Sunday, October 16, 2011

Whither Greece

Ambrose Evans Pritchard of the Daily Telegraph has been discussing Europe's future with assorted leaders who seem to have no clue where to lead the continent. I find it bizarre that economists and politicians interviewed on the subject talk about saving the union as long as Greece gets sorted out quickly. Its obvious to anyone watching from the sidelines that Greece cannot be saved. Their debt is too huge, loans are nothing more than good money thrown after bad, because Greece is going down. There can be no doubt about that, because all the austerity in the world is insufficient to pay off Greece's debt which was created let's not forget by Goldman Sachs cooking the books for the former Greek Government when they wanted to join the European union and their economy was actually too shambolic to permit Greece to join the union legally. So they cheated and hid much of their debt thanks to Goldman Sachs pretending to buy it (for a consideration of course) and now we find banks everywhere struggling to pretend they don't own any Greek debt. And how pray will this all be sorted out in a fortnight? Buggered if I know and neither does the new head of the European Central bank either:

"We must act fast. The sorts of interest rate rises seen over the last three months, if protracted, could lead to an uncontrollable spiral," said Mario Draghi, who takes over as head of the European Central Bank next month.

Mr Draghi said austerity measures must be enacted "immediately" and warned that Italy's €54bn austerity package is "not enough".

Yields on 10-year Italian bonds surged above the danger level of 6pc in August on recession fears. Intervention by the ECB saved the day but yields have been creeping back up again as the ECB steps back. Yields rose to 5.71pc yesterday. Germany's Bundesbank is adamantly opposed to further ECB bond purchases.

Mr Draghi hinted that ECB help is nearing its political limits, evoking Italy's "atavistic temptation" of waiting for an army to cross the Alps to sort out its problems. "It is not going to happen. All our citizens must be are aware of this. It would be a tragic illusion to think that the help will come from outside," he said.

The warning came amid turmoil in Rome where premier Silvio Berlusconi is braced for a vote of confidence after failing to secure enough votes to clear the budget accounts on Tuesday night.

Professor Nouriel Roubini from New York University told Stern that the eurozone is a "ticking timebomb" and that only Germany can now save the system. He called for €2 trillion firewall to protect Italy and Spain from contagion, fearing that the EU's €440bn rescue fund (EFSF) will run out of money by the end of the year. "We need a military weapon a bazooka, and we need it in weeks," he said.

Veteran financier George Soros headed a letter to The Financial Times signed by Europe's luminaries calling for EU leaders to "fix the faults" of monetary union rather than letting it "perhaps destroy the global financial system."

The group proposed an EU Treasury to take charge of fiscal policy, ignoring a ruling by Germany's top court last month any such move would breach the country's Basic Law.

Lingering hopes that Greece might struggle through were dashed yesterday when Athens said Greece's budget deficit had jumped by 15pc from a year ago despite austerity cuts. It blamed the shortfall on deepening recession, which has eaten into the tax base and raised dole costs. The grim figures validate criticisms that IMF-style austerity – without the usual IMF-cure of debt relief and devaluation – is self-defeating.

Greek premier George Papandreou told a cabinet meeting yesterday that talks are underway to free Greece from its debt-compound trap. "We are negotiating in every way to lighten this debt," he said.

Former German Chancellor Helmut Schmidt said the "condescending" policies imposed on Greece had pushed the country into a slump. " I am reluctant to reproach the Greeks for not cutting enough since the austerity is itself a cause of their depression."

Mr Schmidt reminded those demanding yet tougher terms for Greece that post-War recovery in Germany and the D-Mark currency stabilisation in 1948 were made possible only by the willingness of the US to take an enlightened view and relaunch growth with the Marshall Plan.

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