Saturday, May 7, 2011

The problems of Greece haven't gone away

Debts that cannot be repaid--will not be repaid.  But that certainly does not mean that the debt collectors won't try to squeeze some blood out of a stone.

At the behest of the money-changers, the Greek government tried to impose austerity measures that mostly fell on the weak.  But the weak have fought back because MOST of the debts that have ruined their lives were not incurred by them.  Athens has been rocked by almost daily riots for months.  The government has lost whatever legitimacy it once had.

On Friday, a rumor surfaced in Germany that the Greek government was going to leave the Euro.  This would prove catastrophic for the various creditors so the day was spent trying to stuff that rumor back into whatever container could be found.

Athens Mulls Plans for New Currency
Greece Considers Exit from Euro Zone
By Christian Reiermann   05/06/2011 
The debt crisis in Greece has taken on a dramatic new twist. Sources with information about the government's actions have informed SPIEGEL ONLINE that Athens is considering withdrawing from the euro zone. The common currency area's finance ministers and representatives of the European Commission are holding a secret crisis meeting in Luxembourg on Friday night.
Greece's economic problems are massive, with protests against the government being held almost daily. Now Prime Minister George Papandreou apparently feels he has no other option: SPIEGEL ONLINE has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou's government is considering abandoning the euro and reintroducing its own currency.
Alarmed by Athens' intentions, the European Commission has called a crisis meeting in Luxembourg on Friday night. The meeting is taking place at Château de Senningen, a site used by the Luxembourg government for official meetings. In addition to Greece's possible exit from the currency union, a speedy restructuring of the country's debt also features on the agenda. One year after the Greek crisis broke out, the development represents a potentially existential turning point for the European monetary union -- regardless which variant is ultimately decided upon for dealing with Greece's massive troubles.
Given the tense situation, the meeting in Luxembourg has been declared highly confidential, with only the euro-zone finance ministers and senior staff members permitted to attend. Finance Minister Wolfgang Schäuble of Chancellor Angela Merkel's conservative Christian Democratic Union (CDU) and Jörg Asmussen, an influential state secretary in the Finance Ministry, are attending on Germany's behalf.
'Considerable Devaluation'
Sources told SPIEGEL ONLINE that Schäuble intends to seek to prevent Greece from leaving the euro zone if at all possible. He will take with him to the meeting in Luxembourg an internal paper prepared by the experts at his ministry warning of the possible dire consequences if Athens were to drop the euro.
"It would lead to a considerable devaluation of the new (Greek) domestic currency against the euro," the paper states. According to German Finance Ministry estimates, the currency could lose as much as 50 percent of its value, leading to a drastic increase in Greek national debt. Schäuble's staff have calculated that Greece's national deficit would rise to 200 percent of gross domestic product after such a devaluation. "A debt restructuring would be inevitable," his experts warn in the paper. In other words: Greece would go bankrupt.
It remains unclear whether it would even be legally possible for Greece to depart from the euro zone. Legal experts believe it would also be necessary for the country to split from the European Union entirely in order to abandon the common currency. At the same time, it is questionable whether other members of the currency union would actually refuse to accept a unilateral exit from the euro zone by the government in Athens.
What is certain, according to the assessment of the German Finance Ministry, is that the measure would have a disastrous impact on the European economy.
"The currency conversion would lead to capital flight," they write. And Greece might see itself as forced to implement controls on the transfer of capital to stop the flight of funds out of the country. "This could not be reconciled with the fundamental freedoms instilled in the European internal market," the paper states. In addition, the country would also be cut off from capital markets for years to come.
In addition, the withdrawal of a country from the common currency union would "seriously damage faith in the functioning of the euro zone," the document continues. International investors would be forced to consider the possibility that further euro-zone members could withdraw in the future. "That would lead to contagion in the euro zone," the paper continues. more
The prospect of the Greek debt default is so grim (for the investor classes), folks were scrambling by Friday afternoon to discredit this rumor.
Did Germany Just Publicly Shoot Greece In The Back?
Gregory White | May 6, 2011, 1:02 PM 
The Der Spiegel report (above) suggesting Greece was considering leaving the euro emanates from a German government source, and that may explain everything.
For weeks, German officials have been hinting that they want a Greek restructuring to happen. German economic advisor Lars Feld recently said that the restructuring should happen "sooner than later." He's previously also said "restructuring is the only road to take."
Greece is now rumored to be requesting an extension on the interest payments of its IMF-EU bailout loan.
For German Chancellor Angela Merkel, a continuation of easy bailout programs for Greece could be damaging to her domestic position, and exacerbate the growth of far right parties in Europe.
From Stratfor:
While Germany is probably correct that restructuring on this private debt now will be cheaper than when Greece’s EU/IMF loan expires at the end of 2012, Berlin is thinking about political costs, not necessarily economic costs. The recent election results in Finland have put the eurozone bailout mechanisms, specifically the Portuguese bailout, in danger as a euroskeptic, right-wing, populist party — the True Finns — has seen a considerable rise in popularity and will likely enter government.
Merkel worries about a similar rise in anti-eurozone populism in Germany. The “Liberal Awakening,” a wing of governing junior coalition member the Free Democratic Party (FDP), is gaining strength even as the FDP has suffered several electoral setbacks in local elections under former party leader and current Foreign Minister Guido Westerwelle.
Anything to ratchet up the pressure on eurozone leaders to come together to deal with the Greek problem could increase the speed in which a Greek debt restructuring happens. Thus, leaking information suggesting Greece is plotting to leave the euro seems in the German government's interest. more
So this morning, the soothing "everything is under control--the experts know what they are doing" sounds appeared in the Guardian--a London newspaper that portrays itself as "liberal' but has never in my memory ever taken a position that could contradict the positions taken by the banksters in the City.
Fears for euro in Greece prompt secret talks. Angela Merkel said a pre-arranged meeting was taking place but it had nothing to do with the idea of Greece leaving the euro.
Europe's inner circle meet to discuss possible debt restructuring for Greece as well as problems in Ireland and Portugal
Larry Elliott, Jill Treanor and Helena Smith in Athens, Friday 6 May 2011 19.52 BST
Finance ministers from an inner core of eurozone countries were holding secret talks in Luxembourg tonight to discuss a possible debt restructuring for crisis-ridden Greece.
The single currency's leading creditor nations – Germany, France, Finland and the Netherlands – all attended the meeting, called amid concerns that Greece's problems were nearing breaking point.
Sources said negotiations centred on the mounting eurozone debt crisis, and included not just Greece but the terms of Portugal's bailout and Ireland's demands for easier repayment terms on its loans. But they denied reports coming out of Germany that Athens had floated the idea of leaving the single currency altogether.
The European commission was also at the talks at Château de Senningen, a site used by the Luxembourg government for official meetings, which involved the countries that have provided the bulk of the funds for the bailouts of Greece, Ireland and Portugal. Most of the governments from the 17-nation eurozone were kept in the dark about the talks, and said they knew nothing about the crisis negotiations. Greek media confirmed that a plane carrying the Greek finance minister, Giorgos Papaconstantinou, had landed in Luxembourg.
Angela Merkel's spokesman said a prearranged meeting was taking place, but it had nothing to do with the idea that Greece would leave the euro.
"There is a meeting of some finance ministers that has long been planned. Greece exiting the eurozone is not on the agenda of that meeting, and it has never been," Steffen Seibert said.
Instead, sources said the creditors were looking at a range of options for Greece including a fresh bailout, giving it longer to repay its debts or forcing banks to take a loss on Greek bonds.
On the foreign exchanges, reports that Greece would be the first country to quit the single currency led to a sharp sell-off of the euro against the dollar. Spiegel Online, quoting German government sources, said that Greece would leave the euro unless it was allowed to restructure its massive debts. Greek officials categorically denied the report with many describing it as a "joke".
"We are putting all our effort into resolving our indebted public finances precisely because we are in the eurozone and want to stay there," said one official, requesting anonymity. "What it is saying doesn't make any sense." Others described the report's timing as "strange and suspicious". more

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