A Scorched Earth Policy For Greece

By God, the Greeks will suffer for profligacy. If the IMG and Eurozone nations give them a dime, they will take it out in blood. The rescue package which was once 40 billion euros or 50 billion will have to move as high as 120 billion over three years. The Greeks have dug themselves that deep a hole. Angela Dorothea Merkel, the German Chancellor, may eventually lose her job over the bailout, because it is so terribly unpopular in her country. The Greek aid could also cost taxpayers in other European nations something to fund it.

Greece will almost certainly have to agree to 24 billion euros in budget cuts as part of the deal for its lifeline. That might allow the southern European nation to get its deficit to GDP percentage from about 13% to closer to 4% over three years. To get there, the nations will have to start a VAT, freeze public wages, and accept a commission of EU wardens to make sure that the nation toes the line with the new rules.

The ruling government in Greece will accept the agreement. Some opposition  leaders will try to use the austerity plan to bring down Prime Minister George Papandreou. The new programs are so oppressive that Papandreou may well be kicked out by more radical politicians who will use the agreement with the Eurozone nations and IMF as a rallying cry around which those unhappy with old regime can gather.

The bailout of Greece is more a political problem than a financial one. It will probably bring a new group of politicians to power and their goal will be to break with their new masters even if the cost is a default on the nation’s sovereign debt. The Eurozone nations, especially Germany, are not willing to put up with any resistance from Greece, and that is just what they are faced with.

The peace between Greece and its neighbors was bought with money and will likely be repaid with rebellion.

Douglas A. McIntyre

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