Thursday 5 February 2015

DOES EUROZONE SOLUTION FIT GREECE ?

The facts of the situation are already well known.   Greece has   received long-term loans from the EUROZONE which should be repaid on a regular basis together with the interest due.  This now appears to be impossible because the country is bankrupt and 30% of its workers are unemployed.  

The EUROZONE cannot accept to write-off the 245 Billion Euros Greek Debt.  This would become a precedent which could ultimately destroy the EURO as a world currency ! 

The newly elected Prime Minister of Greece, Alexis Tsipras, promised electors to reorganise Greece and to restore its pride, which quite logically costs money !  As an election promise he threatened to withdraw Greece from the EUROZONE if it did not agree to a hefty Debt write-off !

The speculation now is that repayments of the Debt could be postponed (but for how long ?) and that only a reduced amount of the current interest falling due would be paid by Greece !

This, theoretically, would enable Mr Tsipras to reorganise Greece and would not endanger the EURO !  Angela Merkel would not be obliged to change any of the fundamental rules of the EU which are enshrined in Treaties !

Mario Draghi, President of the European Central Bank (ECB), has in the meantime introduced a new policy of buying-up short term Bank debt in the EUROZONE so as to provide finance to banks which could then make loans to Industry !  This should help to Kick-start industrial activity !

Are there not some evident risks in these plans ? 

What happens if Alexis Tsipras reorganises Greece but the economy does not perform as expected ?  Will he then not want to withdraw Greece from the EUROZONE by adopting the drachme and never repay the Loans ?  Likewise, if Mr Draghi floods the world with too many EUROS will this not create a spiral of inflation ? 

Will it not be the taxpayer who will ultimately bear the cost from the loss in value of the EURO in his pocket ?  That would be like a hidden tax on his wealth !

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