Greece on the Verge of Default

Greece, dear Greece -- the "cradle of Civilization" -- and DEBT. This from "The Economic Populist" -- please follow link to original (submitted to "Economic Populist" by Robert Oak)
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Greece on the Verge of Default

The rumors are swirling that a Greek Default is imminent:

Despite strong denials that the country is heading for a default, rumours have grown that the end game is approaching. Wolfgang Schäuble, the German finance minister, has insisted that a sixth, €8bn (£6.8bn) instalment of aid will not be released unless Greece enacts corrective measures to kickstart its economy and improve competitiveness. Experts from Washington and Brussels will fly into Athens this week to assess whether Greece is sticking to its programme of drastic spending cuts and tax rises, amid fears that its creditors could be ready to pull the plug.

Literally there are talks about seizing Greek assets, by force.

Germany’s EU commissioner Günther Oettinger said Europe should send blue helmets to take control of Greek tax collection and liquidate state assets.

Greece, assuming in response, announced a new property tax, collected through electricity bills:

The tax is €4 per square meter (about $0.50 per sq. feet). The government is projecting this levy will make up for the revenue shortfall due to the sharper than expected contraction in the Greek economy.

Yet, according to Credit Write Downs, Greece's economy is now projected to contract 5%, instead of the 3.8%, upon which the bail out redux was based.

Additionally the terms of austerity created a self-fulling prophesy:

The chief reason why Greece cannot meet its deficit targets is because the EU has imposed the most violent fiscal deflation ever inflicted on a modern developed economy - 16pc of GDP of net tightening in three years - without offsetting monetary stimulus, debt relief, or devaluation.

This has sent the economy into a self-feeding downward spiral, crushing tax revenues. The policy is obscurantist, a replay of the Gold Standard in 1931. It has self-evidently failed.

It also seems there is infightening at the European Central Bank, with a no bail out German, Juergen Stark, resigning.

In analyzing Spain versus U.K. debt, Paul Krugman points to the Euro and weaker countries dragging Spain down. He then mentions this:

What’s needed, clearly, is for Europe — and ultimately that probably means the ECB — to provide for Spain and Italy the kind of backstop countries with their own currencies can provide for themselves. Without that, the whole euro system is at risk of unraveling, not over the course of years, but over the course of a few weeks.

Bloomberg is now reporting Greece is sure to default:

After almost two years of fighting to contain the region’s debt crisis and providing the biggest share of three European bailouts, Chancellor Angela Merkel is laying the ground for what markets say is almost a sure thing: a Greek default.

To see a series of dominoes implode, Moody's is looking to downgrade French banks, due to their large Greek debt holdings.

In this post, Greek Saga Sails On, we overviewed just how much Greek debt is held by other nations' banks. France tops the list, with Germany roaring in second. The United States is 4th in exposure to Greek debt. The IMF is now telling European banks to recapitalize, with what, isn't quite clear, as now the IMF tries to claim rumors of a $273.2 billion dollar European bank capital deficiency are untrue, even though the study is an IMF draft white paper.

UBS quantified a Greece default and said if weaker nation's leave the Eurozone it could cost them up to 50% of their entire economies.

Business Insider has a list of key critical events to watch and of course is predicting Gold to go soaring. Greece is literally expecting 90% of the private sector to step up for the bond swaps, part of the second bail out. The results of private sector participation are expected tomorrow. Then on the 14th, the Greece-Troika inspectors will try to make sure Greece is dismantling their country through privatization and austerity. These monsters are like Scylla and Charybdis Homer must get past. In other words, expect default.

charybdis scylla Greek credit default swaps on Friday paint the picture:

Credit-default swaps insuring Greek government bonds jumped 701 basis points to a record 3,727 basis points, according to CMA. The five-year contracts signal there’s a 94 percent probability the country won’t meet its debt commitments.

If Greece defaults there is no doubt the United States will go into a new recessionary cycle. There are so many interdependencies and contagion built into the global financial system, never addressed legislatively or by treaty. Contagion was given a few token words in various talks and then promptly brushed under the carpet and stuffed back into the closet by the likes of Goldman Sachs and the U.S. Treasury. Now, here we are with all of Europe throwing up their hands proclaiming, It's all Greek to Me.