Why Greece Matters


Will Technocratism become the new socialism? The idea has tepid support at best but is being considered as the situation becomes more dire.

Greece is almost out of money and no one wants to lend to them given the current political climate after their recent elections. They won’t be able to pay their workers within the next two months and they will have no choice but to print Drachmas.

A change in currency puts all investors and savers in limbo until a value is placed on it. If it is valued too low or too high, there will be market upheaval. Every loan and every account in Greece will be in jeopardy as will foreign investors.

The banks are already stressed and could collapse.

This year or next, Greece will default and leave the euro, at least that is the belief of most economists at this time. There have been signs of a run on Greek banks with Greek banks losing a third of their deposits over the last two years. It is tragic for people who saved and did the right thing.

The government cannot reconcile. New elections were being planned but there is not time for that. Greeks are looking to experts in the financial field to become the financial elite. The technocratism which was suggested by President Papoulias has only a weak endorsement. The political parties prefer to have new elections. Polls show that new elections will deliver the same type of fragmented government but with the added problem of no money and no time.

The Eu does not believe the contagion will spread and an orderly default is possible as long as the Greek currency is valued low.

Cypress is integrally intertwined with Greek banks and will be the first to suffer.

It is uncertain as to what happens to the 55 billion euros in debt now being carried by EU banks and investors. There is another $69 billion that is owed by Greece to other banks.

The WSJ reported on Tuesday that investors dumped the bonds of Spain and Italy and bid the euro down against the dollar. It is more likely that the Greek exit cannot be contained.

If there is a Greek exit, financial-market financing for Spain and Italy might also be cut off.  Spain and Italy are monetizing their debt, much as we are here.

Spain’s borrowing costs are skyrocketing. Their bond yields jumped and bank stocks fell in response to the Greek situation. Another bad sign for the euro.

Moodys is downgrading Italy’s banks as they hit a double dip recession.

Ireland and Portugal are back in trouble.

Click here to see how the contagion can spread.

The euro is down to $1.28 net to the dollar. The attempt by the EU to restore competitiveness, confidence and credibility with strict fiscal austerity has run aground due to Greece, the French elections, and rumblings among other nations living under austerity.

The Dow is down this week and there is high risk for the United States fragile economy as well.

The Greek failure to establish a political coalition with insufficient time for a new election has led them to consider a new technocratic arrangement but it is not likely to happen as all political parties are entrenched.

The EU perspective –

The Telegraph: ”A year and a half ago there may have been the danger of a domino effect,” he said. ”But today there are, both within the European Central Bank and the European Commission, services that are working on emergency scenarios in case Greece doesn’t make it.”

Mr De Gucht indicated that the EU is apparently relaxed about bank runs and market turbulence hitting Spain, despite the financial turmoil this week.

”How much will it cost… I do not know, but it will cost money. What I am assured of is that there will be no contagion: a Greek exit does not mean the end of the euro,” he said.

Painting a grim picture the commissioner said that if Greece left the euro it was “finished” and that, while the euro would survive it would have to fight off a “cataclysm”.

”C’est fini. It (Greek exit) means that after a while you can no longer pay your officials who can no longer pay your pensions,” he said.

”All you can do is have your central bank to print money, and then you get hyperinflation. That would cause a cataclysm in other countries that are now under pressure.”

The commissioner warned Greek voters that there was no room after a round of second elections for loosening the EU’s austerity programme that requires Greece to find an extra £9bn in cuts next month in returns for aid the country needs in order to finance its state.

”I would not speculate that Europe will bend after the elections. There is no margin. You’ll barely have a reduction of the debt with the programme now on the table,” he warned…Read more…

The decimation of small business in Greece –