EU crisis: Does Greece have the upper hand?

Posted: May 29, 2011 in Euro, Europe, European Central Bank, IMF

From the way everyone’s talking, Greece is in deep sh**.  Here’s the case for deep sh** :

  • Greece hasn’t met any of the debt reduction/budget austerity measures imposed during the joint EU/IMF bailout last year. Even more hilariously, the Greek government continues to deny that this is the case while earnestly stating that they are studying the situation.
  • Everyone, and everybody, from Angela Merkel to the Dutch to the IMF to Nicholas Sarkozy is absolutely, positively insisting that Greece not only must re-commit to austerity, but it must also double down by immediately implementing what it’s already promised to do, plus new austerity measures, or Greece will not get once single Euro in new bailout money. This includes selling just about everything the country owns that isn’t nailed down, which will fetch anything from 50 to 300 billion Euros…we think.
  • From the European Central Bank (ECB) to the EU ministers, there’s not one single unified voice on exactly what it will take to get Greece out of this mess. In fact, it sounds just like “same time, last year” when everyone ran around like chickens with their heads cut off insisting that there wasn’t a problem until the problem was so big it took a huge, gigantic bailout package to soothe the fears of the hysterical market. Wait a minute, what’s the definition of insanity? Isn’t it doing the same thing over and over again, expecting a different result?
  • Credit rating agencies are declaring that if the EU/IMF dares to even try to extend the maturities on Greek debt (known as a soft restructuring), that will be akin to a default, leading to the imposition of the credit rating death penalty for Greece and a horrific credit rating fate for everyone and anyone associated, including the other PIIGS and perhaps the entire membership of the EU.
  • The banks: ah, the banks. It’s no secret that European banks have exposure to Greek and other PIIGS debt, as do the sovereigns, including and especially, Germany. Oh, and don’t forget the ECB. And because the EU stress tests recently imposed were a joke, it’s not really apparent exactly how strong the banks are and if they could withstand a haircut, let alone a wholesale default on the part of Greece. And if banks are destablized, financial crisis part 2 is just around the corner. So it’s in the financial system’s interest to force Greece to stick to “the plan” whatever that may be.
  • Fears of another financial crisis: what the IMF and ECB seriously fear is another banking crisis (see above) where banks are so freaked out about their balance sheets and liabilities that they won’t lend to each other because they rightly suspect that the other banks are in just as bad, or worse, financial shape, than they are. Then the IMF/ECB/USA/UK, etc will have to bail out the banks again. OMG! Riots are a piece of cake compared to bank bailouts and financial system chaos, apparently. (Thanks to @Frances_Coppola for this point).
All this being said, it would be easy to think that Greece is really, seriously in deep sh**. It makes me wonder, though, if Greece really is in a better position that everyone thinks. From where I sit, it looks like the EU/ECB/IMF/USA/UK and other powers-that-be are so committed to the ongoing existence of the Euro in it’s present form that they will do just about anything to preserve the status quo.
If that’s the case, Greek leaders can just tell the IMF/EU/ECB/USA/UK axis to go to hell, that they won’t embrace austerity (like this is a big secret, everyone knows they aren’t going to do what they’ve said they are going to do) and that if the powers-that-be don’t cook up a better recipe for fixing the situation than that old austerity pie, they are going to ditch the Euro and bring back the drachma. I know, I know, I know, Greece really doesn’t WANT to leave the EU. At least not yet.
But I’m just saying that at some point, if Greece continues to go along with the austerity recipe, it will get to the point where staying in the Euro Zone at that price will be more painful than leaving. At the point, Greece and it’s new political leaders (does anything think that the present government has a prayer to stay in power if it meekly follows the EU/IMF/USA/ECB/UK’s directives? Please!) will wake up, smell the coffee and decide that it’s easier to at least have control over their currency and interest rates and economy destiny rather than experience a slow economic death under the boot of austerity.
Greece is in a better position to demand a better deal that most think. Whether they will get it is another story, but really, there’s got to be a better way. Ireland is already in an economic depression. Unemployment is OFFICIALLY at 20 percent in Spain, 43 percent for young people. There are riots spreading all over Europe. And the austerity hasn’t even gotten to the point where it “should be.”
That’s because the IMF/ECB, etc. doesn’t really care about what the average person is going through. Lose your house, lose your job, live on the streets, starve, so what. It’s preserving the sacred cow known as the Euro, because that’s what will prop up the current system, which is run, bought and paid for by too big to fail banks.The term regulatory capture doesn’t even begin to describe what’s going on. Maybe regulatory incarceration would be better?
The Euro, at least in it’s present state, may very well be doomed. It’s just too bad that it has to go down in such a protracted, awful and messy way. I guess the next question to consider is whether a slow, messy unraveling of the Euro is better than a quick blow up. Time will tell.
Here are a few links on point:
  • Stiglitz vs. the Blood Suckers – IMF’s Four Steps to Damnation: an oldy, but goodie, about the IMF’s recipe for emerging market countries in financial trouble. That’s exactly what’s going on in Greece, except Greece’s situation is worse, because they can’t devalue their currency. None of the IMF’s prescriptions benefit the countries they are designed to “help” in any way, shape or form. They just benefit the haves further at the expense of the have-nots and deprive the have-nots of the little bit that they have. Shameful. Thanks again to @Frances_Coppola.
  • Vampire City – the brilliant and talented Frances Coppola deconstructs the current financial system for us, explains how we got in the mess that we did (banks, are you surprised?) and why the current system is so invested in the status quo (Coppola Comment)
  • What was Juncker thinking? – an analysis of the ECB president’s “hand grenade” re the potential for Greek default; like that’s gonna happen any time soon. See above, Greece has more power than they think. What a mess (FT Alphaville).
  • Here’s What’s Going to Happen When Greece Defaults – Greece issues the New Drachma, other PIIGS default and why the EU/IMF/ECB/USA/UK axis can’t and won’t let this happen despite all their posturing (Business Insider).

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