The Story So Far
A corrupt Greek government borrowed billions the country could never repay in order to buy votes of hundreds of thousands of public servants who get 14 months pay per year while working only seven months a year and quitting work at 2.30 in the afternoon on days when they are nominally working -- that is until they begin collecting their pensions at 55. The scale of overpayment is illustrated by Greece's state-owned railway which pays four times as much in wages as it collects in fares.
The government concealed the magnitude of the budget deficit, which far exceeded the 3% of GDP to which Greece committed when adopting the Euro, by the simple expedient of never adding up its expenditures.
The new government of George Papandreou, wishing to avoid blame for the inevitable deluge, ordered that an accounting be made. When, as a result, it was announced that Greece was running a deficit equal to 12% of GDP, holders of Greek debt panicked. For the better avoidance of uncertainty, the IMF was called in and determined that the deficit was not 12% of GDP but 14%.
Even more excitement. The Government made spending cuts, which prompted many Greeks to go on the rampage. They blockaded the ports thereby preventing cruise ship passengers with money to spend from landing. They burnt banks, in the process burning alive several bank employees including a pregnant woman, notwithstanding that Greece's very conservative banks had nothing to do with the crisis.
Holders of Greek debt, including mainly rather stupid French, Belgian and German banks, agreed to a 50% "haircut" on Greek debt: the chance of recovering half their money being reluctantly accepted as preferable to the certainty of a 100% loss. Meantime, Greek demonstrators burnt German flags inscribed with the swastika, believing, evidently, that Germans are evil people who should pay Greek pensions even when Greeks retire as early as 50 in the case of occupations designated "stressful" (e.g., hairdressing), which is five years earlier than Germans themselves retire.
Now the Greek Government will ask Greeks if they agree to pay even that much. Hence Steve Bell's cartoon, which makes clear what the referendum result will almost certainly be. The inevitability of a "no" in the referendum means the certainty of a Greek default and Greece's exit from the Euro.
This will leave a large hole in the capital of a number of major European banks. Much if not all of the loss will have been insured by means of derivatives. When payment under these credit default swaps comes due, it will be interesting to see whether the counter parties are able to pay. Almost certainly, there will have to be government bailouts of one party or the other.Which makes one wonder: why don't the French and Germans pay off Greece's debts now and kick the Greeks out of the Euro at once, thus bringing the crisis promptly to its inevitable conclusion.
Iceland is tiny. Their bonkers banking scandal shocked the financial world. Ireland is tiny, their incompetent greedy bankers left the Irish people shackled with debt for years to come. Greece is small, yet its impending government default is shaking the banking system across Europe and beyond. After that there's Portugal, Spain and Italy still to blow.
What are the odds that the Euro will remain a going concern by the end of 2012? For that matter, what are the odds that the EU will remain a going concern by the end of 2012?
Aangirfan provides an interesting historical perspective on the current financial wrangle. The Germans, so some have calculated, owe the Greeks sixty billion in war reparations. Mugging the German banks is most likely the only chance the Greeks have of getting their money.
But are Germans responsible for the crimes of their ancestors? If so, why not the British, the Americans, the Israelis, the ancient Greeks and Romans, the Medes and Persians? Where does this end?
And here's what the Greeks are being asked to vote on (Source):
- Income tax threshold would be lowered from €12,000 (£10,300) to €5,000 (£4,300
- Retirement age would be raised to 65
- VAT would rise from 19 to 23 per cent
- Higher property taxes
- Monthly pensions above €1,000 (£860) would be cut by 20 per cent
- Excise on fuel, cigarettes and alcohol would rise by a third
- To qualify for a full pension people would be required to complete 40 years work
- Retirees aged under 55 would lose 40 per cent of their pensions over €1,000 (£860)
- Public sector wages would be cut by 20 per cent
- Employees of state-owned enterprises would have their wages cut by 30 per cent
- A cap would be introduced on wages and bonuses
- 30,000 civil servants would be suspended on partial pay
- All temporary contracts for public sector workers would be terminated
- Just one in 10 civil servants retiring this year would be replaced
- New levies on household incomes of between one and five per cent.
So, anyone expecting Greeks to vote for that needs their head examining. Which means the referendum is merely the Greek government's way of telling their creditors to take their bonds and ....
Trusting in the wisdom and maturity of the Greek people. LOL CanSpeccy
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