Thursday, November 03, 2011

Disturbing News regarding Greece

Specter of Greek default rises over G-20 meeting

PM Papandreou calls for emergency cabinet meeting as his government teeters on brink of collapse

Greece's embattled Socialist government was on the point of imploding Thursday as a revolt against Prime Minister George Papandreou's planned referendum on the country's hard-won international bailout package gathered pace.

The specter of a Greek default and exit from the eurozone hung over a meeting of Group of 20 leaders beginning in Cannes on Thursday, highlighting Europe's frailty just when French president Nicolas Sarkozy wanted to showcase his leadership of the world's major economies.

The summit on the French Riviera had been meant to focus on reforms of the global monetary system and steps to rein in speculative capital flows, but the shockwaves from Greece have upended the talks.

President Barack Obama arrived Thursday morning ahead of separate planned meetings with Sarkozy and German Chancellor Angela Merkel, key players in trying to solve the European crisis.

Obama has been a key player at past G-20 summits. But his role in these two days of meetings, his fifth G-20, will be overshadowed by the situation in Europe.


Earlier Thursday Greek Finance Minister Evangelos Venizelos broke ranks with the Prime Minister Papandreou on the referendum proposal, which horrified Greece's international partners and creditors, triggering turmoil in financial markets as investors fretted over the prospect of a disorderly debt default and the country's exit from the eurozone.

Several ministers and lawmakers called for an emergency meeting of the governing Socialists in the Greek parliament, where Papandreou has convened a cabinet session for noon (6 a.m. ET).


French President Nicolas Sarkozy and Merkel told Papandreou at a torrid meeting in Cannes that Athens would not receive a cent more in aid — Greece was due an 8 billion euros aid payment this month — until it votes to meet its commitments to the euro zone.

Earlier Thursday, Socialist lawmaker Eva Kaili also said she would not support the government in Friday's confidence vote.

Kaili urged Papandreou to reverse his decision to call a referendum. Without Kaili's support, the governing Socialists hold a one-seat majority in the 300-member parliament.

On his return with Papandreou to Athens from Cannes, Venizelos issued a defiant statement, saying Greece's euro membership was a historic achievement and "cannot depend on a referendum."

A finance ministry source told Reuters that Venizelos, who was kept in the dark by his Socialist rival about Monday's referendum call, opposed risking a public vote at this crucial moment.

"Under these conditions, a referendum is exactly what the country does not need," the source said, speaking on condition of anonymity.

More dissident lawmakers in the ruling PASOK party spoke out against a referendum and called for a national unity government or early elections, casting doubt on whether Papandreou can win a confidence vote Friday or pass a bill to hold a plebiscite.


Euro area leaders talked openly for the first time of a possible Greek exit from the 17-nation currency area, seeking to maximize pressure on Athens and to preserve the euro in case of a Greek "no" vote.

Merkel told a midnight news conference that while she would prefer to stabilize the euro with Greece as a member, the top priority was saving the euro, not rescuing the Greeks.

The chairman of euro zone finance ministers, Luxembourg Prime Minister Jean-Claude Juncker, said policymakers were working on possible scenarios for a Greek exit.


France's Europe minister, Jean Leonetti, said bluntly the euro could survive without Greece.



I have previously observed that several European Socialist governments, such as that of the Hellenic Republic of Greece, have for a long time been living far beyond their economic means. Such fiscal irresponsibility cannot go on forever. Debts keep piling up while confidence that they will ever be repaid keeps sinking, and eventually that situation must be dealt with.

It's unclear at the moment whether the Greek people will be able to find a solution that does not involve defaulting on their enormous debt and a consequent exit from the EEU economic system. For Greece, a return to the drachma may temporarily ease their difficulties, however in the long run the Greek currency would suffer a precipitous devaluation which might perhaps bring to mind the economic collapse of the Weimar Republic.

As I pointed out in a previous post,

spendthrift nations such as Greece have a relatively simple (though not necessarily easy) option available to them, which would do much to ease their financial situation. That option does however involve recognition that they cannot afford to maintain their present policies regarding state custody of cultural property.

One thing is certain: economic realities will now control events. As I have pointed out in previous posts, the laws of economics cannot be evaded. No government has the power to supersede these laws. They will inexorably take priority over every transient political, bureaucratic and diplomatic policy decision.

Personally I am very far from certain that the EEU can cope with the impending default and exit of Greece without very serious adverse effects upon the cost of financing the staggering, perhaps insupportable debts of other nations, most notably that of Italy.

Perhaps certain denizens of Foggy Bottom should consider the implications of this reality in making an important impending decision.

Perhaps President Obama and Secretary of State Clinton should also consider the implications of this reality, in deciding whether to leave that impending decision in the control of bureaucrats who have previously made so many other decisions which have ignored economic reality, with consequences seriously adverse to the interests of US citizens.


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