Are the Greek and Eurozone Problems Resolved, Not Likely

This has been a wild day for both politicians and financial markets. First, there was going to be a Greek referendum on the offered Eurozone bailout package, and that shook the world markets like they were in a blender.

Then, there were French President Sarkozy and German Chancellor Merkel telling the world that they had been duped by Greek Prime Minister Papandreou and weren’t going to take it lying down. So, they stopped all payments to Greece and said there would be no more money till Papandreou explained himself at the G20 meeting now going on in Cannes, France.

Then, the Greek government met and decided that maybe it would be better to form a coalition government instead of having a referendum. After all, said Papandreou, he called for a referendum because the opposition parties were blocking his attempts to get on with accepting the bailout package.

Then, Papandreou went to Cannes and met with Sarkozy, who apparently told him to get his act together or face the wrath of all of Europe, and perhaps of President Obama, who had arrived, congratulated Sarkozy on his wife’s new baby girl, and then made the startling statement that there was still a lot of work to do to save the Eurozone. Obama must have been on Mars for that past month, or he would have realized how redundant and sophomoric his remarks were.

So, as of this evening, where are we? No referendum. Interim funds will apparently be paid to Greece so it can continue to pay its bills (pensions, debt interest payments, etc) until the final bailout is in place. Sarkozy and Merkel will sheathe their swords, and Papandreou can once again sit at the G20 table.

But, what really can the world expect? Nobody is very confident about the Eurozone’s ability to last much longer in its present form because Greece still is not generating enough money to live on its own (like the kids who have summer jobs but look to Mom and Pop to pay their university costs). And, Italy still has a problem selling its bonds for less that 6.3%, and that is not sustainable over the longer haul.  

My expectations?

- Greece will default and leave the single currency Eurozone, leaving Germany and France to clean up the Eurozone and put it back into working order.

- The banks who were fleeced by lending Greece money will recapitalize by selling stock and bonds, and that will suck the money out of the Eurozone economy that is desperately needed for public and private borrowers if Europe is to begin to grow instead of sitting in stagnation.

- Italian bond yields will continue to rise and early in 2012 we will be playing the Greek game with a new main character - Italy.  

- France will lose its AAA government debt rating, making it impossible to borrow at its current low interest rates and Germany will be even more alone in shouldering the burden of keeping the Eurozone afloat.

- The European Financial Security Facility that is supposed to be put into place to make further sovereign debt failures impossible will either never happen or will not be able to raise sufficient funds to be meaningful as a backstop.  

-  Germany will finally say ‘no’ to further financial support for the less well managed Eurozone countries and pull out its old and solid Deutsche Mark, exiting the Eurozone.

- The European single currency, the Euro, dies and everyone in the world - China, America, Brazil, Britain, Europe, Russia - will fall on hard times as they bail out the world’s financial system, once pretty well managed but in tatters now.

That’s a high price to pay for a single currency that all non-Eurozone financial experts said at the outset would not and could not work.

The only other solution might be for Europe to come to its senses, toss Greece out of the Eurozone and help it get back on its feet, and then re-create the Euro single currency to eliminate countries that cannot afford it (Italy, Spain, Portugal, Ireland), and make those countries which are left toe the line by agreeing to a single financial system to go along with the single currency. But, that idea was roundly rejected when the Euro was created because no European country wants to give up its control over its own treasury, and with a lot of reason, I’d say. So, what chance does it have now? Your guess is as good as mine, but I’d say little to none.