Saturday, May 12, 2012

Still Waiting for the Fat Lady to Sing - in Greece

Who would have thought that a government responsible for an unpopular policy would be voted out of office. Apparently the brain trust running the EU and the European Central Bank never thought that democracy could work like this. BBC News - EU central bankers ponder Greece euro exit

Greece had an election. The people elected haven't been able to form a government however. So the standard guess is that there will be another election.
If no new government is formed, a new election will have to be held, and opinion polls suggest Syriza - a leftist, anti-bailout party - will benefit most. Syriza firmly rejects the terms of the most recent EU-IMF bailout, which requires tough austerity measures in return for loans worth 130bn euros ($170bn; £105bn).
Which is the choice Greeks have always had. Bailout and austerity and continued membership in the EU, OR business as usual, no bailout, and ejection from the EU. (While I am no lawyer, it is my understanding that isn't likely that Greece can exit the Euro legally without bailing on the entire EU. But then the EU and the ECB have been bending a lot of the rules lately.)
On Saturday, German central bank chief Jens Weidmann said: "If Athens doesn't keep its word, it will be a democratic choice.

"The consequence will be that the basis for fresh aid will disappear."

Without financial aid, there is the possibility that Greece will default.

"We're a breath away from the drachma and disaster," liberal Greek daily Kathimerini warned on Saturday, referring to the country's old currency.
I don't know why they keep maintaining the fiction that Greece has NOT defaulted. They have. They did not pay back 100% of the value of the bonds as they promised to do. If I was on the receiving end of that deal, it would look an awful lot like a default to me. But then I don't live in the propaganda universe that is politics.

And while it will certainly be painful if Greece returns to the Drachma, I think it will help them in the long run.

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