You may have heard that Greece is facing official bankruptcy as a result of Europe’s failure to deliver the funds that would allow the Greek government to carry on pretending that it is not insolvent – by redeeming a bond which is about to mature while in the possession of the European Central Bank. The truth of the matter is that Greece has been insolvent for 3 years now. Since then, the Eurozone has been lending huge amounts to the Greek government to keep up the pretense that a (second[1]) default is preventable. Europe shifts money from one of its pockets to another and, while doing so, it claims to have averted Greece’s bankruptcy. Alas, they are now in danger of running out of pockets as the three parties making up the troika of Greece’s lenders (the IMF, the EU and the ECB) have fallen out with one another over what to do with Greece:
- The IMF is saying to Europe: “Enough is enough! Come clean! Time to admit that Greece must default and a large part of its debt be written down.”
- The ECB is telling Europe’s politicians (particularly in Berlin): “Give Greece its taxpayer-backed loan tranches because we, the ECB, are not prepared to print more money on its behalf – through the ELA.”
- Europe’s politicians, in the meantime, resist the IMF’s proposal (clinging on to their denial of the bankruptcy of their plans for Greece) but cannot grant Greece more loans without the fig leaf of respectability that the IMF is providing. To prevent a default in the next few hours they will discover a new trick along the lines of ponzi austerity. Most likely, they will ask Athens to dip into the country’s bank recapitalization fund to repay the ECB in the next few days before (promising to allow Athens to replenish its bank recapitalization fund when the new loan tranches of 31.5 billion euros are released, once the IMF and Europe settle their differences).
Meanwhile, Greece’s social economy is sinking deeper and deeper under the austerity measures that are the condition for maintaining any hope for more tranches of these toxic loans. The rest is pure catastrophe; not even tragedy (since tragedies end with catharsis).
[1] Last February Greece defaulted to private investors, who had to accept a huge haircut of 75% is net present value terms. However, Europe ensured that this default (even though CDS contracts were activated) was not called a ‘default’. In an Orwellian twist, it was called PSI (‘private sector involvement)!
