The global financial markets have been pricing the imminence of a Greece default as the Eurozone appears lost over trying to contain the contagion.
The Greece government is having a difficult time selling to her populace the EU imposed ‘austerity’ package required for continued bailouts.
From Bloomberg, (bold emphasis mine)
Prime Minister George Papandreou will seek today to counter mounting domestic opposition to budget cuts and growing doubts that Greece can avoid default as a three-year recession worsens.
With the country’s bond yields at records and European officials increasing pressure on the premier for more cuts before they dole out a sixth tranche of bailout loans, Papandreou will deliver a nationally televised address on the economy from the northern city of Thessaloniki at 8 p.m.
A total of 4,500 police officers are being deployed in the city to keep order as unions rally, students march against education reforms, and taxi drivers across Greece strike to oppose new licensing rules. Finance Minister Evangelos Venizelos said on Sept. 6 the government will accelerate austerity measures pledged in return for emergency loans…
Fears have deepened since a scheduled quarterly review of Greece’s progress by the European Union and the International Monetary Fund was unexpectedly suspended for 10 days last week. Greek sovereign debt jumped 212 basis points yesterday to a record 3,238, according to CMA. The five-year contracts signal there’s a 92 percent probability the country won’t meet its debt commitments.
Venizelos expects the economy to shrink by about 5 percent this year, worse than the June estimate of 3.8 percent from the EU and IMF, and a deeper contraction than in the past two years. The forecast damps hopes that Greece will lower its deficit to 7.5 percent of gross domestic product in 2011, with the government blaming the slump for a budget deficit that widened 25 percent in the first seven months of the year.
Greece is aiming at an additional 6.4 billion euros ($9 billion) in savings through the end of the year to meet the 2011 deficit target, part of a 78 billion-euro package of state-asset sales and budget measures that threatened to topple Papandreou in June.
Venizelos this week pledged to immediately transfer state assets to a fund for sale and place civil servants in a “reserve” system to retrain them and cut expenses, as well as merge and shut down dozens of agencies.
As I have been saying, the concurrent bailout packages have been a sham. This has not been about restraining the welfare state but about rescuing the banking system.
What has been happening instead is the political process where massive amount of resources are being transferred from the welfare state to the banking sector.
Global political leaders are hopeful that by rescuing the politically privileged interconnected banks, they can bring 'normalcy' back to the 20th century designed politically entwined institutions of the welfare state-banking system-central banking system.
And since the makeshift measures applied by the EU have been less aggressive than that of the US, which have been exacerbated by fierce regional and local political impediments, as the above, economic reality has been swiftly catching up with politics. The latter has made many to mistakenly generalize that a political or fiscal union is the solution,it is not.
And in realization of the looming default, Germany prepares to support her national banks.
Again from another Bloomberg article,
Chancellor Angela Merkel’s government is preparing plans to shore up German banks in the event that Greece fails to meet the terms of its aid package and defaults, three coalition officials said.
The emergency plan involves measures to help banks and insurers that face a possible 50 percent loss on their Greek bonds if the next tranche of Greece’s bailout is withheld, said the people, who spoke on condition of anonymity because the deliberations are being held in private. The successor to the German government’s bank-rescue fund introduced in 2008 might be enrolled to help recapitalize the banks, one of the people said.
The existence of a “Plan B” underscores German concerns that Greece’s failure to stick to budget-cutting targets threatens European efforts to tame the debt crisis rattling the euro. German lawmakers stepped up their criticism of Greece this week, threatening to withhold aid unless it meets the terms of its austerity package, after an international mission to Athens suspended its report on the country’s progress.
Greece is “on a knife’s edge,” German Finance Minister Wolfgang Schaeuble told lawmakers at a closed-door meeting in Berlin on Sept. 7, a report in parliament’s bulletin showed yesterday. If the government can’t meet the aid terms, “it’s up to Greece to figure out how to get financing without the euro zone’s help,” he later said in a speech to parliament.
A Greece default would likely lead the ECB and the US Federal Reserve to make massive transfusions of digital ‘bailout’ money to ECB and US banks.
Also Greece could be ‘convinced’ to leave the Euro.
This should be very bullish for gold.
Yet, realize that the temporary ‘Band aid’ patches being applied by political authorities won’t survive an unsustainable system based on a political economy of zero sum redistributions.
The welfare state-banking sector-central banking architecture operating on a fiat money platform is bound for collapse.
Greece seems as paving the way.
No comments:
Post a Comment