Greece and the Eurozone
Can't help but think that the current problem rests on two basic things:
1. That Greece fudged its numbers to be eligible to enter the Eurozone
2. That the Euro members don't want to let Greece out for fear of losing face
So the crux of the matter is that their membership is based on a lie and for the sake of ego, the other countries are expecting Germany to continue lending money to Greece to service its loans.
It doesn't make sense to do so!
Face the facts, the due diligence was not done properly and structurally, the Greek economy was not prepared for the influx of cheap money coming in on the back of strong credit ratings which are not theirs. Of course, if we are pointing fingers, then part of the blame also lies in the intellectual laziness of the analysts who conveniently combined the credit ratings and averaged them out, thus making it seem that Greece was more credit worthy than it actually was.
[The reverse also happened in the Asian Financial Crisis where the contagion was caused by panic and not that each country was that bad but it was just "easier" to assume that the entire region was bad - now in the Eurozone, they just assumed that the entire region was good for the money - well, look what happened now!]
Well, as the saying goes, the rice has become porridge - the next best thing is to manage Greece OUT of the Euro and let them go back to the drachma. Sure, the currency value will be lower (much lower) but at least salaries can be paid, businesses can borrow and more importantly, the price of Greek goods & services will be at a realistic level - not at artificially high Euro levels. They have to do this, don't cling onto them and Greece should not cling onto the Euro either.
That's what they should do. I'm guessing this is what's going to happen:
It will be a waiting game, Germany is extremely reluctant to foot the bill and I don't blame them. Just when they sort of want to decide whether or not to start exiting, it will be too late as there won't be any money to make the next interest payment.
Then disaster, much wringing of hands and then, only then, even though they should exit Greece - France and Germany will cough up the money just to keep the Eurozone intact. That is, if their economies don't contract any further but signs are not good.
So let them leave, they came in under false information anyway, why want to keep them? For their own sake, let the drachma come back. It will be better all around. And make going to Greece for a holiday much cheaper too!
It's all about me, folks. Hee
1. That Greece fudged its numbers to be eligible to enter the Eurozone
2. That the Euro members don't want to let Greece out for fear of losing face
So the crux of the matter is that their membership is based on a lie and for the sake of ego, the other countries are expecting Germany to continue lending money to Greece to service its loans.
It doesn't make sense to do so!
Face the facts, the due diligence was not done properly and structurally, the Greek economy was not prepared for the influx of cheap money coming in on the back of strong credit ratings which are not theirs. Of course, if we are pointing fingers, then part of the blame also lies in the intellectual laziness of the analysts who conveniently combined the credit ratings and averaged them out, thus making it seem that Greece was more credit worthy than it actually was.
[The reverse also happened in the Asian Financial Crisis where the contagion was caused by panic and not that each country was that bad but it was just "easier" to assume that the entire region was bad - now in the Eurozone, they just assumed that the entire region was good for the money - well, look what happened now!]
Well, as the saying goes, the rice has become porridge - the next best thing is to manage Greece OUT of the Euro and let them go back to the drachma. Sure, the currency value will be lower (much lower) but at least salaries can be paid, businesses can borrow and more importantly, the price of Greek goods & services will be at a realistic level - not at artificially high Euro levels. They have to do this, don't cling onto them and Greece should not cling onto the Euro either.
That's what they should do. I'm guessing this is what's going to happen:
It will be a waiting game, Germany is extremely reluctant to foot the bill and I don't blame them. Just when they sort of want to decide whether or not to start exiting, it will be too late as there won't be any money to make the next interest payment.
Then disaster, much wringing of hands and then, only then, even though they should exit Greece - France and Germany will cough up the money just to keep the Eurozone intact. That is, if their economies don't contract any further but signs are not good.
So let them leave, they came in under false information anyway, why want to keep them? For their own sake, let the drachma come back. It will be better all around. And make going to Greece for a holiday much cheaper too!
It's all about me, folks. Hee
Comments