Friday, November 04, 2011

Yes, we Cannes

The G20 summit at Cannes, France, has been thrown into chaos by Greek PM Panandreou's decision to hold a referendum on the euro in Greece. Greece in is the midst of a grave economic crisis with a sovereign debt of ca. 350 billion euros. This results from decades of Greek Government over-spending based on profligate socialist programs and lack of Government income due to Greeks' avoidance of tax payments. Also, the Greek Government deliberately lied about its financial situation in order to stave off this crisis, until the true situation became known last year.

In order to avoid Greece leaving the Eurozone, that might lead to an unraveling of the euro itself, the major Eurozone countries, Germany and France, have been steadily increasing the huge payments to Greece, reducing the actual debt to ca. 50% of that owed to private banks and increasing the Euro bailout (rescue) fund from 250 billion, to 500 billion and now to 1 trillion euros. This fund is supposed to make it clear that the Eurozone will not allow any country to default. But, with Portugal, Spain and even Italy also with enormous debts, even this gigantic sum many not be enough. Pres. Obama also at the G20 in Cannes said that he supported the Eurozone's efforts to avoid Greek default.

With Greece anticipating the last payment, or tranche, of its bailout fund of 50 billion euros, plus a further 100 billion from the IMF, suddenly Papandreou, whose policies undoubtedly led to this catastrophic situation, announced that Greece's citizens, most of whom strongly oppose the austerity cuts imposed by the Eurozone and IMF on Greece, will be given a choice in the matter with a referendum. As a result, under emergency conditions, German Chancellor Angela Merkel, met with Papandreou and read him the riot act. She told him that the referendum should not be held, but if it is it must only be a choice for Greece to leave the Eurozone, something that most Greek citizens also contrarily don't want. She also told him that the last tranche would not be paid to Greece if it decided not to accept the austerity program proposed by the Eurozone and the IMF. But, they can't have it both ways, either they accept austerity and pay in effect for their previous bad financial behavior, or they leave the Eurozone, default on their huge debt and somehow return to the drachma. Such a process would be a terrible blow for the stability of the euro, and would put into high profile the lack of credibility of the Eurozone rules that are supposed to control the financial behavior of members of the Eurozone community.

Now as a result of this confusing situation, the Greek Cabinet met, but apparently Papandreou has reversed himself and decided not to call for a referendum and has decided not to resign as PM, but instead is trying to fashion a national unity government with the opposition. What a mess!


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