What if Government actually cannot solve the problem? “Greece has warned it will be unable to pay next month’s bills without a 12 billion euro loan installment from the EU and the IMF. … Greece’s leader, George Papandreou initially proposed a unity government but the talks collapsed and now his job is on the line.”
Standard and Poor’s has downgraded Greece’s credit rating to “CCC … the lowest credit rating of any economy ranked”. Germany now insists that it won’t pick up the tab for another new Greek bailout unless all the other members of the EU chip in. That includes Britain, which opted to stay out of the Euro and will now be asked to bail it out notwithstanding. “Cameron and Osborne have often said that the UK won’t participate in any way in the rescue of a Eurozone member state,” said a European commission official. “But it cannot veto this.”
The tax on the UK taxpayer is going to be levied via the IMF, which may also participate in a bailout and of which the US is also a member. The interlinkage of structures now means that the taxpayer everywhere may now be on the hook for government excess everywhere.
European banks’ exposure to Greece unnerved investors again as Moody’s said it might cut the credit ratings of France’s three largest banks because of their large holdings in Greek debt. … French banks are among Greece’s biggest creditors, with $53bn in overall net exposure to Greek private and public debt, according to the latest figures from the Bank for International Settlements. German banks are also exposed with $34bn, including loans made through KfW.
The ECB is worried that Greece will pull down the European banks, making it imperative that the taxpayer foot the bill. “His fear is that forcing private bondholders to take losses would destroy the Greek banks and severely damage the rest of the European banks with heavy exposure to Greece, potentially triggering a second European financial crisis … If the European banks and their bondholders are to be protected, the costs of the bailout, by definition, have to be borne by the taxpayer.” Without passing the tab on to the taxpayer, Europe’s “recovery summer” — and Obama’s — will be toast.
Greek unemployment is now officially at 16.2% and among the youth, it is 45%. The “youth” are now rioting in the street. Stocks are down and the dollar is up on expectations that Greece will eventually default. Protesters threw Molotov cocktails at the police and formed human chains to keep parliamentarians out of their offices. They were joined by the Greek Unions who closed ports, banks, hospitals and state-run companies. Socialism is now at the stage where it has to hold itself hostage to extract yet another bailout.
Americans tempted to gloat at Europe’s difficulties need only remember one word: California. The Golden State struggled to pass a budget in the face of Republican opposition to raising taxes to cover a yawning shortfall in revenue. California must now release thousands of prisoners from jail because it cannot build enough penal institutions to house them all. Even the approved budget will be partly illusory and much of the new money will consist of accounting gimmics instead of real funds.
What is different about the current crisis is that governments powerless to solve it. There are no available internal remedies to the current problem. That means that something may soon break. Just where the fracture will be is the main question.