Archive for Austerity

Greece cannot be forced out of the Eurozone

Why the Eurozone will have to give in to Greece

  • Greece’s Government wants a managed default; not to leave the Eurozone
  • The ECB can make it very difficult for Greece to stay in the Euro,

 

BUT

 

The emperor is naked! There is no mechanism to force an exit and the ECBs supposed powers are irrelevant – see below the likely course of negotiations if they go to the brink and over it.

  1. Greece refuses to agree to austerity and threatens default.
  2. EU threatens to force them out of the Eurozone. Bluff called as there is no mechanism to force this on a country
  3. The ECB refuses to lend to Greek banks hoping that the Greeks will back down. Bluff called.
  4. ECB refuses to lend and the banks fail
  5. Immediate bank nationalisation by the Greek Government and a default on all the banks debt.
  6. This will be followed by immediate default on the Greek debt
  7. Greece then continues to use Euros within a nationalised banking industry, noting ECB can do
  8. Impact on Greece? Limited as the country is viable economically

Now, let’s watch what happens. My guess…..large amounts of Greek debt will be written-off – the market prices the debt now at 56% of face value – see here. The interest paid on this debt is now around 10%. Seems like a great deal – buy Greek debt and get 10% per annum and it’s in Euros – brilliant. Don’t do it.

Can the EU change the rules and create a mechanism to force an exit from the Eurozone? Hmmmm…….need to check it out. I suspect such a move would need to be adopted unanimously.

 

 

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Why is everyone so worried about Greece?

Greece is tiny country on a European and world scale. Why is it in the news so much? This is certainly a reasonable question.

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Greece in Chapter 11

The only way to bring a country or corporation back from the dead is to halt all payments to creditors – the Greek Government is spending only slightly more than it earns (3% of GDP) if interest and loan repayments are ignored and with military spending at over 3% (double the NATO average) this is easy to address.

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Why tax the masses?

The simple answer is because the Government can!

Since the beginning of time, taxing income or spending has been easy. Taxing wealth or corporations is tricky, the two are linked, both have vast resources that they bring to bear behind their lobbying and both pay huge amounts to tax accountants to reduce their tax bills and hide their wealth.

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Where have all the “questioning” journalists gone?

This morning on BBC Radio 4 we were treated to the roving reporter (I can’t call him a journalist – sorry), John Humpreys was interviewing some Greek youth. One mentioned that Greece has the largest army in Europe and this warranted no comment from Mr Humphreys. What is true is that Greece has consistently pent almost double the EU average on defence in the last 20 years. Read the rest of this entry »

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