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Beware of Greeks Bearing Debts
UPDATE: The Wolf Comes for the Boy

UPDATE: As of 2 PM, The New York Times is reporting a noticeable fall in the stock market based on European worries over impending Greek default:

Stocks are falling broadly in midday trading on Friday after steep declines in Europe. Investors are worrying that Greece may default on its debt. Several big United States companies including American Express fell after reporting disappointing results.

KEEPING SCORE The Dow Jones industrial average slumped 242 points, or 1.3 percent, to 17,863 as of 12:19 p.m. Eastern time. The Standard & Poor’s 500-stock index lost 21 points, or 1 percent, to 2,084. The Nasdaq composite index fell 70 points, or 1.4 percent, to 4,937. The declines were broad. All 10 industry groups in the Standard & Poor’s 500 fell, and five stocks fell for every one that rose on the New York Stock Exchange

Greece has been crying ‘default’ for some time—but just as the wolf eventually came for the boy, it looks like the long warned-of monster might be here at last, teeth bared. The Greek state is down to its last few (billion) euros. Reuters reports:

Greece will need to tap all the remaining cash reserves across its public sector — a total of 2 billion euros ($2.16 billion) — to pay civil service wages and pensions at the end of the month, according to finance ministry officials. […]

“This is the last bit of cash that the Greek state has,” a senior finance ministry official, who requested anonymity, told Reuters.

Which means:

Without a political agreement with the euro zone next week, Athens is likely to have to choose between making wages and pension payments to its people or reimbursing the IMF.

As anyone who’s ever had financial difficulties knows, there’s a difference between being “broke” and not physically being able to get your hands on another cent. Greece has been the former for a while; it’s now approaching the latter.

When Greece gets there, it may find it has dithered for so long that it’s lost its leverage. It used to be that, when faced with this choice, Greece would threaten, sometimes successfully, to bring the whole European fiscal order down. Now, both Europe and the markets have had time to price default and Grexit in. As a result, both national politicians and transnational bureaucrats are more comfortable telling the Greeks to like it (the troika’s terms) or lump it. Open Europe reports:

IMF Chief Christine Lagarde said yesterday, “Payment delays have not been granted by the board of the IMF in the last 30 years”, amid a report from the Financial Times that Greece had considered requesting such a deal. Lagarde added that Greece should focus on the “tedious” technical work to get its reforms in place.

Greece has been sailing toward Scylla and Charybdis for a while now, but it appears that a run through the strait between them is imminent. Tsipras and Syriza will soon have to decide whether to risk running their ship toward the rocks of Grexit or let the many-headed Troika pick and choose which of their policies to remove.

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  • Kevin

    Sounds like now is the time for “a really stupid and futile gesture” by the Greek government.

  • Eurydice

    Well, I guess we’ll see if Europe and the markets really have priced in a default and Grexit. Somehow, I don’t think those who’ve miscalculated the situation so badly and for so long would actually get this one right.

    • JR

      Agree 100%. It will be more painful that people think. However, it is inevitable. You cannot have real income grow faster than productivity indefinitely. You just can’t. Adjustments are painful but necessary.

    • Corlyss

      Love the operas with you and Orpheus. How’s he doin’ these days? Keep up the good work!

  • Anthony

    They should leave the euro and declare bankruptcy. If you’re bankrupt you’re bankrupt.

    Heed this warning America. If the global elite ever try to sell the American people on some kind of pan american dollar, or a global currency that will be controlled by foreigners, we should reject it.

    • adk

      The US dollar is already partly foreign-controlled — just look “under the hood of that GM car” and you’ll find many “foreign-made parts”. It’s the Chinese and other foreigners who own huge amounts of US Treasury securities that finance our deficit-spending thus controlling our destiny. This too cannot go forever.

      • LarryD

        Non sequitur. The Chinese have been warning/complaining about inflationary money expansion for years. They’ve been trying to reduce their exposure, and create an alternative international reserve currency. If they had control of the US dollar, our policies would have changed. Your last point is spot-on, however.

  • Anthony

    And it continues. “The European Union diminishes its member states’ sovereignty and traditional government functions, such as control of their currency and borders. On the other hand, European politics remains primarily national, and in many countries, objections to EU policy have become the central domestic issue.” TAI continues to outline tension via Greek example ( EU struggles to resolve internal tensions – monetary union/fiscal dispersion).

  • Andrew Allison

    Tsipas appears to think that when push comes to shove the troika will blink (provide money in return for promises rather than action) in order to avoid a default. It may also be that he considers default to be preferable to implementing reforms — that way the Greeks can blame the troika rather than his government for the inevitable outcome. All-in-all, the odds are that Greece will default sooner rather than later, perhaps as soon as next Friday if the eurozone finance ministers decide to face facts.

  • Corlyss

    Gosh, this is the soap opera that never ends. What was that quip about tragedy and farce?

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