How Greek Default May Still Unravel the EU Greece currently owes a little over 300 billion euros to various creditors. About 200 billion is owed to the Eurozone institutions, the European Financial Stability Facility (EFSF), and the European Stability Mechanism (ESM), that raised funds based on Eurozone guarantees. The remainder is owed to the IMF, ECB, and private creditors. If Greece were to default, it would probably be mostly on the debts owed to Eurozone members. To get Greece down to a manageable debt level, a default of at least 150 billion euros is necessary. Greek Default Threatens EU Of course, such a default would mean that the guarantees would then kick in. Government officials in Europe are currently in panic mode since this would likely be another Lehman moment. Spain, Italy, and France have guaranteed about 50 percent of this debt. A default would mean an important increase in the debt load of each of these countries. This would likely be the tipping point for Italy which has a current debt to GDP level of over 130 percent and several decades of essentially no growth. Italy is too big to bail out. Bail-ins and ensuing bank runs would then become an increasing possibility. ... One day, the whole system will come crashing down. Except for Hungary, government spending as a percentage of GDP has been rising year after year since the financial crisis of 2008. For the EUs twenty-eight nations, government spending hit 49 percent of GDP in 2013, up from 45.5 percent in 2007. For Greece the ratio has gone from 46.8 percent in 2007 to 59 percent in 2013: so much for the fiction of austerity. It is irrational to believe that growth will pick up when you guide your economy in the direction of communist Cuba instead of Singapore. Mario Draghi talks about reform such as making labor laws more flexible. This would be funny if he was not serious. The real problem is a century of socialist meddling in everything: getting progressively worse since the 1960s. You cannot fix the system; you have to tear it down starting at the foundations.....
Posted on: Sun, 25 Jan 2015 07:48:49 +0000
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