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Tuesday, November 1, 2011

Papandreou Sends European Markets Into Chaotic Condition

Papandreou Sends European Markets Into Chaotic Condition

Prime Minister Of Greece To Put Bailout To A Vote Which No One Believes Has Any Chance Of Passage

By Abraxas

Publisher’s Note:  This blog does not give financial advice.  Please consult your bank or other professional financial advisors for such advice.

A short while ago, with the grudging approval of a very angry Germany, the ESFS
(European Financial Stability Facility) approved a bailout loan for Greece.  This has nothing to do with any warm, fuzzy concern for the Greeks (to the contrary, the Germans loathe them to the point of stereotyping them with the same ugliness the Third Reich reserved for the Jews).  

The real reason is because European banks (mainly those in France and Austria) have become ensnared like Laoco├Ân in the tentacles of Greek debt by virtue of having bought up billions of that bankrupt country's bonds.  

If Greece doesn't accept the loan from the ESFS, it will not be able to pay the interest owed on those bonds held by European banks.  And if those interest payments stop, the banks will collapse themselves, triggering a worldwide financial panic that would eclipse the 1929 stock market crash in our country which ushered in the Great Depression.  

Once you understand that, you realize that the ESFS isn't bailing out Greece but themselves.  Ergo, Greece must accept that loan.

There's one problem, however - the terms of the loan are brutal.  

Along with the huge raises in taxes, the terms attack the single greatest cause of Greece's economic nightmare - its massive patronage system.  More than half of all workers in Greece are nothing of the sort; instead, they're family members, friends (and a lot of mistresses) of powerful government officials and political bosses who've been handed a 'job' which requires absolutely no work save for the tiresome trek to the bank every month to deposit a lavish paycheck.  

This 'job' corruption is endemic - and my wretched Greek friend, Marina, who lives and works in Athens is witness to its unfairness first hand.  She is a hardworking and brilliant.   Because she has never married, because her parents were never members of the government (and because she flatly refuses to be one of the dean's mistresses), she has no husband, family or lover to pull strings in order to get her one of those fat paychecks.  Instead, she has to pull in excruciatingly long hours, write extensive papers and travel abroad to Europe and England to give lectures in a desperate attempt to get tenure.  Alas, she still hasn't gotten it, despite her outstanding credentials.  To rub salt in the wound, every day she arrives to work in her department, she's forced to walk past row upon row of empty offices on her way to her cramped room at the far end.  The reason those offices are empty is because their occupants don't need to show up for work; since they're all wives, daughters (and buxom mistresses) of government officials, these 'workers' can (and do) spend the entire day shopping and doing their nails.  And they're paid at least twice as much!  Yes, that's how bad it is.

Well, now that is going to come to an end.  The terms of the bailout loan from the ESFS stipulate that those phony workers will be slashed by 90%.  (This will be accomplished by having only one in 10 'retiring' civil servants replaced.)  And it doesn't stop there.  

The retirement age will go from 61 to 65, full pensions will not be given unless someone has worked 40 years, public sector workers will lose 20% of their salary, state workers will lose 30% and 30,000 civil servants would be suspended on partial pay.  All of this is in addition to huge hikes in property, VAT and incomes taxes; not to mention a 33% jump in taxes on fuel, cigarettes and alcohol.  

So now you understand why all of those petrol bombs have been tossed in Athens over the last month.

Nonetheless, the ESFS was confident that the Greek government would accept it.  After all, the country was bankrupt, it had no choice.  Indeed, the ESFS was so certain of that acceptance that they concentrated all of their energy in hashing out how big the bailout would be.  What NONE of them expected was what the Greek Prime Minister George Papandreou just did this morning.  He announced that he would put the terms of the bailout loan to a vote by the Greek people themselves.

In short, Papandreou has just flicked his Bic and lit the fuse to a ticking time bomb.  Expecting the Greeks to approve the cutting off of their spoils is like expecting a Chicago welfare mother to refuse her monthly paycheck.  And ten seconds after the Greeks vote "No" (which they will - riots and petrol bombs don't mean a 'yes'), their Greek bonds become worthless.  And since the French and Austrian banks hold a disproportionate amount of those bonds, they'll have to default also or at least go into receivership.  This will then trigger their government's takeover of those banks, which will plunge that government's credit rating into the toilet - which will trigger a drop of their government's bonds which will cause other banks in other countries holding those bonds to collapse themselves, forcing their respective governments to....well, you get the ugly picture.  And all of this couldn't happen at a worse time.

Greece is the lowest member of a group of five debt-ridden European nations - Portugal, Ireland, Italy, Greece and Spain (which, for obvious reasons, have been nicknamed the PIIGS) who are all drowning in a sea of red ink.  And the moment Greece sinks, the undertow will suck in the remaining four.  And just when you think it couldn't get worse - it has.  

To everyone's shock, Belgium just oinked its way into the sty.  As of last month, it is technically in Chapter 11 bankruptcy due to the collapse of its state run bank, Nexia (which is that nation's version of our Federal Reserve).  Yes, it's bad.

I wish I could end this missive with words of hope but, frankly, my dears, I can't see any.  

From the beginning, the only chance of the Euro's survival was if all of the nations held together.  But if just one broke ranks, all of them would collapse.  And today, that is just what Greece has done.

I do not wish to sound like Chicken Little - but honestly and truly, as I see it, the financial sky is beginning to fall in Europe.

For more on this very serious financial topic we invite you to read this report from The Daily Mail.  


  1. In the US the DOW closed down 297.05. The Nasdaq was off 77.45 and the S & P 500 closed down 35.02.

  2. Personally, I don't believe in the "too big to fail" classification of anything - auto makers, banks, states, nothing!

    Government bailouts are a never-ending cycle that tend to whirl themselves into oblivion. Bailouts are simply a part of the process that's wrong, and they only advance the default process to the next level.

    It would appear that the Obama administration is prepared to federalize anything and everything, at this point. If I had money in the bank (or anywhere else) I'd give serious thought to doing something else with it.

    Right now I'd say we have both feet planted in a double recession and nowhere to go but further down.

    This will not end well.