Greece Pays a Heavy Price As Eurozone Strives To Protect Its Reckless Banks!

• Why should the Greek public be made to pay for the debts of these reckless private banks? Thhey should all be allowed to go bust like any other firm. Private debts are being socialized and this is going to cause a sever sovereign debt crisis across Europe!
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  Greece pays a heavy price as eurozone strives to protect its reckless banks
  by Heather Stewart, The Observer, http://www.guardian.co.uk/
  Further austerity by the Athens government will only serve to hide the catastrophic consequences of irresponsible lending.
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  While Germany was locked in an embarrassing public spat with the European Central Bank last week over who should pay the price for a new Greek bailout, fresh evidence was emerging of the impact of the savage cuts Athens has already imposed on its increasingly restive citizens.
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  The number of people unemployed has shot up by 40% over the past 12 months; the jobless rate now stands above 16%. Among young people it’s a devastating 42%, representing extraordinary human and social cost. Yet the government’s latest plans envisage another four years of slash and burn, taking the deficit from 7.5% of GDP this year to 1% by 2015. It’s extreme fiscal masochism, and it isn’t going to work.
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  Growth is suffering: the economy expanded by a miserable 0.2% in the first quarter of 2011, official figures revealed. Over the past year, it has contracted by a total of 5.5%, and forecasters – including Greece‘s creditors, the IMF and the ECB – are expecting a further catastrophic decline of more than 3% over the coming 12 months.
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  Yet while Greece is swallowing its medicine, it’s become increasingly clear – as many economists and investors have argued for months – that it’s not just caught in a short-term cash crunch, but a solvency crisis. With its economy shrinking, Greece simply cannot afford to pay its debts.
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  The past year of pain has had very little to do with putting Greece’s finances on a sustainable footing, and everything to do with papering over the catastrophic losses of the eurozone banks that indulged in an irresponsible lending spree in the run-up to the credit crunch.
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  As the venerable Leigh Skene of Lombard Street Research put it last week: “Writing assets down to fair value and then recapitalising banks should be the first priority in restoring economic growth after a banking crisis. Sadly, Europe went in the opposite direction and tried to ensure that no bank, regardless of how insolvent [it was], defaulted on its liabilities.”
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  We’ve been here before. In the first of Adam Curtis’s brilliant series of documentaries, All Watched Over by Machines of Loving Grace, broadcast  on BBC2 over the past month, he described how the IMF – with the backing of Washington – wrought havoc on the Asian economies in the late 1990s. After a credit boom, driven by a frenzy of lending from the rich world’s banks, turned into a crash, the IMF oversaw a series of bailouts, often insisting on savage budget cuts and “structural reforms” as a quid pro quo, emboldened by the idea that unleashing market forces would, in the end, lead to stability.
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  In many cases, including Indonesia, the Philippines and Thailand, the result instead was political and social chaos, but the west’s banks, which had recklessly poured cash into the “Asian Tigers”, didn’t lose out. Even the IMF itself has since acknowledged that its prescriptions at the time made the problems worse. “While tough measures are needed to address deep economic problems, the conditions accompanying its programmes need to be more focused on the problems at hand, and it needs to be more conscious of the social impact of those programmes,” it now says.
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  Yet the “rescue” of Greece, Portugal and Ireland – this time administered under the guise of European solidarity – followed precisely the same logic: private sector creditors must be protected; deficits must be tackled at a breakneck pace; no gain without pain.
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  Last week’s intervention by Wolfgang Schäuble, the Germany finance minister, suggested that, in Berlin at least, reality is starting to dawn. Under pressure from domestic politicians, Germany is pressing for Greece’s private-sector creditors, including Germany’s own banks, to shoulder some of the burden of a fresh bailout through a “voluntary” debt swap, which would extend the lifetime of existing bonds by seven years. At the same time, Greece would step up its privatisation programme to raise short-term cash, and the “troika” of the IMF, the European commission and the ECB would find another €60bn (£53bn) or so.
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  ….for the full article click here!

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