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Wednesday
Feb152012

Firewalls In Place, Markets ready: Greece Can Go To Heck

Luxembourg Finance Minister Luc Frieden said it out loud: "If the Greek people or the Greek political elite do not apply all of these conditions ... they exclude themselves from the Eurozone." All of these conditions. And there are a lot of them. Then he added the crucial words: "The impact on other countries now will be less important than a year ago."

Playing for time had been the strategy all along. Governments established bailout funds. Markets, banks, and multinationals adjusted. The ECB figured out how to circumnavigate its treaty-based restrictions on monetizing sovereign debt of member states. And the national central banks that own the ECB, particularly the Bundesbank, got used to these circumnavigations. The fear of financial contagion has subsided. A kind of calm has set in. And politicians like Friedan see in this calm a sign that markets have accepted Greece’s exit from the Eurozone.

Greece might want to decide that it would be better to exit the Eurozone, rather than actually implementing the budget cuts, Friedan said. Returning to the drachma and devaluing it might create a more competitive economy. "It might be something which would allow Greece to get a new start," he said.

With all the pieces in place, it is now politically correct to admit that Greece is a hopeless case, that its political elite and institutions are such a mess that they simply don’t belong in the Eurozone. This too is part of the procedure of.... Kicking Greece out of the Eurozone.

Northern Europe hasn’t forgotten that the Greek political elite misrepresented deficits and debt for years in order to meet the requirements for acceding to the Eurozone—and to cheap euro loans. It came out after a hair-raising spiral of budget-deficit recalculations: in 2009, the deficit wasn’t 6% of GDP, but suddenly 12.7%. In 2010, as bailout funds were slushing into the political system, sunlight hit the shenanigans—and shocked governments up north. The deficit jumped to 13.6%. In late 2010, EU's statistical agency Eurostat audited Greece’s books. And the actual deficit was 15.4%. Life in the Eurozone was over.

But the markets weren’t ready. They swooned every time Greece blinked. To pacify them, near-monthly summits were instituted, each with a Merkozy dog-and-pony show that offered promises of ever greater bailouts and ever higher firewalls. And it gave everyone time to prepare for the inevitable.

The Greek political elite that have tricked their way into the Eurozone have done nothing since then to show that they can be trusted. Time and again, they promised reforms, but after they got their hands on the bailout billions, they didn’t follow through, or did so insufficiently. And Sunday, while protests were raging in front of parliament, Greek politicians inside, who were supposedly debating the very measures the people outside were so enraged about, were in the lounge ... watching a basketball game on TV.

Even German business leaders have lost patience with Greece, though it is an export market for them: 57% want it to exit the Eurozone and reintroduce the drachma, according to a poll by Manager Magazin. The push to get Greece to leave the Eurozone is almost complete, but now a new theme is coagulating into words.

"The state with its phantom retirees and rich tax dodgers, a state without functioning administration," has no business being in the European Union, said Franz Fehrenbach, CEO of Robert Bosch GmbH, the largest automotive component maker in the world. The Greek system is "ramshackle” and “an unbearable burden." The EU should encourage Greece to leave both the EU and the Eurozone, but if it doesn’t leave voluntarily, the EU must change its laws so that Greece can be forced out, he said. And there were other countries on his list, but he didn’t say which. Would Portugal be next?

At the core of his concerns: “We must not overburden Germany.” And he isn't the only one. Potential costs of the vertigo-inducing bailout commitments made to other countries already amount to a whopping 26% of Germany’s GDP! Read.... Germany Frets As Bailout Risks Balloon.

Meanwhile, resentment against the German dictate is growing in Greece. "The European Union is suffering under Germany,” said Georgios Karatzaferis, president of the right-wing LAOS party. He accused Merkel of trying to "impose her will on Southern Europeans" and called the Netherlands, Austria, Finland, and Luxembourg "satellite states" of Germany. And then he pushed Greece a step closer to bankruptcy. Read.... Greece at the Point of no Return.

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Reader Comments (4)

OK, I'm genuinely scared now...

Greece getting out of the Eurozone was just a matter of time though, considering the amount of blockheads that have managed to crawl their way to the parliament over the past few years. Who knows, maybe it's for the best.
February 15, 2012 | Unregistered CommenterMichael Kardamakis
and you buy all this nonsense about how great a shape germany is in...??? Greeks have the lowest household debt in the EU and most families own their homes free and clear...not a very effective nor efficient use of capital...but it is what it is...yes, greek politicians are almost as bad as german ones...who has the highest unfunded pension liability in europe...take another guess....guess again....ok...its germany....vas ist das ...you say....yup...good old germany, which has never really fully integrated the eastern german part of the country...and where 85% of greeks own their own home...how many germans are permanent renters....almost 60% are renters...SIXTY PERCENT ARE RENTERS....so much for living in "rich" germany....
prosperity is defined by what you have that is yours, not what you owe on....what is the german national anthem...."I owe, I owe...so off to work we go....tadadadahda tadadadahda.....I owe...I owe...oh oh...I owe...I owe....."
February 15, 2012 | Unregistered Commenteralex morfesis
Thanks Alex for your perspective. I've written about Germany's problems before. But this was a post about the Greek situation, and certain reactions in the northern Eurozone to the Greek situation.

I agree with you that not all is well in Germany. For example, if you look at real wages over the past ten years in Germany and in Greece, you will be stunned to find out how much they have risen in Greece, and how they have stagnated in Germany. A lot of Germans complain about that.

Here is a post where I'm picking apart the German "success recipe": http://www.testosteronepit.com/home/2012/1/6/german-success-recipe-or-blip.html

I believe Germany will face some tough times. And I will continue to write about it. So stay tuned.
February 15, 2012 | Unregistered CommenterWolf
GREECE BANCRUPT? Why don’t see it this way? [Found on a forum. Interesting.]

All of us in this world worked and had a living until recently. Suddenly the money is gone. Where has it gone? Well, we, the people, make money by contributing something to society. That makes the real money circuit. Others make money with money, they don’t contribute anything to our society but only suck real money out of your purse. Money is not a commodity but is to make barter easier. When we put 100 dollars of our real money into a bank, the bank is allowed to lend the real-money makers [us, workers] ten times the amount you put in or 1000 dollars. You think it is money but it is credit only, it has no value at all. Immediately they start cashing in, say 7% real money for it from you, or 70 dollars a year while you get 2% for your 100 dollars in their bank that make
their business possible, so you get 2 dollars. Thus they make 35 times more than you do and on money that does not even exist. With their profit [interest], being your real money from labor, they buy up the world and return your real money to your real money circuit to start the game all over again. That way they become richer and richer with fake money without contributing anything to society. They eventually finance wars to keep their business going. When they overdo this, people are going short on their real money from labor and that is what causes the trouble in Greece. But don’t bother. They are not the only ones. This is happening all over the world now so stay put. Always realize that there are two money circuits: a real one and a fake one which is 10 times or more bigger and which is what the rich live on and keep us in line. Oh, there is a third circuit within the real money circuit from work: the black money circuit. But that is real money without paying tax for our society. In some countries it is 40% or more. Eliminate it and the country goes bankrupt. Is everything clear now? To stop them from draining you, put as little money in the bank as is necessary for barter and don’t borrow fake money.
Anonymous
February 22, 2012 | Unregistered CommenterSCHICKENDANTZ

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