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希臘:圖窮匕見: End of the Line July 6, 2015

Posted by hslu in Economics, Global Affair.
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It was a long drama playing out on the world stage for everyone in the world to see.

It was a text book case of failed western capitalism.

2001:Greece joined EU by cheating on its book and hiding its national debt, federal deficit and budget systemically for many years with the help of none other than Goldman Sach. Greece enjoyed many years of prosperity as Greeks became rich immediately as their Drachma was converted to Euro.

2009:Over the years after joining the EU, Greece failed several times to meet EU’s economic and fiscal benchmarks. Global financial crisis finally exposed Greek’s deep rooted trouble as the country unable to pay the interests on its national debts. A rescue plan was needed.

2010:IMF bailed out Greece with €20 billion emergency funding in exchange for Greece government’s economic and pension reforms. It was designed to keep Greece in the EU and to revive Greek economy. But, just like all previous cases when IMF was involved in rescuing other financial troubled countries, Greek economy promptly shrunk by a whopping 25%. Unemployment skyrocketed to 25+%. The mounting Greek national debt made Greece even less able to service the debt.

2011:   Creditors of Greek loans were forced to take a hair cut after Greek banks borrowed an additional €90 billion from ECB under Draghi’s Liquidity Assistance program. In essence, the IMF, ECB and EU, the so-called Troika, encouraged the Greek government to borrow more money as a way to solve a national debt that Greece already couldn’t pay in hundred years. What IMF, ECB and EC did was effectively asking EU members to suck up the loan losses in order to keep Greece in the EU. The tactic was doomed to fail because EU and IMF leaders tried to use a political solution to solve a financial problem.

2015:   Greek’s leftist Syriza Party won the election because Greeks were fed up with 6 years of recession and high unemployment. Syriza’s Alexis Tsipras was swept to power because of his uncompromising rebellion against the austerity programs imposed by EU, Germany and IMF. His uprising is a serious blow to one Europe which all European leaders wanted so desperately to preserve despite its serious and deadly flaws.  No the anti-EU referendum was passed by 61+% of the Greek citizens, the Troika has no other option but to come to the negotiation table and figure out a solution soon.

What’s going to happen next?

1.   Is the Troika going to take a collective  slap on their faces, swallow their pride and take a hair cut on loans to Greece? But in exchange for what; more austerity?

2.   Are the leaders of Troika going to stand their ground, dig their heels and yell out of their lungs to the majority of the Greek people: “Take your referendum and shove it?”

The first option is a no-no because other debtor countries such as Spain and Italy, will ask for the same thing. The second option isn’t practical because Greece will leave the EU which may be followed by other countries after Greece devalues its currency, weathers the storm but revive their economy in a few years. EU will then begin a long process of disintegration and cease to exist in a decade or two.

I think that in the end Greece will stay inside the EU. A hair cut of 30+% will be agreed upon. Greece still won’t be able to service the debt let alone paying off the principles of the loans.

In a few years, we will have the same drama again. By that time, it will be Spain or Italy

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