George Papandreou, the besieged prime minister of Greece, told his parliament that the southern European nation is not bankrupt though the IMF may have to join Eurozone nations in a bailout.
According to Reuters, Papandreou said “The EU’s decision to create such a mechanism implies the acknowledgement, in principle, that this is not just our problem. But it certainly creates a safety net for Greece.” What it actually implies is that Greece is broke, or fall all practical purposes in the midst of a sovereign Chapter 11. It has become the GM of the Eurozone.
The Greeks have to say that they are solvent to save face. But, that does not make it true. The nation cannot raise money. Its planned debt offering of earlier this week had to be cut in half to as little as one billion euros. For a nations that has 300 billion euros of debt, and over 50 billion due in the next two quarters, Greece is the man with hat in hand.
Greece will find that there is nothing wrong with being bankrupt. It is actually better than being solvent and deeply in debt. The Greek government cannot get its hand around its own budget. A new Brookings Institution study says that corruption in the nation is so high that it would match 8% of GDP. The country’s workers are on perpetual strike and some are reluctant to pay their taxes. Greece a the hostage of its own people.
The IMF and Eurozone nations have said that they will not impose strict financial rules on Greece in exchange for providing it money. It remains to be seen when Greece sits down at the table and requests funds. It will find Germany looking across that table, holding most of the cards. Germany is already reluctant to support a bailout.
A bankruptcy of Greece may allow it to reduce spending because it could be a condition of the bailout. It could then go to its citizens with a choice. Cut your wages. Cut the costs of running the government and handing out entitlements. Crack down on corruption, or turn the nation’s fate over to outsiders.
Douglas A. McIntyre
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