Greek debt may never be repaid as Germany agrees to five year temporary Grexit

Discussions between senior European Union officials have continued for several days since the Greek government defaulted on its 1.6 billion Euro installment toward beginning to repay the 394 billion euro debt owed to the European Central Bank and International Monetary Fund.

Amid the usual array of inconclusive and lengthy dialogues between the various bureaucrats, the intended outcome and risk is very simply dissected into two important matters: Firstly, if Greece leaves the Eurozone and the European Union, the debt will never be repaid, but it will not get any larger. The second consideration is that if Greece stays in the Eurozone, it is also unlikely that the debt will be repaid as Greece neither has the will nor wherewithal to do so, however the European Central Bank may be cajoled into providing even more bailouts, therefore extending the liability.

A very good business tactic in any economic situation whether within corporate or government sector, is to cut off loss making entities and not throw any more good money after bad, thus Germany has drawn up plans for a temporary five-year Greek exit from the euro if it fails to improve its bailout proposals, a European source told Agence France Presse (AFP) on Saturday as Eurozone finance ministers met in Brussels.

Left-leaning analysts and pro-union figures have considered the best solution to be Greece’s remaining in the Eurozone and receiving a further bailout with full repayment proposals, however this would be relatively akin to a mortgage lender providing further financing beyond the value of the property to a customer who is already four years in arrears, and has no income or assets. In that circumstance, a mortgage lender would begin repossession proceedings after just three months of payment arrears and ensure that no other lender can provide.

Germany clearly has taken the approach that it is time to cut losses, which is clearly the most fiscally prudent approach but will still leave a vast unpaid debt on the desks of the European Central Bank and International Monetary Fund which is now standing at over half of the capitalization of the European Central Bank itself.

With regard to the proposals for a temporary exit from the Eurozone, a source told Yahoo News “It’s an internal paper, it was not distributed today (at the eurozone meeting). There were two options: an improvement of the proposals, or temporary Grexit.”

Germany is leading a chorus of scepticism as eurozone finance ministers study leftist Greek Prime Minister Alexis Tsipras’s new reform plan for a third rescue package worth more than 80 billion euros ($89 billion).

Germany’s economic structure is very different to that of other strong European Union member states in that it has a traditional manufacturing industry rather than an ultra-modern, technology focused business sector like that of Britain. As a result, Germany is more exposed to long term effects of an unpaid Eurozone debt as it cannot leave the European Union so easily, and is firmly entrenched in the Euro currency area whereas Britain could easily leave the European Union with absolutely no repercussions as it is a self-sufficient island nation with a rapidly growing economy, global financial center and flourishing technology industry, and most importantly of all, does not have the Euro currency.

The European source was commenting on a report in the Frankfurter Allgemeine Sonntagszeitung newspaper that said the plans appeared in a one-page German finance ministry “position paper” which was handed to other member states.

The new Greek proposals for a third bailout “lack areas of important reforms,” which is why they cannot serve as the basis for a new three-year bailout programme, the ministry reportedly said.

It urged Greece to quickly improve its reform proposals and seek parliamentary support for a fund to sell 50 billion euros in financial instruments to reduce the debt burden.

If not, the paper said, Greece should leave the 19-country eurozone for at least five years and restructure its debt while remaining a member of the 28-nation European Union and receiving humanitarian aid and other support.




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