Crack-up: Greece On The Verge of Default.


In the Business Insider, we read:

Greece is preparing to take the dramatic step of declaring a debt default unless it can reach a deal with its international creditors by the end of April, according to people briefed on the radical leftist government’s thinking.

The government, which is rapidly running out of funds to pay public sector salaries and state pensions, has decided to withhold €2.5bn of payments due to the International Monetary Fund in May and June if no agreement is struck, they said.

“We have come to the end of the road … If the Europeans won’t release bailout cash, there is no alternative [to a default],” one government official said.

For years, people have talked about a Greek debt default and speculated over a possible Greek exit from the Eurozone currency area. Six years after Greece first began it’s most serious economic crisis since the Great Depression, it seems the predictions and speculations may finally be getting somewhere. Things are getting real.

Greece has to get this bailout. They owe €2.5 billion to the IMF. The IMF does not renegotiate loans as a part of their policy. If Greece cannot repay, then the IMF will be forced to declare them in default.

But what if Greece gets the bailout? They’ll be safe… for another four months. Then they’ll be in the exact same situation again, needing a bailout guarantee.

The potential first crack-up of the Euro is staring us in the face. This is about more than just the money that Greece owes to the IMF and the European Central Bank; this is about what the situation represents. The Euro is supposed to be a permanent monetary union, and the European Central Bank is supposed to keep all of the member states in line. But now the union is looking less and less permanent as Greece grows increasingly difficult to work with in terms of repayment. What’s the ECB gonna do about it?

If Greece defaults, but the ECB allows them to remain in the euro and does not impose any significant negative sanctions, then it will demonstrate to the rest of Europe that the ECB really has no power at all. The Greek economy, compared to the rest of Europe, is a child’s plaything. If the ECB can’t even enforce any punitive sanctions on the tiny economy of Greece, then how can they impose sanctions on any of the other larger European economies, such as that of France, Spain, and Portugal? The answer would be that they can’t, and everybody would figure this out.

But even if Greece gets the bailouts, the symbolism is still negative. Greece has been the deadbeat of the Eurozone since 2009. Almost yearly, they receive another round of bailouts and another rolling-over of their debt. Anybody who has dealt with a deadbeat that perpetually asks for money and favors know what this means: Greece will never repay. They will probably not even pay the interest. The ECB and IMF are not going to get a single eurocent from the Greek Government. After all, why should the Greek Government pay anything? It’s obvious that the ECB is desperate to keep Greece in the monetary union. The ball is in Greece’s court. The ECB has never shown any commitment to really enforcing negative sanctions on Greece, so Greece will continue to cash in on their “generosity”.

This immediate crisis has not yet been decided. My prediction: Greece will not pay. The ECB will buckle and offer to roll-over their debt, an offer that Greece will accept. It will kick the can down the road for another few months. But the message this will send to the other troubled economies of Europe is clear: “You don’t have to make payments.”

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