Greece is bankrupt
Added on November 3, 2011 at 10:48 Italian time
The unity of the Greek government
was short-lived. The Greek Finance Minister Evangelos Venizelos, kept in the
dark by Papandreou about the referendum, has already defied his prime
minister by stating that
the Eurozone membership “cannot depend on a referendum”. A Greek exit of the
Eurozone is no longer a taboo for the leaders of the common currency member
states. Anyway, Greece's future holds a lot of more hardship for the Greek.
Added on November 2, 2011 at 08:24 Italian time
Papandreou has won the backing of
his cabinet for his referendum plans. Will the EU and the Greek voters
follow him too? Will the unstable economic situation not deteriorate before?
Already today, the EU summit plan the Greek will decide about looks
Added on November 2, 2011 at 00:53 Italian time
Italy's Intesa Sanpaolo bank lost
yesterday 16% of its value. German and French stocks fell about 5%. Panic is
in the air. Merkel, Sarkozy and Papandreou will already meet later
today in Cannes ahead of the G20 Summit.
Added on November 1, 2011 at 23:54
Papandreou called his call for a
“a supreme act of democracy
and of patriotism”. It may rather end as his political suicide (nobody cares
about that part) as well as in Greece's bankruptcy. The country needs
foreign direct investments from Germany, France and other competitive
European neighbors. The ones who may turn now in anger against him.
As for the
“leading” EU countries Germany and France, they have managed to delay a
reasonable solution to buy time for their banks - so they thought. Instead,
they have made things worse and piled debt on debt. We may already be
hanging over the cliff - in free fall.
Greece is bankrupt
Article added on November 1, 2011
The fact that Greece is bankrupt
- financially, politically and morally - is nothing new. We have mentioned
it in a
French article in Mai 2010.
New however is that, yesterday, the Greek Prime Minister George Papandreou
announced the risky decision taken all alone that he would let his voters decide in a referendum whether to
accept the decisions by the EU summit taken last week, which include a
voluntary 50%-haircut for private creditors regarding the Greek debt.
In addition, Papandreou announced that he will submit a confidence vote to
parliament, which would take place late on Friday. Of course, if he does not
win the confidence of the majority in parliament, early elections would be
the result with some two months of additional political instability before
the election could take place.
In normal circumstances, to ask for voters' support regarding substantial
financial changes that affect the entire country makes sense. In the current
however, it makes a terrible situation even worse, as difficult as that is
given Greece's problems. In politics, timing is crucial. Papandreou is
playing with fire.
Last week's EU summit was just another sad joke. Once again, the European politicians have managed to delay urgent
unconvincing. A 50% haircut should affect the entire debt. Given
Greece's economic downturn and its current debt of over 160% of GDP,
last May's number of 50% has become too conservative. A haircut
of 60%, better would be 70%, looks more realistic if not to say unavoidable.
Today, Prime Minister George Papandreou controls only 152 out of the 300
seats in parliament. And
“controlling” is an optimistic assumption. There might be new defections.
Greece's reforms are so unpopular because they affect ordinary people most.
The one's who cannot hide part of their salaries. The imposition of ever
higher taxes is strangling the country to death.
Greece cannot refinance its debt at reasonable rates. Especially France is
worried about its banks (stocks of Société Générale plummeted 17% today,
Crédit Agricole was down 12,5%), which hold an important junk of Greek debt,
although banks have already handed over important parts of Greek junk to the ECB, the IMF as well as their respective states. Once again, taxpayers have
been forced by politicians, banks and financial bureaucrats to take over
risks taken by the private sector. No bailout money has so far been used to
help the Greek reform their country.
Greece has cheated its way into the Eurozone. It has repeatedly presented
falsified numbers. The Greek have then used the suddenly low interest rates
to finance their consumption on credit. European funds have ended up in dark
Ever higher taxes won't solve the Greek economic nightmare. The unemployment
rate reached 17,6% in July. The structural problems include national sports
such as tax evasion and fraud, going on strike as well as corruption (fakelaki
has become an international keyword for Greece).
You have all read the stories about government employees with literally
nothing to do, of tax authorities in a messy state that have no computers,
of the missing land-registry, with the state not only having no clue who
owns what, but also of what the state itself owns, of physicians, lawyers
and other rich people with villas, swimming pools, yachts and fancy cars
declaring revenues of €10,000 or just a little more.
The government has been accused of having secretly hired additional 20,000
employees instead of downsizing, privatizing and selling state property to
pay down the debt.
Clear EU and Eurozone rules for countries violating EU
laws, misusing EU funds, violating the Maastricht criteria regarding public
debt and budget deficits have to be established and enforced.
The EU - as well as the US and Japan - have to come back to sound economic
and financial policies, including major reforms of the tax systems, e.g. no
more loopholes and trusts, as well as reforms of the financial sector where we need
smaller banks that are less intertwined and more limited in their specific
activities; Glass-Steagall is just one keyword. No company - be it a bank or
not - can remain too big to fail.
We can no longer increase our debt towers, be it by Eurobonds or by the ECB
buying debt. Greece is a failed state. Unfortunately, many other countries
are heading in a similar direction.
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