by John M. Curtis
(310) 204-8700

Copyright April 18, 2015
All Rights Reserved.

              Looming large over world markets is the ominous Greek debt crisis, something all too familiar to the Frankfurt-based European Central Bank, International Monetary Fund and World Bank, all attempting to keep Athen’s Titanic from going down.  ECB President Mario Draghi tried to reassure financial markets that Frankfurt would not let Greece go into default on IMF payments exceeding $1 billion euros in early May.  Greece wants the ECB to release the final installment of 7.2 billion euros [$7.8 billion] so the government can pay salaries and pensions.  IMF and ECB officials want Greece Prime Minister Alexis Tsipras to implement strict austerity measured designed to reduce government salaries and pension debts.  Causing the upheaval in financial markets, Tsipras told German Chancellor Angela Merkel that Greece would meet its salaries and pension obligations before repaying the IMF.

             Since dumping the drachma and going on the euro in 2001, Greece has watched its national prosperity eviscerated, living on a lean euro diet supplied by Frankfurt.  When you consider the euro was too rich for Greek blood from Day 1, it’s no wonder that Greek’s national debt piled up quickly, unlike more export-driven countries.  Germany, the Eurozone’s most prosperous exporting nation, likes having Greece in the Eurozone to offset the otherwise overly strong euro hurting German exports.  While complaining about Greece, the Eurzone needs some financially strapped countries to hold down the euro’s value.  While not liking to bailout Greece and other under-performing Eurozone countries, Germany’s far more willing to keep Greece in the Eurozone than let them out.  Fighting a stubborn recession in the Europe, a Greek default and exit from the euro would harm the Continent’s economy.

             Worried that a Greek default would send the world economy into “unchartered waters,” ECB Chairman Draghi expects Greece and the Eurozone to continue working on the problem.  IMF Director Christine Legarde insisted that she can’t accept a delay of the expected May payment on Greek debt.  She’s putting pressure on the ECB to provide Greece enough euros to meet its debt obligations.  Since 2010, the so-called Troika of Eurozone countires, ECB and IMF launched a 110 billion euro bailout program that’s run out of cash.  Accused of failing to implement enough austerity measures, the Greek people rejected Jan. 26 the conservative, Eurozone-friendly government of Prime Minister Antonis Samaras, replacing it with the radical left Syriza government of Alexis Tsipras.  Tsipras won because he promised voters he’d reject the Eurozone’s continued austerity demands.

              Tsipras correctly read voters disgust with the Eurozone, promising it to put Greek workers and pensioners first over ECB and IMF demands.  Working around the clock with Greek Finance Minister Vanis Varoufakis, Lagarde hoped to talk Greece out of defaulting on its sovereign debt.  Faced with a repetition of 2010, the Eurozone, ECB and IMF all want to kick Greek’s financial can down the road.  No one wants to face Greece’s failed experiment with a common currency.  Since joining the Eurozone Jan. 1, 2001, Greece has run out of cash numerous times, no longer able to print its own currency.  ECB regulators have pointed out that Greece no longer faces inflation and currency devaluation before joining the Eurozone.  While that’s true, Tzipras promised voters Greece would no longer go to the Frnakfurt-based ECB with cup-in-hand, begging for more euros.

             Greece has been living on borrowed money since the 2010 bailout.  Nothing’s changed in Greece, harboring the Eurozone’s largest debt-to-GDP rations at over 127 percent.  ECP urges all Eurozone countries to maintain a 3% debt-to-GDP ratio, something impossible for Greece.  If Greece defaults on its debt payments to the IMF in May, it could issue IOUs to Greek government workers and pensioners, creating a new type of promissory currency.  “The IOUs, I just don’t think it can work,” said an unnamed ECB official.  “That could effectively be it, they be out [of the euro], believing that any IOU would serve as a parallel currency to the euro.  If Tzipras refuses to play ball with the ECB, it could spell the demise of the euro, sending shockwaves through Wall Street and other global stock exchanges.  Yet re-supplying Greece with euros would require draconic austerity measures.

             Faced with another Greek sovereign debt crisis, the ECB, Eurozone countries, like Germany and France, would have to pony up more euros or face Greece dropping out the Eurozone.  No amount of loans to Greece changes the basic reality that the euro doesn’t fit the Greek economy.  Whether faced by the Eurozone or not, Greece needs its own currency and central bank to manage it’s unique economy.  Relying on the Frankfurt-based ECB has only made matters worse, forcing Greece into un-repayable debt, repeating over time the same mistakes dating back since the honeymoon wore off after joining the euro Jan. 1, 2001.  However the world gyrates if Greece goes off the euro or however unkind currency exchanges on the drachma, it’s better for Greece to coin its own currency than beg the ECB for more euros.  Postponing the inevitable only hurts the Euozone and world economy.

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