It appears that the countdown to the Greek default and the avalanche of financial hardships it will bring has begun. Numerous specialists believe that the Greek government is currently bankrupt and unable to repay its debt. The creditors, including the International Monetary Fund (IMF), are optimistic that if the Greeks embrace austerity measures, they may be able to repay their loans. As a result, numerous opinions and counter-opinions are currently flooding the financial globe. Nobody appears certain as to whether the default can be avoided. Should this be prevented? Or what would be the repercussions of such a default?
In this article, we will attempt to address some of these concerns regarding the escalating crisis in Greece.
The Greek Game of Extend and Pretend
Any expert who viewed the situation strictly from a mathematical standpoint would have realized years ago that the Greek debt is simply unpayable. When loans were extended to the Greeks, the real mess was established. During this period, debates would have made logic. In 2009, when the world became aware of the Greek crisis, it was too late!
Greece in 2009 was comparable to a college student who had obtained multiple credit cards and accumulated such a large balance that bankruptcy appeared to be the only option. The tax revenue collected by the Greek government was insufficient to cover the debt's interest payment! Therefore, even if they desired to, the Greeks lacked the resources to hold onto this debt for all eternity. Even if they attempted to pay only the interest due on the loans, they were doomed to default.
Instead of accepting the situation and allowing the inevitable to occur, the IMF and others devised a clever solution. They would lend the Greeks additional funds at an exorbitant interest rate of 14%. The money they lend to the Greeks will be used to repay interest on loans that were originally owed to them.
In essence, they were lending money and immediately reclaiming it. However, the exorbitant interest rates of 14% on the new loans caused the existing Greek debt to increase. After five years of playing this extend and feign game, the Greek loan is now significantly larger than it was originally.
Obscure Losses
When viewed in retrospect, the Greek bailout endeavor appears to have been an attempt to conceal actual losses. Mathematical analysis revealed that the Greeks are obligated to pay significantly more than is mathematically conceivable. Consequently, by extending even more credit and feigning that things will improve over time, the IMF appears to be attempting to conceal the losses incurred by the investors. This ""extend and pretend"" game is causing enormous unemployment in Greece, which has resulted in extreme austerity for the population.
Result of the Referendum
Greece recently faced a situation in which the IMF refused to extend more credit unless Greece agreed to ignominious terms, and without the IMF's assistance, Greece essentially lacked the funds to pay its obligations. Consequently, a default was virtually inevitable. As a consequence, there was widespread panic throughout the world's financial markets. If Greece defaulted on its loan, it would also leave the Eurozone.
Therefore, the majority of Greeks attempted to convert their Euro-denominated deposits into gold or another real asset that would retain value even if the Euro became meaningless in Greece. Massive bank runs ensued, and the already bankrupt Greek banks struggled to return any money to depositors, sparking concerns of a financial collapse.
In response, the Greek government shuttered banks until the crisis was resolved. They imposed a daily withdrawal limit of 67 Euros per account. This was the quantity of money a family would need to survive for a single day. In spite of the restrictions imposed, there were long lines of people waiting outside banks to withdraw as much of their money as possible.
The Greek Prime Minister lacked confidence in his ability to negotiate with the IMF and creditors. Therefore, he allowed the public to decide whether to accept the ignominious terms proposed by the IMF or to simply default. More than 61% of the Greek population supported the default. Thus, the initial Greek refusal to accept the IMF rescue sent global markets into a tailspin. However, creditors and Greeks have since reached an agreement, and Greece will not default on its debts for the time being.
The most recent bailout of Greece appears to be a continuation of the ""extend and pretend"" strategy. The fundamentals of the Greek economy have not changed, and the country remains as insolvent as before. There appears to be no path out of the Greek crisis, and increasing credit does not appear to be the solution.
" - https://www.affordablecebu.com/
