Greece: Is the EU shuffling the deckchairs on the Titanic?

A wise man once said “When you come to the last page, close the book.”

Rather than heeding that ancient adage, the European Union continued to add new pages which contained, metaphorically speaking, the same methods by which to support the embattled Greek economy, as well as the wider continental fiscal situation.

When the crunch time came, and Greece could no longer sustain itself even after substantial, successive bailouts bankrolled by other European Union member states, which have their own financial uncertainties to deal with, the nation elected the which sent a clear message that the last thing its populace intended to do was to pay the nation’s unserviceable debt.

Albert Einstein once stated “The definition of insanity is doing the same thing repeatedly and expecting different results,” the validity of his wisdom now manifesting itself in the dire condition of Greece’s domestic economy and its continued swingeing unemployment and low productivity, despite various injections of several hundred billion Euro on several occasions.

Prior to the Greek elections, it was becoming more of a discussion point among global economists that Greece may leave the European Union, a matter which reared its head again last week.

Eurozone finance ministers have expressed fury at Greek “time wasting” as the prospect of Greece going bankrupt and crashing out of the euro becomes a “serious” option.

The atmosphere of talks between finance ministers in Riga on Friday were further poisoned by a threat from Yanis Varoufakis, the Greek finance minister, that he was prepared to call the Eurozone’s “bluff” over austerity measures and leave Europe’s single currency.

Still battling to repair its economic situation after the 2008/2009 financial crisis, Britain and Germany, the two largest producers in the European Union, have been saddled with an ever increasing commitment to pay down the debts incurred by member states in the Southern region of Europe, with Greece having contributed vastly to this, the latest measure being Mario Draghi’s quantitative easing program which means the buying of 60 billion Euros worth of assets per month until late 2016.

As euro zone finance ministers met last week in Riga, Latvia, to assess progress on Greek reforms, Athens offered concessions on some key reforms demanded by international lenders in exchange for new funding for the country which quickly runs out of money.

When asked whether it would be a fair assessment to say that many currently view “grexit” as a realistic option, German lawmaker Weber told Austrian newspaper, The Standard: “I would say that this observation is unfortunately correct. Today there are more serious discussions about a grexit.”

Greece will only get financial help if it makes an effort itself, he said, adding that Germany was in no way isolated in its strict stance on this issue. “Today it’s the case that the entire eurozone stands against Greece. Germany is not isolated. Greece is isolated,” Mr. Weber said. He reiterated criticism that left-wing Greek Prime Minister Alexis Tsipras works together with the far right in Athens.”

After meeting Angela Merkel on Thursday, Tsipras said he was optimistic an interim agreement would soon be reached. But Greeks know another bailout will be needed even if the short-term €7.2bn in secured.

“Even if there is a temporary solution it will not solve our problems, stated prominent communist MP, Liana Kanelli. “Our country produces nothing. Its manufacturing base has been destroyed, it is de-industrialised and agriculturally deserted. What lies ahead is great, great hardship.”

Mr. Varoufakis has for a long time been vocal with regard to the perils of continuing down the existing path. In 2011 he wrote with regard to the comprehensive situation which may engulf Greece if it leaves the EU. “Within minutes of the PM’s announcement to Parliament, all ATMs in the land will run dry (as bank customers withdraw all the money they can)” stated Mr. Varoufakis.

“For a few days most economic activity will cease and then, on the following Wednesday, huge queues will have formed outside banks to withdraw as many NDs as possible, before the new currency devaluates to the full. Mindful of these developments, the government will have introduced a number of draconian measures: Bank withdrawals severely limited for a minimum six month period, price controls will be established on basic foods (thus causing major shortages as wholesalers will begin to hoard goods in anticipation of higher prices), all government procurement to be  converted immediately into NDs, capital controls be re-established on Greece’s borders, Greece to rescind the Shengen Treaty forthwith (thus re-establishing border controls for travellers to and from the rest of Europe) etc.”

Foreseeing a potential national bankruptcy, a focal subject for discussion at the Riga summit last week, Mr. Varoufakis stated three years ago “At the more fundamental level, Greek banks would be made instantly insolvent and would operate only on the basis of liquidity provided by the Bank of Greece.”

“This would trigger an even deeper devaluation of the ND in relation to the euro so that, by the time the banks opened, price inflation would be running riot. Meanwhile, the government would be forced to declare an immediate default regarding sovereign bonds and the commencement of negotiations with its creditors, including the IMF.”

“Germany could not possibly afford to be exceedingly generous with a fallen Greece. For to contain the massive ‘financial event’ that the above train of events would constitute, Germany and the other surplus (or triple-A) countries would have to: (a) Recapitalize the ECB (to the tune of at least €190 billion), (b) bail-out French and German banks exposed not only to Greek sovereign debt but, as importantly, to the debts of the Greek private sector (including the Greek commercial banks), and (c) pump massive (2008-like) levels on liquidity into Europe’s money markets to steady their nerves” he wrote.

The ECB is currently exposed to a third of its entire capitalization as a result of having secured its loans to Greece on the very same Greek banks that are not performing. The 190 billion Euro liability weighs heavily on the ECB’s 340 billion Euro capitalization, especially with no collateral.

There are, however, those whose interests remain in maintaining the Eurozone in its current state from a monetary perspective. Austrian Finance Minister Hans Joerg Schelling stated in Riga that there was no such thing as an exit from the euro zone, only from the European Union.

The markets have echoed the lack of investor confidence in a monetary unit which spans an entire continent containing delinquent economies as the Euro hit its lowest ever point in recent months, languishing at almost parity with the US dollar. 

Meanwhile the federal United States has been busy redeveloping its economy, its sovereign currency continuing to be in high demand worldwide, and business across the industrial, agricultural, technological and financial sectors producing high quality items for the domestic and export markets.

An exit from the European Union and single currency and subsequent bankruptcy declaration by Greece would likely amplify the difference in continental economies each side of the Atlantic dramatically.

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