Thoughts on Greece

On the day before another huge austerity vote in Greece, citizens of Greece are back out in the streets.  The irony of things is that people are protesting austerity measures that are pushing the country into another year of recession.  On a national scale, the tax hikes and job cuts will do nothing but keep Greek revenues down.  Revenues that the country sorely needs right now in an effort to balance it's books.  Revenues that will be replaced by EU bailout funds.  I'm all for righting a lost ship but the Greek people are sacrificing an awful lot as the EU attempts to protect creditors.  The 40% haircut for greek creditors that is on the table right now seems impractical to me.  Just like the citizens of Greece are paying for years of ignoring the piper so should the creditors of the country who assumed the risk of buying Greek bonds but are now being protected of the consequences.  The solution to this problem is a default by Greece and a nationalization of the banks by the EU.  The ECB should be prepared to backstop the European Financial Stability Facility (EFSF) as well.  Forget trying to get 17 different governments to try and approve the use of funds sufficient enough to end this disaster.  The longer the powers that be delay their efforts the more difficult it will be to fix.  It's time somebody in the EU other than the citizens of Greece pay the price for the failure of the grand experiment.

One more thing.  The Pasok ruling party in Greece is at it's most unpopular levels ever.  According to wsj:

The minister predicted that new elections could be called by early next year at the latest and no party will win an absolute majority in parliament, a result that would force the creation of a national unity government that would take the politics out of the reform effort.

Mr. Papandreou has promised creditors that he would force through the unpopular cutbacks with whatever it takes. That promise already has cost his government dearly, generating doubts whether he can hold on to power. Pasok trails the center-right opposition New Democracy party by as much as 10 points in the polls. New Democracy leader Antonis Samaras over the summer refused to form a coalition government and this week again refused Mr. Papandreou's request for political support.

Nor does the New Democracy party have the magic bullet. It says it would renegotiate the terms of Greece's bailout deal while drastically cutting taxes to stimulate growth. That course almost certainly would be resisted by the EU and the IMF, escalating concerns in Europe's financial markets.

So if things don't get solved quickly they can get messy again as a new government takes over in Greece.