20 September 2011

Greece, Eurozone and Banksters: An Update

A while back, when I commented on the Greek debt and the Eurozone crisis, I suggested that the most obvious solution for Greece is to default, pull out of the Eurozone and rely on cheap drachma to get all the budget tourists who are too afraid to go back to Tunisia and Egypt.

It sounds like facetious advice but I thought that since default was inevitable (considering the size of the debt and crippling austerity measures) instead of making people suffer for a long time to end up at the same place, why not rip the bandage quickly and hope that tourism and exports fueled by cheap drachma will pull them out of that pit.

I also said that the reason Eurozone countries are being targeted by banksters and their clients, the rating agencies, is because, in this high stakes poker game, they are hoping to persuade European governments to create new and safer mechanisms that would back their high risk sovereign debt bets. To that effect, I gave the example of Irish government who got persuaded by Merrill Lynch that if they guaranteed the private debt of Irish banks, all would be fine. Overnight, the Irish taxpayers ended up with $100 billion new debt and the banksters got all their money secured. Just like Goldman Sachs taught Greek government how to hide those massive debts while giving them cheap money, Merrill Lynch conned them into bailing out the folks who made those risky bets.

The Irish case opened a new chapter for the banksters. Why take a haircut? Ever? Why not make risky bets, gets huge bonuses and then push governments into a corner and make them assume the risk behind those investments. So, when they realized that a likely Greek default was not enough to budge European governments, they downgraded Portuguese debt to junk to strongly suggest that a Greek default will be contagious and that the ensuing crisis may not be contained an the Euro will be in jeopardy. They kept saying ominously that Spain and Ireland will be next.

But the vacillation did not end.

Politicians are politicians. Clearly, Merkel has been in a tough spot with her support declining and the support for her coalition partner (FDP) collapsing. Her other partner, the conservative Bavarian CSU, is adamantly opposed to any bailout that will cost money to German taxpayers.

To make European governments understand the stakes, they chose a bigger target this time and downgraded Italian debt. The threat is real and the target is well chosen:
Any further adverse developments in Greece will precipitate a run on Italy – involving investors selling Italian government debt.  
With Berlusconi mired in scandals and Italy holding five times the sovereign debt of Greece, the assumption is that Eurozone governments cannot let that happen.

And if that threat does not work, France is next. Don't think France is immune because Sarkozy pretends to be Merkel's equal. France's fundamentals are worse than Spain, with debt hovering around 85% of GDP (Spain's is just 65%).  And as I mentioned in June, French banks have a huge exposure to Greek debt (and to Irish, Portuguese and Spanish debts). The French and German banks are holding more than a $900 billion of risky bonds in Greece, Ireland, Spain and Portugal. That is not chump change.

Just today, Siemens, who had previously applied and received bank status, moved 500 million euros from a French bank and deposited to ECB. That's one way of signalling that French banks are shaky.

The thing to remember is that they will not pull the trigger. They will simply make the target bigger and bigger and hope that someone will blink.

Someone will.

My money is still on the banksters.

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