"Drachma" is an ancient Greek currency unit and translates as a "handful",
which is a lot less than what Greece will need to pay off all its debts.
For two years, everyone has been asking what would happen if Greece left the
euro and went back to the drachma. Now that time may be upon us. ... With Greece unable to devalue its currency, the country is hobbled with
crippling debt payments it cannot afford. Even though it has cut its debt in half, Greece has been subject to much
social unrest as five years of recession and bailout-imposed spending cuts have
bitten hard.
Last week, a majority of Greeks voted for parties that want to rip up the
country's bailout agreement with the European Union and International Monetary
Fund (IMF) - including neo-Nazis.
The biggest winner was the leftist anti-bailout coalition, Syriza, whose
share of the vote more than tripled and who describe the austerity imposed by
the bailout as "barbaric".
Syriza is among those holding talks about forming a government, one that
rejects policies of austerity, and if it comes to pass, a Syriza-led government
will definitely not adhere to the terms of the bailout.....So how would Greece leave the euro?
No big
announcement
In reality, the new prime minister probably will not announce it on TV one
day, between broadcasts of the lottery and the football.
The new government will want to renegotiate some parts
of the bailout, but if that doesn't happen, then Greece could simply stop paying
its debt.
That would be a euro default. Actually, a second, as Greece technically defaulted on its debts when it
renegotiated a 50% write-off of its debts with its creditors earlier this
year....And that would put the ball back in Brussels' court
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Spain has admitted for the first time that it can no longer raise money on the global markets or roll over its sovereign bonds, threatening to set off a dangerous escalation of Europe's debt crisis.
05 Jun 2012
| 196 Comments
'Greece is a lightweight country'
A good sense of history is perhaps the most valuable asset of all when you are the man tasked with selling off Greece's "sacred cows" from the bloated inventory of a bankrupt state treasury.
• G7 finance ministers and central bankers have discussed the eurocrisis by phone today as fears grow that Europe could trigger a new panic in the global economy. On the call, leaders discussed plans for closer fiscal union across Europe, which increasingly looks like the only way to stem the crisis.
• Spain's prime minister warned that the country is now in a situation of "extreme difficulty". Mariano Rajoy said it was imperative that Europe proves that the euro is irreversable, by agreeing a banking union and embracing eurobonds. Germany, though, remained opposed to allowing Spain's banks to be bailed out without a formal request from the Spanish government.
• A grim set of economic data showed that the eurozone economy is shrinking. Private sector output across the single currency region fell by its fastest rate in almost three years, while retail sales fell 1% and Germany factory orders also dropped. Economists predicted that the eurozone could shrink by 0.5% in the current quarter, putting more pressure on the ECB (which meets to set eurozone interest rates tomorrow).
• With the City closed for business, European stock markets had a mixed session. In quiet trading the French CAC closed 1% higher, the German DAX was broadly unchanged, and the Athens market tumbled by 5%.
Someone has to blink - and World First's Jeremy Cook reckons it must be Madrid, telling us by email that:
Spain's banks are like a tinderbox at the moment but their salvation rests in the hands of politicians - a apocalyptic mix of systemic importance and staggering ineptitude. The bank guarantee scheme is a great idea until the Germans get involved and say no; as with most plans for the eurozone at the moment.
Although politically destructive and obviously humiliating, it is time for Spain to ask for help from the IMF.
5.04pm: City analysts reckon that the G7 may be keeping its powder dry today, so that world leaders can make a big bang when the G20 meets in Mexico in two weeks time.
Jeremy Cook, chief economist of World First, said this would explain the lack of an official statement after today's teleconference. He told us:
It's not really surprising that the G7 haven't released some form of post-meeting communique; it wasn't expected and the markets have not bothered to ask for one.
The G20 meeting in Mexico in a fortnight could, and probably should, be the place for some sort of announcement as it may be able to counteract any negative news coming from the Greek elections over the weekend.
Moody's has downgraded six Germany banks, including the country's second largest lender Commerzbank, due to the increased risk of further shocks emanating from the euro area debt crisis.
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