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Greek Protesters Setting Stage for Referendum (Photo: Scott D. Meyer, flickr)
From the Christian Science Monitor. One of the better sources available.
The chaos generated by George Papandreou‘s mere proposal to put Greece’s participation in the deal to a referendum exposed the fragility of the European plan and the lack of confidence it enjoys in markets.
A top European official warned that Athens could be left to go bankrupt if it went through with the vote and experts said the broader eurozone deal — which hopes to protect larger countries like Italy — could collapse.
Ultimately, Greece could leave the euro union, causing massive financial havoc and pushing the global economy back into recession.
That prospect could be enough to keep the referendum from happening — Papandreou’s government could collapse before the proposal goes through, having lost huge amounts of support from its own party.
After a grueling seven-hour Cabinet meeting, Papandreou’s ministers expressed “total support” for his referendum proposal and said the vote would be held “as soon as possible,” government spokesman Ilias Mossialos said early Wednesday.
But Papandreou’s government still faces a vote of confidence scheduled for Friday. The prime minister was summoned to attend emergency talks Wednesday on implementation of the bailout convened by French President Nicolas Sarkozy and German Chancellor Angela Merkel in Cannes, France, a day ahead of the Group of 20 Summit in the French Riviera.
The referendum proposal piled more pressure on an already creaking deal that was facing scrutiny from markets that found details wanting.
But Papandreou’s government still faces a confidence vote and if the government falls, all bets are off. And Greece may not even get it’s bail out loans it it goes ahead with the vote.
Papandreou is hoping to get a solid mandate to implement austerity measures over coming years, but the uncertainty created by the proposal itself — and the fact that the vote would be months away — risks sinking the European deal before Greeks can even vote on it.
Jean-Claude Juncker, the chair of eurozone ministerial meetings, suggested Greece may not get its next bailout loans — which had already been approved and were due to be paid out in coming weeks — if it goes ahead with the vote.
Athens runs out of money to pay pensions and salaries by mid-November and has to pay bondholders money in December. Failure to do so could trigger a messy default with dire consequences for stock and bond markets.
Markets would plunge. European banks would suffer losses, making credit harder to get for businesses and hurting the economy. Borrowing costs would rise for other European governments, companies and households, worsening their finances, on fears they will default, too.
Banks and financial firms in other countries would suffer as well. American broker MF Global Holdings filed for bankruptcy protection after markets lost confidence in its heavy bet on European government debt.
. . . . . . .
If Greece defaults, its banks will likely collapse because they hold large amounts of government bonds. They would probably need to be taken over by the government. Unable to borrow, Greece would have to immediately balance its budget by making even more drastic cuts.
At that point it might face a decision to leave the euro, which would let it devalue a reinstated drachma by some 50 percent and improve export competitiveness. [Emphasis mine and a key point here]
“The community’s patience with Greece seems to be running short,” Commerzbank economist Christoph Weil wrote in a note. “Against this backdrop there is a real risk of the IMF and eurozone countries terminating their support payments.”
Facing collapsed banks, “it is likely that the country would opt for an exit from the European Monetary Union as it would in this way regain its ability to act on monetary and fiscal policy at least in the short term.”
Months of uncertainty over the vote, to be held early next year, would threaten the stability of larger economies like Italy, which saw its borrowing rates rise sharply on Tuesday and would be too expensive to rescue.
So which ever way it goes, the whole thing could collapse anyway triggering another or rather a greater down turn. From here it looks like a study in for gone conclusions. Not a matter of if, but when and how.
19 Comments
Improved export competitiveness is key to stopping the increase in the Greek unemployment rate – and the bail out destroys this because it preserves the euro as the Greek currancy.
Plus Greece has the energy discoveries off the coast of Cyprus – unless Turkey wants to go to war over a claim that the rest of the world rejects, Greece has enough to survive without the EU – a mini-Norway if you like.
Indeed the energy concessions could replace the borrowing so as to minimize the need for a “balanced budget”.
The Greek budget of 45 to 50 billion euros is dwarfed by the bond cost- 19 billion euros for the next four months from September to December — http://www.welt.de/wirtschaft/article13614496/Griechenlands-Beamte-fuerchten-um-ihren-Lohn.html
Die Welt reports that 2 billion euros of interest payments to Greek bondholders are due in September; 3.65 billion euros in October and 3.3 billion in November. In December, 10 billion euros are due to be paid to fractional reserve banks.
Greece says it only has enough cash to cover pension and salaries until the middle of October and is waiting for the next „installment“ of eurozone tax payer money to continue to make interest payments of 19 billion euros to creditors and also keep some of the functions of a state going by paying salaries and pensions.
The next installmet of a 110 billion-euro ($151 billion) bailout will only keep Greece going until the end of the year.
What is the point of accepting the “bailout”?
It is obvious a balanced budget is easier to achieve – and will come with job growth – if the Greeks reject the German theft called a “bailout”.
In all of this we rarely hear a discussion of the terms of these loans. First of all global bankers are coming in and telling nations how they will structure their governments if they want a loan. Bankers should NOT have the power to tell nations how to run their country.
Second of all, it is not the banks money that is being loaned, even though they act as if it is. It is the taxpayers money from Western nations. In june of 2009, for example, Congress slipped a $100 billion dollar donation from the American taxpayers to IMF into a military appropriations bill for Iraq.
Third of all the terms of these loans are harsh. The Greeks are paying 3.5% interest. This works out to be over $3 billion in interest on a $110 billion loan. Why are they having to pay ANY interest above what might be the cost to do the bookkeeping for this loan (and this amount is most likely covered by their service charge). Who is making the profit off this interest?
The IMF’s stand-by arrangement (SBA) requires repayment of borrowed resources under the SBA due within 3¼-5 years of disbursement, which means each disbursement is repaid in eight equal quarterly installments beginning 3¼ years after the date of each disbursement.
But the 3.25% interest is not the only charge on this money borrowed. In addition to paying this interest and giving up the sovereignty of their nation to bankers demands:
1. There are surcharges: Large loans carry a surcharge of 200 basis points (this translates to 2% of the loan amount), paid on the amount of credit outstanding above 300 percent of quota. If credit remains above 300 percent of quota after three years, this surcharge rises to 300 basis points (This amounts to 3% of the loan amount), and is designed to discourage large and prolonged use of IMF resources (and to make money for global bankers). Again these surcharges are no small amount. 2% amounts over $2 billion.
2. There are commitment fees: Resources committed under all SBAs are subject to a commitment fee levied at the beginning of each 12 month period on amounts that could be drawn in the period (15 basis points for committed amounts up to 200 percent of quota, 30 basis points on committed amounts above 200 percent and up to 1,000 percent of quota and 60 basis points on amounts exceeding 1,000 percent of quota). These fees are refunded if the amounts are borrowed during the course of the relevant period. As a result, if the country borrows the entire amount committed under an SBA, the commitment fee is fully refunded.
3. and there is a Service charge: A service charge of 50 basis points is applied on each amount drawn. (The service charge amounts to half a percent of the money drawn) Thus if Greece draws the full amount that service charge is over $500 million–for what? moving figures from one side of the ledger to the other.
From my viewpoint, it appears to me that the people of Greece are being reduced to serfs in order to support the fees, service charges, surcharges, and commitment fees demanded by banks. This is not unlike what banks all over the world do to the 99%. They loan us other peoples money and we make them rich off the fees and fines that we pay to the banks.
Addendum: source for the terms IMF
http://www.imf.org/external/np/exr/faq/greecefaqs.htm
and paupau is correct. What is the point? Exactly an excellent question since it appears to be a losing situation for the Greeks.
If a Greek default threatens all of Western Capitalism why doesn’t all of Western Capitalism come to the rescue?
Because the entire enterprise is insolvent. Liquidity trap solutions only worsen insolvency problems.
What cannot be paid will not be paid. Starving the people will not save the bond holders. papau is exactly right saying what is the point of accepting the bail out.
You receive interest for the risk of default, more risk more interest . There never were or ever will be risk free loans.
I find it interesting that merely “threatening” to hold a vote makes the bankers angry and roils markets. How dare the people try to have some say in exactly how they will get fucked over?
It’s a head fake. Papandreuo is doing this to give him some room with the bankers or get better terms. If his government fails and the conservatives call for an election there wont be a referendum. Bankers don’t like democracy.
perhaps
the sale of national assets to German billionaires is not going down well – getting rid of that component of the German punishment of Greece might make the “bailout” tolerable to the Greek politicians.
But the Greek people need not suffer as much as is called for under the “bailout”, and minor changes do not change that fact. Default is the logical choice for Greece.
Indeed Default is the only way – and as Argentine has shown, default is not the end of the world for anyone.
And the Eurozone itself is not doing so well these days.
http://www.telegraph.co.uk/finance/financialcrisis/8864867/Eurozone-manufacturing-woes-deepen-as-Germany-contracts.html
And from Zero Hedge.
http://www.zerohedge.com/news/spiegel-greek-exit-euro-zone-just-matter-time-roundup-german-press-responses-referendum
Spiegel: http://www.spiegel.de/international/europe/0,1518,795426,00.html
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niceeeeeeeeeeeeeeeeeeeee
Austerity did NOT work. It is NOT designed to work.
It’s only designed to steal from the Greek people.
Doing the same failed actions again and again, is pure insanity.
Get out of the Euro. Take the hit. And like Argentina bounce back on the terms of the Greek people.
But make note, Pap… served his corporate masters well for the last 2 years. I hope the Greek people don’t fall for this obvious trick, where the theft has already taken place by Pap… and his masters, and now he seeks to walk away without any consequence for his actions.
Pap… is dirty. He’s a corporatist. This referendum is a trick. I hope the Greek people don’t fall for it.
Only time will tell.
The Greek financial crisis illustrates that the multinational TBTF banks are calling the shots, not the democratically elected heads of the eurozone’s members. That is, government leaders are looking to the banks to tell them what to do, and that has been true of Papandreou as well.
Until now, that is.
Why? Because the Greek people are bearing the brunt of the severe austerity measures imposed as conditions, or strings attached to the loan bailouts. Yet, the Greek people who are losing their jobs, pensions, and security because of the severe austerity measures are the people who are least responsible for causing the economic problems that plague Greece. They live in the oldest democracy in the world and they are justifiably furious about being held financially responsible for the criminal acts committed by others while being excluded from the process of determining who should be held accountable and what should be done about it. They did not have any say in negotiating, accepting, or rejecting the terms of the bailouts and they bitterly resent the destruction of their lives to make the banksters richer.
They see the austerity measures as a form of theft in which they are the victims with their own government complicit in aiding and abetting the commission of the crime. Papandreou appears to understand that and, with default an available option that would permit Greece to begin to cure its economic health by issuing its own currency as Argentina did, he appears to have decided to let the people decide whether to agree to accept the austerity measures.
The moral of the story is simple to state: Democratically elected governments that have been captured by the banks should not be aiding and abetting them to steal the nation’s assets while impoverishing the people they represent and silencing them through the commission of harsh and morally indefensible acts in the name of austerity.
I can’t wait until this silly ass diary of mine disappears.
Or maybe Pap is doing this to keep his own very precious head upon its shoulders. What’s happening in Greece is not merely discontented, spoiled, lazy southern Europeans protesting about have to pay for their irresponsible behavior, as the corporate media is broadcasting non-stop; it’s a revolution.
Let the Greek people decide for themselves. Screw the banksters.
Sorry. Still here, dude.
Touche’.
damn…
????????
Well I like it!
And sadly, anything on the internet lives on forever!