Friday, 18 May 2012

The land of Maybe, Maybe ....the giving of gifts to Greece is about to stop

Once again there is a gathering storm over the Euro. Greece is losing money from its own bank accounts and quite clearly Greece cannot form a government. New elections will lead to more extreme parties seeking ever more demands from the ECB to solve their problems. The Greeks do not want to leave the Euro - why would they? The Eurozone keeps bailing them out.
There are only a few outcomes in the months ahead:
i). One is that the EU say they can give no more. They have been here before and have already accepted one large write down of Greek state debt owned by banks and other private sector individuals, companies and funds. They could take the perfectly sensible view that allowing another lapse in conditions of the loan would simply lead to other countries demanding the same treatment. It would undermine the discipline the zone needs, and would send a signal to all that there is no need to meet solemn requirements entered into. Either Greece has to back down and try to do implement the agreement, or they need to move quickly to arrange an exit from the Euro on this option.

ii). We could have another temporary fix. Maybe more debt could be written off. Maybe the timetable for meeting the requirements for reform and budget deficit cuts could be extended. Maybe the ECB might issue yet more money to other worried banking systems to support other states in trouble. Just enough cash would be released for Greece to pay the basic bills and stave off full bankruptcy. Maybe this time Greece would do the right thing and pay its bills and live within its means.
Maybe we would not be back in the same position in 6 months time or less.

iii). The third option is that the Euro area moves more swiftly to fiscal union, with the richer areas accepting their responsibility to send much more money by way of transfer payments to the poorer parts like Greece. It is difficult to believe Germany would be willing to do this. Mrs Merkel has just suffered a bad regional election defeat and is unlikely to want to have to tell her electors in the run up to the German General Election next year that they are going to have to pay a lot more tax to subsidise the weak parts of the Euro zone.
Maybe Merkel and Hollande will make up and bring fiscal union of the Eurozone. But Hollande is thinking only of France right now, which means that this last scenario will not happen. And there is no appetite in Germany for vassal states, particularly one as dysfunctional as Greece.

Maybe.... Maybe
Whilst the Euro politicians squabble a two speed Eurozone seems inevitable. Noone in Europe wants Greece to leave the Euro but as its capital flees from its beleagured banks they will be forced to leave. The time for a negotiated exit has long gone. This will not be a simple death but a bloody one I fear.

Maybe this will not affect us here in the United Kingdom, but I am afraid it will. When many of your customers go bust your own business suffers. That is what will happen here.

Finally the world is getting tired of giving yet more gifts to the Greeks.  But then again Maybe ....