The American Dream
Tuesday, February 21, 2012
What in the world is going on in Europe? Each day things just seem to get stranger and stranger. We are being told that a “deal” for a second Greek bailout has been reached and that Greece will not default in March. But behind the scenes it seems clear that many politicians in Germany (and in the other northern European countries as well) would like to kick Greece out of the euro. So what exactly is happening here?
Well, it is complicated. The United States, along with other members of the international community, put a tremendous amount of pressure on Germany to bail out Greece one more time. Germany does not want to look like the bad guy, so they are going along with this bailout but they are also imposing conditions on Greece this time that will be almost impossible to meet. And when Greece fails to meet its “obligations”, that will give the northern Europeans the excuse that they need to kick Greece out of the euro. At this point, many politicians in northern Europe are convinced that Greece is a “lost cause” and that it is not fair to ask northern European nations to pay the price for the financial mistakes of Greece. Greece is basically completely and totally bankrupt, and the nations of northern Europe don’t want to have a “financial dependent” on their books forever. They are looking for a “way out”, and this new agreement lays the foundation for that.
Right now, Greece is experiencing depression-like conditions. The following description of what life is like in Athens these days is from a recent Daily Mail article….
What is so shockingly evident as you walk around Athens are the awful parallels between that war-time era and today. The soup kitchens, the beggars, the pensioners picking up discarded vegetables after street markets close, the homeless scavenging for food in bins. These are the signs that can be seen.
Less noticeable is the quiet desperation of dignified people who turn off heating despite the cold and share dwindling savings with jobless relatives. Or the workers unable to afford fares home and the children fainting in school from hunger.
Greece is an economic basket case at this juncture, and many northern Europeans are not keen on the idea of endlessly supporting Greece financially.
The way that the other nations of Europe have been torturing Greece makes it clear that their patience is running out. The outrageous austerity demands that the EU and the IMF made on Greece this time were so oppressive that many believed that Greece would never agree to them. It was thought that Greece might finally be forced out of the euro.
But the current Greek government desperately wants to stay in the eurozone and the Greek Parliament did agree to them.
Unfortunately for the Greek government, they are going to be watched much more closely this time. In essence, they will be under the microscope. If they slip up, and they almost certainly will, that will give those that wish to abandon Greece the ammunition that they need.
The decision seems to have been made that Greece is going to be made to exit the eurozone one way or another. Esteemed financial journalist Ambrose Evans-Pritchard penned the following in one of his recent columns….
It is clear that Berlin, Helsinki, and the Hague have taken the decision to eject Greece from the euro whatever the country now does. Even if Greece complies to the letter with the impossible terms of the EU-IMF Troika, it will not make any difference. A fresh pretext will be found.
The tension in Europe is so thick right now that you could almost cut it with a knife. Some northern European politicians have clearly had enough….
-Luxembourg Finance Minister Luc Frieden is trying to make it sound like Greece is kicking itself out of the eurozone….
“If a member state says, ‘we prefer not to take money from other states and return to a national currency without making structural reforms,’ then that state has chosen to exclude itself”
-German Finance Minister Wolfgang Schäuble is openly proclaiming that he does not believe that it is even possible for the Greek government to comply with all of the demands that the EU and the IMF will now be imposing upon it.
-Bavaria’s finance minister Markus Söder is very clear about what he thinks should be done….
“It would be better if Greece stepped out of the euro”
But it is not just politicians that think it would be best for Greece to exit the euro. According to one recent poll, 57 percent of all German business leaders want Greece to leave the eurozone.
The upcoming national elections in Greece that are scheduled in April could end up being a significant turning point.
There is a lot of fear in northern Europe that the next Greek election will be dominated by the far left and that will result in a complete breakdown of the austerity process and all the money spent trying to keep Greece in the eurozone will have been wasted. One member of Greek Parliament recently said what he believes may happen after the upcoming election….
“If we achieve a Left-dominated government, we will politely tell the Troika to leave the country, and we may need to discuss an orderly return to the Drachma”
There have been persistent rumors that some European countries have been planning for the worst. For example, a recent article in The Telegraph actually claimed that Germany is currently drawing up contingency plans for the exit of Greece from the eurozone….
Plans for Greece to default, potentially leaving the euro, have been drafted in Germany as the European Union begins to face up to the fact that Greek debt is spiralling out of control – with or without a second bailout.
A number of politicians in Greece realize what is going on and have lashed out angrily. Greek Finance Minister Evangelos Venizelos is absolutely convinced that there are forces in Europe that are trying to push his nation out of the eurozone. He recently made the following statement….
“In the euro area, there are plenty who don’t want us anymore. There are some playing with fire, domestically and abroad. Some are playing with torches and some are playing with matches. But the risk is equally great.”
One member of the Greek Parliament, Kostas Kiltidis, is warning of dire consequences for those trying to kick Greece out of the euro….
“We are the cradle of European civilization and nobody can take us out of our own home. There is no legal mechanism for this. If they try, others are going to die economically with us.”
All over the financial world, there is a growing feeling that a Greek default is inevitable at this point. Just check out the following quote from a recent report put out by Credit Suisse….
Overall, we are left with a sense that the probability of delivering the largest default loss in history in a disorderly way on or before 20 March has increased relative to doing so in an orderly way. (Our view remains that, in any case, the chance of a disorderly outcome after 20 March is high, so to that extent the immediate events are not really central to our view, but of course are fascinating).
The Greek government is drowning in debt and is going to great lengths to try to stay afloat. In Greece today, it seems like almost everything that the government owns is for sale. The following is from a recent article in The Independent….
The Greek government is trying to raise a staggering €50bn from the sale or rental of national assets including Athens International Airport (and 38 other airports), state oil and gas companies, ports in Thessaloniki and Piraeus, the Hellenic Post Bank, the motorways, the state-run horseracing organisation, and 35 large government-owned buildings. Hellenikon – a strip of coastline three times larger than Monaco which was once home to an international airport – is up for grabs, as is a 44-acre chunk of Corfu and, reportedly, numerous other stretches of scenic coastline.
But no matter what the Greek government does, it is only delaying the inevitable.
This new deal is not going to “save” Greece. Government debt will remain at unsustainable levels and the country will be facing depression-like conditions for years and years to come.
Many Greek citizens are planning for the worst. The following comes from a recent article in The Guardian….
“I’m really worried. I think there is a risk that we will go bankrupt and I’ve thought a lot about being prepared,” said Dimitra Partheniou, 61, in Athens. “I’ve gone through all the scenarios: of there being no food, of people being attacked as they go to the supermarket, of banks being looted. And I’ve decided that if that happens we’re moving to Poros [an island] because there, at least, we’ve got enough land to cultivate tomatoes and corn.”
When people become desperate they do desperate things. For example, it was recently discovered that thieves have stolen dozens of priceless antiquities from the Ancient Olympia Museum. As the economy continues to crumble, things in Greece are going to get even worse.
And northern Europe does not intend to be financially responsible for this Greek tragedy.
So don’t be fooled by this new deal.
This deal is not about rescuing Greece.
Rather, it is about setting the stage for the exit of Greece from the euro.
And if Greece does end up getting kicked out of the eurozone, that is going to be a signal to the financial world that others may be asked to leave the eurozone at some point as well.
Investors would be left wondering which country will be the next to go.
The economic problems that Europe is facing right now are not going to end with Greece.
Some European officials seem to think that if they “amputate” by cutting off Greece right now that the rest of the eurozone can be salvaged.
That simply is not going to happen.
In the end, Europe is either going to totally break apart or it is going to integrate on a level never seen before in modern times.
It will be fascinating to see what happens.
This article was posted: Tuesday, February 21, 2012 at 6:15 am