Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Definitive Solution to the Greek Crisis

Politics / Eurozone Debt Crisis Jul 01, 2015 - 12:17 PM GMT

By: Submissions

Politics

Atlantic Perspective writes: Most of the commentary on the Greek situation has focused on whether Greece should leave or stay in the Eurozone, and the dire consequences for Greece and the world´s financial markets should Greece default.

But has anyone come up with a credible solution? We believe we have one.

Before laying down the proposal, we need to check a few critical facts:



1. Can Greece repay its current debt load? No.

At this point in the game, it´s totally irrelevant to blame the Greeks, Europe or the Olympus Gods. How we came to this point is irrelevant, we should look at the situation as it is.

As a Borg would say, Greece´s attempts to pay back its monster debt are futile. Mathematically it´s just not possible. Like it or not, it is what it is.

2. Can the international creditors, and Europe in particular, afford to lose the hundreds of billions of Euros lent to Greece? No.

European countries collectively contributed for Greece´s bailout, which means that countries under financial stress like Portugal, Spain, Italy, etc, also have a few billions to lose (which they can´t afford to), in case the Greek economy collapses.

3. The IMF can´t pardon any debt, as it would set a precedent for the present and the future, that would undermine the fund´s very existence.

Point number 1 is at stark contrast to points 2 and 3. But it´s from this apparent contradiction, that a simple, logical and positive solution can be found.

No one, and I emphasize no one, has anything to gain from a Greek collapse. The Greek society would be thrown into chaos, and the world´s financial markets surely don´t need another shakedown. Also, Europe in particular, can´t afford to lose the hundreds of billions of Euros lent to Greece.

How do we solve this mess?
WITH A LOGICAL APPROACH.

1. The IMF can´t pardon debt, but Europe can.

2. For Europe, it will be much better to lose 20, 30, 40% of the money put in Greece, than risk losing all of it.

3. Greece´s debt is unrepayable at this stage, but with a big enough writedown, debt can be repaid.

4. There is still room to cut costs in Greece, be it in military spending (huge for a country of that size) and in some social benefits that are not compatible with the country´s current financial condition.

The creditor´s proposal has focused just on point number 4, ignoring the fact that even if Greece accepted that proposal, the country would be unable to pay back all the debt anyway. And a few months later, we would be back to the same situation but in a worse condition, with a shrunken Greek GDP and less of where to cut.

Both sides have to live up to the challenge: the Greek government must drop its populist, delusional rhetoric of not cutting social benefits (that will evaporate anyway if the economy collapses), and the creditors must come to terms with reality and face up to the fact that they will not get back 100% of what they lent. Well, at least not Europe.

For the reasons explained above, I believe the IMF should get 100% of its share of the pie, to save the institution in the future. Like the IMF´s recipes or not, it´s indeed the lender of last resort when countries get into trouble.

WHAT ABOUT EUROPE?
Isn´t a debt pardon precedent dangerous too?

Yes and no. It depends on how the precedent is managed. Greece has, by far, the highest debt to GDP ratio in the EU (180%). The closest contenders are Portugal and Italy at about 130% of debt to GDP ratio. That´s a sizeable difference.

Europe could adopt an abstract legislation saying, for instance, that countries with a debt to GDP ratio above 150%, would be eligible to some debt restructuring i.e., debt pardon. This same legislative package, would force countries with high debt to GDP ratios of (let´s say) more than 100%, to adopt strict cost cutting measures to avoid ever reaching the 150% level.


This new law, could even establish expenditure limits for certain items like social, military, etc spending, relative to the country´s GDP. Example: military spending capped at 1% of GDP.

This legislative package, would also determine strong financial penalties for countries which didn´t get their finances in order, once they reached their initial debt threshold (in this example, the 100% debt to GDP ratio).

Penalties could include not getting a cent from European funds. Considering that most, if not all of the countries in trouble do get European funds, this penalty would certainly be a strong “motivation” to put the financial house in order.

CONCLUSION

This proposal, being totally abstract in nature, would allow Greece to get rid of some of its debt, with the specific purpose of making the majority of it repayable.

At the same time, both the IMF and the European Union would be insulated from creating a precedent that would encourage a series of future defaults.

And most importantly: Greece would pay back its debt, at least the majority of it.

Intelligence must prevail over pride and stupidity. At least once.
That´s the Atlantic Perspective.   

Copyright © 2015 by The Atlantic Perspective.

The Atlantic Perspective is an opinion blog, aimed at explaining and providing solutions to some of the world´s most relevant issues.

www.atlanticperspective.com

This proposal, being totally abstract in nature, would allow Greece to get rid of some of its debt, with the specific purpose of making the majority of it repayable.

At the same time, both the IMF and the European Union would be insulated from creating a precedent that would encourage a series of future defaults.

And most importantly: Greece would pay back its debt, at least the majority of it.


Intelligence must prevail over pride and stupidity. At least once. That´s the Atlantic Perspective.   

Copyright © 2015 by The Atlantic Perspective.

The Atlantic Perspective is an opinion blog, aimed at explaining and providing solutions to some of the world´s most relevant issues.

www.atlanticperspective.com


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in