Greek Government Crisis
Ignoring The Facts Does Not Solve The Crisis.
By IPM Group
The euphoria that washed over the financial markets on Monday 22nd June was nothing short of hysteria and delusion. Has Greece suddenly found a pot of gold to cover all their unsustainable debt liabilities? Has their GDP been massively underestimated and is in fact surging? Has the countries terrible unemployment situation been reversed? Has the countries bank run been reversed? The answer to all these questions is obviously a categorical No !
So the Greek Prime Minister Alexis Tsipras while ignoring why his party was voted to power in the first place and let us not forget his dissenting MP's of his own party and also seemingly ignoring mathematical facts has apparantly capitulated....
Greece has accepted the principle of extending its current bailout programme which expires at the end of the month so as to keep it afloat while a long-term debt solution is worked out, Greek government sources said Monday.
"For the first time, we accept the extension of the programme as the only way forward," one source said as eurozone leaders discussed Greece's future in the single currency ahead of the June 30 end of its current aid programme.
Yes, it was inevitable, because just like the Troika pretended to reform the insolvent Greek balance sheet, so Greece pretended to implement structural reforms. Visually:
Recession : Greece’s economy shrank 0.2% in 1Q 2015, from 4Q 2014, when it contracted 0.4%, according to statement from Eurostat.
As Armstrong wrote "There Is No End To The Crisis By Any Means", read here
The Greek proposals included higher taxes and welfare charges and steps to curtail early retirement. This is simply more deflationary pressure that will crack Greece apart. However, Prime Minister Alexis Tsipras is not prepared to cut nominal pension or wage cuts first sought by lenders, which would more likely than not spark revolution. Tsipras was elected in January on a promise to end austerity measures, also appeared to have avoided raising value added tax on electricity or loosening job protection laws. He is not fulfilling the will of the people making his election highly questionable. He refuses to look at the Greek economy or the Euro. All he is doing is trying to now support Brussels over his own country – a VERY BAD MOVE.
Greece must repay the IMF €1.6 billion euros by June 30 or be declared in default, potentially triggering a bank run and capital controls. However, the IMF can also agree to some nominal payment and any payment would technically not be a default. Nevertheless, looking forward, there is no solution to the Greek crisis by attempting to raise more taxes and suppress its economy for the benefit of Brussels and the IMF. Grexit is inevitable for turning the economy down from here will only make everything far worse.
As Deutche Bank noted...
It will remain a major challenge for the Greek PM to successfully pass a potential agreement through parliament. Local press reports that 10-40 SYRIZA MPs are likely to dissent (the government has an 11 MP majority), while overnight the Independent Greeks junior coalition partner (12 MPs) has also raised the possibility of withdrawing from government. How the political process plays out largely depends on the number of MPs the current government loses. A loss of less than thirty parliamentarians may force a change in coalition to include the two small moderate parties in parliament (PASOK and the River) jointly controlling 30 MPs. More substantial losses requiring the support of major opposition party New Democracy would open up the possibility of broader changes to the government or a referendum.
So recognising the politics of the situation in Greece and the basic mathematical facts, what is the ultimate conclusion one can make ?
In our opinion......Basically Greece will not be able to avoid a massive debt default and will most likely leave the Euro and embrace the Greek Drachma. In turn the contagion from this will domino through the European banking system and political support for the union amongst its people. Its only a matter of time !
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