks were very sober and staid and boring. They're all about to be bankrupt because they own big government bonds. The Greeks took this money that was available and they bloated to a fantastic scale an already bloated government. In Greece, everybody thieves from the state: They take jobs they don't actually do and get paid for them. They don't pay their taxes. Greece is a case of a society in total moral crisis.
Q. What was the role of the Greek monks on Mount Athos?
A. The monks had apparently done what all good Greeks do and used the government for their benefit: They had persuaded the government to recognize an ancient deed that the Emperor Constantine had given to the monastery. Once they got title to the land, they engaged in land swaps with the government that left them holding a portfolio of commercial real estate that was worth a billion dollars. The Greek people were up in arms, [and because of this scandal] the conservative government fell two years ago.
Q. Is Germany's willingness to bail out its neighbors Europe's only hope? Or are there domestic solutions?
A. There are certainly no domestic solutions in Greece. Italy and Spain — unclear. Probably not. Right now, it's fair to say that absent the German people being willing to go all in and take on the debts of Spain and Italy and so on as their own, there's no solution to the problem.
Q. You mention Spain and Italy because they're the next dominoes?
A. Not only Spain and Italy, but France. The whole of European finance turns on whether the Germans are willing to step in.
Q. How is it that Germany has this capacity?
A. The Germans were not exempt from the boom and bust. The German banks behaved either really irresponsibly or stupidly. German banks made every possible bad judgment there was to make: They invested in Icelandic tycoons and in Irish real estate and in Greek government bonds and in U.S. subprime. They got taken every which way. They got themselves in unsustainable debt positions.
But the German people behaved very, very well. The German people left alone in a dark room with a big pile of money didn't want anything to do with it. They continued to make things and run trade surpluses. And their real economy has been very, very prosperous and healthy.