The Bankwatch

Tracking the consumer evolution of financial services

What is happening in Europe–do we really understand the undercurrents

We are all watching the situation in Greece.  At what cost will the country remain in the Eurozone?

A building burns

Athens ablaze as MPs vote to save the euro | The Times

Rioters set Athens ablaze last night as Greek MPs approved a harsh new austerity package aimed at keeping their country in the euro.

Tens of thousands of demonstrators besieged Parliament while MPs neared the historic vote, which opens the way for a €130 billion bailout by the EU and the IMF.

Anarchists in crash helmets and black balaclavas smashed marble balustrades and threw rocks and petrol bombs at police. Riot officers responded with teargas and stun grenades as peaceful protesters fled.

It would be possible to create an alternative 2nd tier Euro; one that Greece and others could adopt.  This Euro2 would seek its own trading range.  That range would obviously be significantly lower and would result in instant inflation based on the level of imports over exports for the country.  This new currency, and for the sake of argument, lets call it the Drachma, would be instantly worthless and people would be carrying wheelbarrows of drachmas to purchase a loaf of bread.

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The big failure of Sarkozy/ Merkel is to see beyond the immediacy of a proper fiscal plan for Greece and the need for something that will actually work.  Greece is turning anarchic.  When Greece borrowed all that money over the last few years, no-one in Europe told them to get their fiscal house in order.  Germans were quite happy to go to Greece for holidays and the laid back, half time work ethic was, while obvious, not a problem then.

Then 2008 happened and everyone woke up.

This is an incredibly precipitous moment as we watch the situation in Greece.  It will affect us all and it will have a knock on effect.  The scary part is that if Greece adopts (tonight) and implements (still to come over the next few weeks) the measures that will mean that Greece has literally only just kicked the proverbial can down the road.  Much of the money from the Greek proposed IMF bailout is going toward loan repayments.  How much will the implementation from the Greek government address the deficits and correct the issue is an open question still.

The impact on the European banks is still an open ended overdraft despite the negotiated hair cuts.  But the parallel question is what will happen to European society as we look at the impacts tonight.  We have seen similar anarchic situations in London, Paris, and Brussels.  Do we really understand what is happening here.

Written by Colin Henderson

February 12, 2012 at 23:51

Posted in Uncategorized

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