As these links document, the Greek debt crisis is nearing a point where Greece may have no option but to leave the Eurozone altogether. These are not sources from the “fringe” of financial reporting which can have scare-mongering stories. The sources below are the USA Today, the New York Times and Forbes.com. All are mainstream media sources.
The first link has some major revelations that all readers should know. Greece was unable to pay its scheduled debt repayment bill last Friday, so it technically defaulted on its scheduled loan payment. However….the global financial institutions hate the word “default” so the Greek non-payment is being temporarily finessed. As the first link points out, Greece has invoked a rarely-used technical clause in international repayment contracts under IMF supervision. Greece announced it is deferring payments on all its four scheduled payments this month until the end of the month. This action has put a thin “fig leaf” over what is a de-facto default by Greece. This action means Greece has to pay all four of its scheduled debt repayments this month at the end of the month. However, if Greece couldn’t pay a 300 million Euro payment last Friday, where or how will it get the money to make a payment of 1.6 billion Euros at the end of the month? It seems evident that this action was taken merely to allow more time for Greece’s creditors to agree to a debt repayment rescheduling or its creditor banks to agree to a “haircut” which could salvage the situation. The first link also notes that only Zambia has ever invoked the rarely-used IMF provision invoked by Greece, and that the Zambian gambit was unable to avoid national default. Therefore, we can conclude that the gambit used by Greece has never avoided a national default, but is rather a precursor to a likely national default.
Importantly, the first link also reports that the “overwhelming portion” of the money being lent to Greece by the IMF or others is going to French and German creditor banks to pay off Greece’s debts. This means that the IMF is using the Greek government as a “pass through” agent to pay money to German and French banks. No wonder Greek voters are in revolt and the Greek government has taken a hard line in its debt negotiations. If the only beneficiary of continued loans to Greece are big international banks, what does Greece have to lose by defaulting on the loans? The real losers in such an action would be the creditor banks.
The second link reports that while contradictory statements are being made, a Greek departure from the EURO may be only weeks away. Indeed, it explores the possibility that a Greek election may occur which would elect an even harder-line Greek government against making any further concessions to the Big Banks. Such a departure would have major impacts on global financial markets. The New York Times article also raises the possibility that Greece may already be making back-door deals with Russia for Russian support and a Russian-built pipeline through Greece when/if Greece exits the Eurozone. Greece may have a sweet deal with Russia already waiting for it when it leaves the Eurozone, which would embolden the Greek government vs its creditors. There used to be a time when Big Banks could rely on host governments to be the enforcers of their loans to other nations–using war if necessary. However, a possible budding Russian alliance with a post-Euro Greece likely renders that option moot. What if the leader of Greece announces at a future press conference that it is renouncing its Euro debts and is leaving the Eurozone, and sitting at his side is Vladimir Putin, who reveals that Russia is investing heavily in the new Greek drachma by building an energy pipeline for Russian gas through Greece to Mediterranean seaports for shipment to world destinations? This would mean a massive number of new jobs for Greek workers and would be an instant boom to Greece’s entire economy. If this is the fall-back position for Greece, there is no reason for them to give up any more in negotiations with the IMF or any creditors.
The third link, from Forbes.com, has a grim assessment of the Greek situation. It offers a more in-depth discussion of the technicalities via which a final Greek default could possibly be delayed until later this summer, but the tone and language of the article indicates that it expects that a Greek default and departure from the Eurozone is now all but inevitable. As an investor’s magazine, it includes advice about where investors should put their money in anticipation of such an impending default. I’m not commenting on its investment advice. I have included this link as a good discussion of what readers can expect over the next few months as this crisis nears its endgame.
Here is my assessment of the situation. I think Greece is very firm that it will endure no more financial hardships being imposed on its people by the IMF or the international banking community. Its government was elected to press that position and will fall if it does not maintain it. It seems that the Big Banks assume that Greece will capitulate and give up everything so the Big Banks don’t have to give up anything in this controversy. If that is their view, I regard it as delusional. It seems the best (and perhaps the only) solution would be for the Big Banks to take a “haircut” on the loans by writing off a portion of them to reduce Greek indebtedness and debt repayment amounts. That would avoid a situation where the Big Banks have to write off all the value of their loans to Greece if Greece openly defaults on its debts, repudiates all Euro-denominated debt and starts fresh with its old drachma currency. If Greece defaults and leaves the Euro-zone, the Big Banks could lose everything in their Greek debt portfolios and this could trigger another global banking crisis like the one experienced in 2008 where banks lost vast sums on write-downs on sub-prime housing loans and the resultant counter-party risks in derivatives and other financial relationships came close to crashing the global banking system. By refusing to write down their Greek loans, the Big Banks risk a repetition of this crisis.
Bible prophecy foretells in Revelation 17-18 that the global financial system of the world in the latter days will collapse…creating a period of global turmoil out of which will emerge a final “beast” system which will be allowed by God to govern for 42 months (Revelation 13:1-5) before Jesus Christ returns in his Second Coming (Revelation 19:11-20:4) to set up God’s government on the entire earth. Revelation 17-18’s prophecy about a global financial collapse came within a whisker of being fulfilled in 2008. Will it be fulfilled in 2015 and will a Greek default on its Euro debt be the trigger which creates a cascading failure within the world’s financial system? We will have to wait and see.