Greece Rescue – Version X
Apparently the agreement on potential bailout of Greece has been reached. Bloomberg story: Sarkozy Reverse on German IMF Demand Caps Losing Week.
The whole story with the Greece is stupid, they have not defaulted jet, so they do not have to be saved. Only thing it could help them in the moment is an EU guarantee of some sort that the EU will pay their debts if Greece defaults. That will never happen.
The second thing is that IMF’s line of work is to help the countries which default/have problems with public finances, so a promise of IMF help/involvement means nothing.
The third thing: You cannot save Greece, the debt burden is too high, increasing taxes will only decrease GDP, which in turn will decrease taxes and we have a death spiral. Debt reduction by currency devaluation is obviously out of question. Only thing feasible is a principal reduction, which will happen at some point down the road, but everybody wants to avoid that now.
The fourth thing, I don’t see why would not be possible (hypothetically speaking) that Greece goes bust, exits the euro and the euro survives despite that (given that we talk only on Greece).
The fifth thing, many of the U.S. states have larger (money amount speaking) debt and deficit problems, and nobody questions U.S. dollar strength/value.
The whole thing is overblown, it’s a psychological thing, Greece will default. So what?