Greek Tragedy: Everything Is Falling Apart15 June, 2011, 20:05. Posted by Zarathustra
Tags: Economy, Europe, European Central Bank, Greece
After Greece was once again downgraded by Standard & Poor’s, things are not getting better. Yesterday, the emergency session of European finance minister failed to produce any deal on bailing out Greece for once more. Euro was getting hit and the dollar rose after the news.
As the Greek Parliament debate austerity measures, Greek protestors are trying to encircle the Parliament building. The Prime Minister George Papandreou and his PASOK party is facing new political difficulties as backbenchers of the party revolt against the austerity plans. According to BBC, one MP defected from PASOK yesterday, making the party’s majority position threatened as they now only whole 155 of the 300 seats in Parliament.
Outside Greece, other European politicians and the European Central Bank continue with their spat. The European Central Bank is not making things any easier as they reject every plan from restructuring, re-profiling to voluntary rollover. European politicians in Germany and others basically want to buy more time for the Greek government to sort their problems out, so they propose some sort of voluntary rollover in order to extend the maturities of debts. However, this is difficult not to trigger any credit event, something the European Central Bank does not like. Default will also be problematic as both European and US banks have significant exposures to Greece. Zerohedge pointed out that Moody’s is warning against French banks, which, according to the latest data from the Bank of International Settlement, has have the biggest direct exposure to Greece.
Indeed, it is a huge dilemma, because a default of Greece will most certainly bring down the entire European banking system. Yet by buying time for Greece to sort out the fiscal problems will not help because austerity in such time will only crush the living standard of people, and the economy will not be able to grow. Without a growing economy, the Greek government has no way to raise enough tax revenue to pay back the debt. That means buying time is merely kicking the can down the road, and it will come back to haunt you eventually.
So far, nothing is looking good as far as I am concerned. The on-going Euro crisis continues to illustrate the absurdity of the Euro.
Update: The Prime Minister George Papandreou may be stepping down if that will help forming a coalition government according to newswire