The Last Nail In Greece’s Coffin

There has been some hope over the last several weeks that the holdouts who have resisted any restructuring of Greek debt might join other nations in the EU which want to throw another lifeline to the Southern European nation. Germany and Finland would have to be agreeable participants. Finland appears to believe that a new debt structure would be in the EU’s interests. Germany has been much slower to signal its intentions. The resignation of Dominique Strauss-Kahn as head of the IMF may slow the process further.

But, the final blow to a plan to help Greece is a new battle between the The European Central Bank and EU chief ministers and financial policymakers. The FT reports that “The ECB officials warned that any move to delay repayments would be a dangerous distraction from Athens’ economic and fiscal reform plans.” So, the financial ruin of Greece is even more probable even though the odds of a default have been put by some capital markets investors at 85%.

Greece claims that it can privatize billion of dollars of its assets. Almost no one believes that will be done efficiently. Greece cannot even hit its own budget expectations and it may drop into a deep recession which would make its deficit even worse. Each of these problems has been often and well-described, as has been the likely effect of a default or radical restructuring.

The most extraordinary aspect of the Greek crisis is not that it has happened but that there is such a wide diversity among experts about what a default would mean. Some financiers believe Greece will have to withdraw from the EU and rely on its own currency. Others claim that a default would be an end of the EU and euro. Still others say that a collapse of Greek finances would cause investors to flee the debt of Portugal and Ireland. There is no consensus about any of these potential and very real problems.

And, that is what the Greek problem boils down to. Greece cannot be saved when there is no agreement about the path to its salvation. The more the points about its financial future are argued, the closer it comes to a default. In the midst of these arguments, Greece will default. Someone’s argument will be proved true, but it will be too late to matter.

Douglas A. McIntyre