Is the “You Know What” Hitting the Fan?…”If the Grexit does happen, it could be the equivalent of a financial earthquake.”
By: David Chapman
GoldSeek.com
Thursday, 9 July 2015
The world it seems can no longer escape Greece. The newspapers and the internet are abuzz with comments and analysis about Greece. Greece appears poised to continue to dominate the headlines for at least the foreseeable future. What happens in Greece could turn out to be an historical moment depending on how this ends. The reality is most likely there are no good endings, only bad choices. Negotiations between Greece and its creditors (known as the Troika – the EU, the ECB and the IMF) have sometimes degenerated into name-calling with the Greeks calling the Troika terrorists and some officials from the Troika calling the Greeks “tax evaders”. Others have referred to the Greeks as profligate and lazy. None of it is helpful in resolving the problem.
Trying to make sense of all of this is difficult for even the best of analysts. In 2008 the Greek government debt to GDP was estimated to be around 108%. Today it is estimated to be 177% and possibly higher. Greek government debt is estimated to be anywhere from €300 billion to €380 billion (that compares to the US and its $18.3 trillion debt; the interest alone on the debt at 2% is estimated at $366 billion). What happened in between was that the Troika loaned money to Greece to help them through the problems that in some respects stemmed from the financial collapse of 2008 but the funds rather than going to actually help Greece pull out of its deep recession was largely recycled to bail out primarily German and French banks. A severe austerity program was also implemented as it was in other indebted countries collectively known as the PIGS (Portugal, Italy, Greece and Spain) although other countries particularly in Eastern Europe also needed loan assistance and also saw austerity programs implemented.
Today Greece is facing at least 25% official unemployment and over 50% unemployment amongst the young 16-25 age group. Many young people and others who can are leaving Greece as they see little future there. The crisis has seen upwards of 5,000 suicides. Greece has been most likely in an economic depression for years given its economy has contracted by an estimated 25% since the financial crisis of 2008.
Greece has historically been a serial defaulter with defaults in 1826, 1843, 1860, 1893 and 1932. The demands of the Troika in order to receive more loans is to cut pensions further and implement further austerity measures in a country that has already been under severe austerity measures for years. The tax evasion problem is primarily due to Greece’s highly self-employed population that operates in the cash underground economy, and an oligarchy, particularly in shipping that have an entrenched tax advantage.
What is one to make of all of this? The “No” vote on July 5, 2015 seems to have tied the hands of the Greek government. They cannot accept the steep austerity program proposed by the Troika without possibly facing considerable civil unrest at home. The Troika, led by Germany, cannot give in as several other EU countries such as Italy and Spain could demand a similar deal. Italy’s debt is estimated at €2.7 trillion and Spain at €1.1 trillion. Irrespective the EU has prepared a plan in the event of a Grexit. German politicians have already noted that there is no question of writing off Greek debt, as it would not be accepted by the German pubic nor other Euro states who would demand equal treatment.
The Rest…HERE
