Is Germany Forcing Greece to Join the Arab Spring

Greece is rapidly approaching a point of no return. Its government debt is well over 100% of its revenues, which are themselves falling because of a lack of jobs to generate tax income. It is estimated that more than 40% of young Greeks are unemployed.

Yesterday, tens of thousands of Greek citizens took to the streets to demonstrate against a proposed austerity package, including higher taxes, demanded by the European Central Bank (ECB) and the International Monetary Fund (IMF) as the price Greek citizens must pay for the additional 50 Billion Euros in loans that will allow a nearly-bankrupt Greece to stay afloat through 2013. Twelve Billion Euros of that amount is needed so that Greece can pay the holders of bonds maturing at the end of July.

The Greek government is now paying up to 20% interest to convince banks and other investors to buy its new bonds.

The ECB and the IMF want to permit Greece to extend the due date on its outstanding loans, but Germany insists that this would be tantamount to Greek government default which could bring the rest of the Eurozone governmental loan structures crashing down.

The ECB has also suggested that Greek debt holders (primarily the banks that have lent money to the Greek government by buying its bonds) should take on much of the debt problem themselves instead of foisting it off onto taxpayers. Germany supports this, but it would also be, in effect, a Greek default.

Worse, it could cause the world’s large banks to stop lending to less than healthy governments (you may now laugh, because there have not been any healthy governments in the western world since the crash of 2008-09). This would very likely lead to massive governmental defaults and bank liquidity crises. Moody’s rating service said yesterday that it may reduce the credit worthiness rating of several large French banks because they hold a lot of Greek debt. While US banks are not major holders of Greek debt, they would be seriously affected if major European banks began to freeze up because of a lack of liquidity.

What is clear is that the longer the Greek crisis drags on, the more likely it is that the next Eurozone country to fall into the debt trap will be Spain, which has too much bond debt for the ECB and the IMF to fund.

Germany needs to understand that it has a political crisis on its hands in Greece. The time for demanding severe austerity in return for funds is past. If Germany really wants the Euro to survive, it is time to act. The time has come to abandon financial criteria and show statesmanship.

And, if Germany is playing a game that deliberately ends with the destruction of the Euro and re-establishment of the Deutsche Mark, it is sacrificing Greece, and probably Ireland, Portugal, Spain and even France, in the process.

Yesterday, members of the European Commission were reported to have said that they think the Euro may collapse. If that happens, hang on to your wallets because the fall will be swift and deep.