The monetary standoff between Greece and Germany, being played out by the ECB, took a turn for the worse yesterday (2/4/15). Battle lines have been drawn. Greece has moved all their chips in with a creative debt restructuring plan, under which for all practical purposes they will never pay most of it back. Give them two points for not using the words - write down.
Who is going to be the winner? It won't be Germany. For some reason, their hardliners have no memory ... because if any country should understand the need to write down debt it is Germany! They received a huge write down after WW2. But all they can think about is the austerity rules they expect Greece to live up to.
Well Germany, you can forget about it. Greece elected a President, Party, and new finance minister because they said they will break the rules. At least the Greek leaders are being polite as they essentially tell the Germans to fuck off. The Greeks may have under estimated the price for that. Or the Germans may be under estimating the price for holding Greece to wall. Or BOTH! The big winner will be France, Italy, and Spain! Here is why I believe so.
Well Germany, you can forget about it. Greece elected a President, Party, and new finance minister because they said they will break the rules. At least the Greek leaders are being polite as they essentially tell the Germans to fuck off. The Greeks may have under estimated the price for that. Or the Germans may be under estimating the price for holding Greece to wall. Or BOTH! The big winner will be France, Italy, and Spain! Here is why I believe so.
Greece holds out. Time is ticking on a big debt payment and they will all go to the bell. Each with the position that they get it their way. Which amounts to either a creative way of getting a giant debt haircut, or Greece defaults. If this were poker, Greece has just gone all in on a losing hand. Germany calls the bluff. Game over. Say goodnight Greece. Have a nice new day, and good luck starting over. So what are they to do?
They can say, "Welcome back" to the drachma. And after some new currency laws, all the Greek citizens who ran the banks, only to find that only the firsts in line got any Euros, will now be proud to accept drachma instead. And for the rest of us, get ready for the best tourism packages we've seen in a long time, after the riots are over in about a year.
They can say, "Welcome back" to the drachma. And after some new currency laws, all the Greek citizens who ran the banks, only to find that only the firsts in line got any Euros, will now be proud to accept drachma instead. And for the rest of us, get ready for the best tourism packages we've seen in a long time, after the riots are over in about a year.
Meanwhile, what did Germany win in this poker game. A big fat bad debt write off. Along with France, Italy, Spain, and everyone else with any skin in the Euro. It is starting to look real bad for everyone at Euro party, I mean pact. Coming apart at the seems? Maybe, but I think not. Too much to lose. Funny how it is when you are standing at the edge of a cliff you get a fresh perspective. And what do they see? They realize that Greece was on to something! Default is such a messy thing. There has to be a better way. Enter ECB, wait, let's just call the debt problem we have, Hmmm, what did Greece call it, we can't use that name, but .... what ever name they can come up with that will make a whole bunch of trillions in debt go away for so long that two generations from now nobody will remember where it came from.
The newly elected Claude Junker of the Economic Union will show up in the picture too, with fresh ideas for brand new debt. After all, now that they've just freed up so much borrowing power, thanks to the power of the printing press and the fact that they just shoved so much of the old debt out of the way, they can practically start borrowing money all over again. But this time is different!! Yeah, right. Well, at least for a while. Long enough to stimulate the economy a "new way" with serious infrastructure spending. (At least that's what I'm hoping for.)
And as the Europeans and the ECB applaud their own brilliance for saving the Euro, will they thank the Greeks for their great idea on how to handle debt that can't possibly be repaid? Of course not! But the least they can all do in Europe is vacation on the Greek Islands! (But, people from Germany, suggest you find a way to lose the accent. Otherwise don't be surprised if you get very sick from from every Greek meal you eat.)
The newly elected Claude Junker of the Economic Union will show up in the picture too, with fresh ideas for brand new debt. After all, now that they've just freed up so much borrowing power, thanks to the power of the printing press and the fact that they just shoved so much of the old debt out of the way, they can practically start borrowing money all over again. But this time is different!! Yeah, right. Well, at least for a while. Long enough to stimulate the economy a "new way" with serious infrastructure spending. (At least that's what I'm hoping for.)
And as the Europeans and the ECB applaud their own brilliance for saving the Euro, will they thank the Greeks for their great idea on how to handle debt that can't possibly be repaid? Of course not! But the least they can all do in Europe is vacation on the Greek Islands! (But, people from Germany, suggest you find a way to lose the accent. Otherwise don't be surprised if you get very sick from from every Greek meal you eat.)
OR, Plan B, for the 12th time. GREECE CAVES and swaps a "kick the can offer" for a "stay in the Euro" deal.
UPDATE: 4/27/15:
Since I published my blog post in February, the notion of bankruptcy and an exit have been trending. It appears to me that the leaders in Europe are foreshadowing the future in an effort to give banks and the markets and finance ministers time to get ready. At some point the expectation may be so much in the market that the actual announcement can come as welcome news and even has the potential of bringing a relief rally. Here's an article which posits the position I have had for quite some time. "We should let Greece to bankrupt."
UPDATE: 4/27/15:
Since I published my blog post in February, the notion of bankruptcy and an exit have been trending. It appears to me that the leaders in Europe are foreshadowing the future in an effort to give banks and the markets and finance ministers time to get ready. At some point the expectation may be so much in the market that the actual announcement can come as welcome news and even has the potential of bringing a relief rally. Here's an article which posits the position I have had for quite some time. "We should let Greece to bankrupt."
