Greece: Which Way Forward?

The ballots have been counted and Syzira has exactly fifty percent of the seats in the Greek parliament.  It picked up a majority when a far right political group, the Independent Greek party whose pact with the devil, as many see Syzira, is made because they see no sense in continuing the austerity measures that have been dictated by the Troika (IMF, ECB, and EU).  that key count of twelve seats means the end of austerity.  But there never was any real austerity since government spending had continued in social payments, there had just been a reduction of the amount of money paid out.  And since the various Greek groups more or less conspired both independently and severally to evade the various taxes, well, that just made matters much worse.  The fact was that the current austerity measures couldn’t last and the service on outstanding government debt could not be maintained.  Of course the repayment of such debt is totally impossible in any current citizen’s lifetime.  But what else is new, the can was simply kicked down the street and we are there now, ready to either kick it again or squash it flat.

The one mandate that Syzira has not been given is that of debt repudiation or default on the Greek government bonds.  That means that the ECB and IMF have some room for negotiations with the new Greek government.  One thing is certain, if Greece does not honor its commitments of the maintenance and repayment of the outstanding bonds they must leave the EU and EMU.  Right now there are about 145 billion in euros that are outstanding government loans and held by the ECB and individual EU central banks and private banks.  Germany hold the largest portion and could survive any default, the French are number two in holdings and would not do so well.  Spain is number three and really can’t afford any default since that would topple both her government and banking system.  The rest of the EU countries will be in various worlds of hurt.  One positive step would be haircuts for the bond holders, but that is not going to go over very well.  On the other hand, even though the ECB has been stupid enough to launch a Quantitative Easing program of one trillion euros (the ECB will buy various government bonds except for the Greek) there is some room for that idea to take place.  Besides, the SAXO bank has said that for Draghi and the ECB to be successful in boosting inflation it must buy two trillion more in government bonds.  Well, so much for the best laid plans of mice and Draghi.

Currently Greece needs about 22 billion euros to service the current interest due and the bond maturities, failure to pay would be a default, whereas a refusal or repudiation of part or all of the current debt would take positive action.  Greece may not be able to come up with the 22 billion euros this month but that can be strung out easily enough if pledges are given.  A total repudiation is an entirely different matter and would most severely try the patience of all parties.  Currently there are no new pockets of money available and none in the foreseeable future.  thus there is limited room for maneuver.  June will be the drop dead date for compromise and much has to do with the individual creditors.  The market will wait until a sufficient number of creditors speak on the issue.  Meanwhile Greece will remain very dependent on the support of the Trokia since the tax revenues are not forthcoming and the economy remains on par with an undeveloped country.  And while Syzira may hold half the seats in parliament, meaning they can block any program not to their liking, if things get too bad and little is done to satisfy the people, elections will be held again and they could lose their mandates.

At the same time Ireland has announced the intentions of holding a conference for debt restructuring for the countries of Spain, Greece, and Ireland.  It seems that Portugal has been left out and Iceland went its own way over four years ago.  The head of the IMF has not signaled any agreement with holding such a conference since she has remarked several times that a debt is a debt and must be repaid.  Perhaps the Swiss National Bank caught Ms LaGarde off balance when it pulled the peg of the Swiss Franc to the Euro and caused the fortunes of many to crash through the earth’s surface, leaving visible craters on the exchange floors.  The Swiss influence in currency exchanges is still being felt.

So the current question that remains unanswered is whether Syzira is going to pursue a repudiation of all debt or merely seek relief in the form of haircuts all around.  Russia and the U.S. could come to the Greek rescue if Greece seeks to leave the EMU and the EU.  The two countries might even get into a bidding war with each other over the rescue attempts.  Given the past word of Mr Obama and the short time left in office, would Greece trust that man and his policies?  Putin, on the other hand appears to be suffering from a continuing lack of support by his people who fear he may have goon too far in the Ukraine.  In any case, China simply cannot be trusted and is likely to suffer a massive depression either this year or next, economic conditions are that bad.  Outside of a continued dependence on the EU lifeline, Greece is destined to remain the homeless man on Europe’s streets, subsisting on spare change.  It really is time for Greece to recognize the true future and leave the EMU and the EU.  But that would be the intelligent action and most politicians are very hesitant to do the smart and wise thing.

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