French President Nicolas Sarkozy: "Papandreou wipe that smile off your face!".
German Chancellor Angela Merkel: "George, How can you even think about having a referendum?"
Greece’s assets will soon be available at a big discount. Greek dallying with a referendum will decide when Greek assets go for fire sale prices.
by Tom Thorne
When Greece joined the European Community (EC) in 1981 it took a further 11 years before they took on the Euro as their currency in 2002. Greece is not a rich country. In fact it is one of the poorest in the EC. The population is about 11 million people.
Manufacturing is important to Greece and it is a also a producer of farm products including grains, poultry, cattle and wine making. The tourist industry is a major earner for the Greek economy.
Greece goes on each year spending more than they bring in to the tune of 140 percent of the GNP. The recent deal with the European leaders and the European Central banks bailed them out of their debt crisis so it is now 120 percent of GNP that they have to cover with austerity measures.
This new situation will still require lots of government austerity at least until 2020 and very likely beyond that date. A referendum on any question will not change this situation. Greeks do not have a bright future for the moment. Their standard of living is going to go down a lot.
You would think that the Greek Government would be relatively content with the deal they cut at Brussels but like their famous icon Zorba they now want to undo their belts and look for trouble. It seems reckless to propose a referendum especially when the outcome is a guaranteed lose-lose.
However, despite this obvious outcome, Greek Prime Minister George Papandreou has decided to put a referendum question to the Greek people. The fact that the Greek Government is now playing political games at home with the deal they got last week in Brussels has angered the other member states of the EU and particularly those who use the Euro as their currency. Seventeen out of 27 EU countries use the Euro.
So what is the Greek Referendum going to be about? This particular referendum is pure political form without substance. It is unclear but it seems to be a choice between going for the Brussels EU deal or rejecting it.
Prime Minister Papandreou seems is mostly playing internal Greek politics but even members of his own government are balking at the referendum idea and are close to or about to revolt. Perhaps Papandreou wants his government to fall. Who really knows. This weak decision has caused the world financial prospects to return to turbulence.
Papandreou clings to power but he is already politically bankrupt.
So what is to be gained? Very little except buying time so Papandreou can tamp down Greek internal civil unrest that has been going on with constant strikes and demonstrations. However it is a weak move that will create more problems than it will solve. Greece will become a pariah in the EU community if this referendum goes ahead.
Some commentators believe that the referendum is about whether Greeks accept the Brussels deal or not. Others think the referendum may be about withdrawing from the EU or even dropping the Euro as their currency. All bad things for Greece at the moment. Greek assets will be available at bankruptcy prices.
At play, of course is the big bad EU against little Greece gambit. That one is fatuous since the problems the Greeks face are largely created by their own weak governments over the years who spent when there was little to spend.
For a long time the Greek Government has not managed to collect the taxes needed to maintain the programs they offered to their people. Tax evasion is a big problem in Greece. The economy that chugs along is the official one. Then there is the unofficial black economy that thrives on cash payments for goods and services.
Italy, Spain and Portugal are also in trouble largely because those countries like Greece cannot seem to get their people to pay taxes and grasp the concept of the greater social good. Europe is frankly awash in black money economies.
Even when governments do cut backs and impose austerity measures many European economies continue to function at quite a decent level. This is direct evidence of black or underground economies and rampant tax evasion.
If the people in Greece don’t want to pay taxes than they should not expect to get government services, pensions or pay rises, nor get a bailout from the EU. Perhaps the people who conduct these black transactions want to provide services normally provided by governments on their own? Something has to give and the current economic malaise is the result of high expectations with low tax revenues.
Papandreou’s wrist slapped.
Yesterday Prime Minister Papandreou was summoned to the G20 meeting in France. There he was lectured about getting on with deal he signed with the EU. They slapped his wrist but they also set off internal political rows in Greece that may see the Papandreou government fall or be forced to call an election.
The fragile nature of European finance at the moment does not need the Greeks playing games inside or outside of Greece. Greek failure to follow what the EU decided has the potential to begin the slide that will be a domino effect starting with Greece, then Portugal, then maybe Ireland, Spain and the real problem a much larger Italian economy.
If the dominos start to drop there is no doubt that Europe will slide into a deep recession which in turn will ensure the US economy begins to slip further trying to manage its debt load.
And sitting on the side of all of this will be China, whose ability to sell to Western Europe and North America will be truncated if there is a recession. They will than begin to bailout the most vulnerable countries like Greece and Portugal by buying up government paper and even private assets as they drop in value.
This act will create a Chinese presence in European finance of some consequence and serve the geopolitical and economic strategies of the Chinese to further build their controls into the global economy. A downturn in the West is an opportunity for cash rich China to flex its muscles on the world stage by financing a bailout.
The consequences of that action is a 4.6 Trillion dollar Chinese GNP will have a lot to say over the 30 Trillion US Dollar GNP generated by the North American and ECU countries and they will be able to do it at fire sale bankruptcy prices. For the Chinese its a win-win. To test this idea try this search on Google or Yahoo: Chinese investment in Greece.
© Copyright 2011, Tom Thorne, All Rights Reserved