The Greek Sovereign Debt Default …

June 20, 2011
Herman O'Hermitage
Herman's Gravatar Comment Title: …
“The Greek Sovereign Debt Default”
By: Herman O’Hermitage
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Herman’s Comment:

Having just returned from the Kornati Islands of Dalmatia, where I observed the eclipse of the full moon last Wednesday (Thursday Australian Time) I also observed Greece preparing to leave the European Union and Croatia celebrating their tentative inclusion into Euro from July 2013.

Greece is heavily in recession. Their recession has been induced by the austerity cuts post GFC and their continuing sovereign debt crisis. If they don’t default on their €340bn debt this year, then it is only a matter of time. To purchase one year credit default insurance on Greek sovereign debt cost 18% pa.

On this matter the IMF selection of their next Managing Director expected by June 30 is crucial. Augustin Carstens has questioned why the World Bank (International Bank for Reconstruction and Development) has not been called in to ease the Greek sovereign crisis. Then you might consider EBRD and ECB. Should France again provide the next IMF Chief Executive (Christine Lagarde) then little will change. European Bank for Reconstruction and Development was established 20 years ago to help Eastern Bloc countries redevelop post communism. Should they now be working in the interests of Greece? As for ECB, should they be referred to as the 4th Reich?

Reading the Weekend Journal (Wall Street Journal) this weekend you could question who holds the existing Euro €340bn of Greek sovereign debt. It is rumoured that Deutsche Bank holds €100bn, and then last week 3 French banks were downgraded. Details are scant. Is that because more information could lead to a run on already thinly capitalised banks. If Deutsche Bank was to mark to market their holdings they would need to find as much as €65bn Euro in fresh capital. Therein lies a whole story in itself. Why has the ECB a vested interest in protecting the lenders, and leaving the Greeks, and possibly Portuguese, Irish, Spanish and maybe Italians out to dry?

Back to Croatia. They have unemployment of over 20%. If you count those who turn up for work not having been paid for over four months, (but will not walk away from their unpaid work for fear of the stigmatisation of being unemployed) then their unemployment is more like 25%. Croatians tend not to consider that recession, but somewhat normal. It has been the case since the war ended in 1994. The only real difference is before GFC there was lucrative manual work in Germany and Austria in the winter months when the Dalmatian Islands are bitterly wind swept. What you can’t really gauge is the size of the cash economy. That too is another story. Illicit alcohol or non government regulated holiday rentals, non of which pay their 23% VAT. Illicit alcohol is actually deemed to be better quality than store bought alcohol. As you drive any street around the villages, there are signs for domaca (domestic – home produce) and importantly it is all flagrant.

The most important point is the Croatians don’t want Euro Union, but accept it as the only way. The Croatian way out of their poverty trap. One Croat fellow said to me what might have been if Germany had won WWII. There would not have been a Tito. Someone simply needs to organise them. Will they accept organisation? Their battles for independence and self determination go back to Alexander the Great.

About the IMF vote Christine Lagarde might be favourite, but given the power plays that have occurred in Federation of International Football Associations (FIFA) over the last month don’t be surprised. It is rumoured that America wants to install the Mexican on a deal done over another appointment at the UN later this year.

About Greece, they will leave the European Union, it is only a matter of time. What is crucial is the part to be played by Ireland, then Portugal, then Spain and then Italy. Defaulting is the only real way out of their downward spiral.

About Croatia, their word for God is BOG (pronounced Boarg). As you part with them they either say “Dobar Denya” or “Bog”. (Short for God be with you, or God Bless). I now wonder why we refer to the really deeply stupidly ingrained Irish as Bog Irish. I was once told that the Gaelic and Slavic languages are very close.

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Herman …

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  1. yoda
    June 20, 2011 at 3:09 pm

    Sorry Herman,
    What you said, sounded very Greek to me.

  2. June 20, 2011 at 8:21 pm

    The picture you paint has reflective responsibility across the Globe – if the EURO is Germany and France holding onto creditability – and the Greek’s, Irish, Spanish, Portuguese, Italians, and all the other smaller Nations who are receiving cheap borrowings via their Euro membership – surely the French and German citizens will become pretty pissed at subsidising all these other Nations at the risk of they themselves becoming sucked down this crapper flush….

    If Germany takes the writedown as your highlight – the EURO wil go into freefall – against the Yen and A$ – and perhaps te US$ as well …

    Give you a few days to acquaint yourself wit teh dumb down Australian political scene … Parliament resumes tomorrow for the last two weeks before the winter recess …

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