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 unrealistic.

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 referendum “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 situation 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 changes. Their “solutions” are 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 hands.

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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