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The prolonged economic woes which blight Greece have become such a burden on the already over-committed, heavily socialist, bailout-dependent European economy that a time may be approaching in which the much discussed Greek exit, or ‘Grexit’ from the European Union may be forced upon the country.
The Bank of Greece has issued a warning today, stating that there could be an uncontrollable crisis without a bailout deal.
Greece, which was lent 190 billion Euros by the European Central Bank in a transaction which used up approximately one third of the European Central Bank’s 340 billion Euro capitalization and was secured on unstable Greek banks as collateral, has been teetering on the brink of financial obscurity for several years.
There has been no attempt made to generate revenue from within via enterprise to pay the liability, instead when the final lifeline was thrown to Greece, its electorate voted for Alexis Tsipras’ Syriza party, a staunch left wing, anti-austerity, socialist party which advocates further bailouts in place of fiscal reform.
Today’s warning by the Central Bank of Greece involves the bank admitting that the nation could be thrown out of the European Union unless it reaches a deal within a very short space of time.
According to the Guardian, the Central Bank stated that failure to reach an agreement would “mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country’s exit from the euro area and – most likely – from the European Union.”
“A manageable debt crisis, as the one that we are currently addressing with the help of our partners, would snowball into an uncontrollable crisis, with great risks for the banking system and financial stability. An exit from the euro would only compound the already adverse environment, as the ensuing acute exchange rate crisis would send inflation soaring” said the bank’s statement.
Most certainly, the impact on Greece would be substantial, and further regress the already failed economy. A deep recession could follow along with a dramatic decline in income levels, an exponential rise in unemployment which is, along with most of southern Europe, at levels of over 57% among under 30 year olds, and a collapse of all that the Greek economy has achieved over the years of its EU, and especially its euro area, membership.
Greece is likely to be relegated to the rank of a poor country in the European South.
However, for other nations which are dictated to by Brussels and pay into the European Union but do not receive any return, such as the United Kingdom, the removal of the burden of a financially and industrially inert Greece could boost the economy.
There is a vast difference between the federal United States and what the European Commission wants to view as a federal European Union, this difference being alignment.
California, for example, is aligned with New York, just as Illinois is aligned with Michigan, however in no way whatsoever is the United Kingdom aligned with Greece or Romania. An entirely different economic system, set of industries, business ethic and output renders them incompatible and thus the United Kingdom, with its financial powerhouse handling 45% of all interbank FX order flow for the entire world in the City and Canary Wharf, is paying via ever-rising corporation taxes and income tax for defunct nations with no output and no alignment.
This is primarily why the United States works and the European Union is dysfunctional.
This factor is likely to lead inexorably to a default when, as former British Prime Minister Margaret Thatcher once said, “the trouble with socialism is that eventually you run out of someone else’s money”, becomes a reality for the Greek economy, creating less burden for the productive nations and a potential fiscal precipice for Greece.