If I were to owe you £100,000 you may on the surface simply be inclined to say it is my responsibility to repay as per our agreement. If however I was to owe you £100,000 and you knew that the extent of my assets could no longer stretch any further than £20,000 then you were not be proven a bit foolish for having lent that money to me, but you would have a very good reason to take an active interest in my finances, and maybe even want a say over them.
Greece is in big trouble, but so too are nations like the UK, France & Germany which have purchased bonds to help prop up the profligate Greeks. A recent €20bn issue needed a record high interest rate to attract interest, and it is now thought that another €20bn is needed to prevent a default in April/May with a total €53bn requirement this year for the Greeks to just to stand still.
Greece's GDP is 75% reliant on services, and with less than 4% is dedicated to growing and less than 21% to producing and selling exports, the Greeks are not exactly bursting with goods to sell abroad which will bring in cash. With the European financial services sector in meltdown, and the people of Europe groaning under their own public sector tax burdens, it is looking very unlikely that Greece will be able to shoulder their debt burden past 2010.
Now, I need to re-iterate as I do whenever I wander into the economic territories that I am no economist, but once again I am wondering into this arena and doing so a little bemused. We have a situation, much like with the banks whereby the debt is exceeding the potential assets available (for recovery), and instead of insisting on corective behaviour, we are again sitting still and waiting for a collapse, at which point we will all be dragged around the table and told that we have to prop things up until profitability returns, and that we will be servicing our own debt, and increasing our own liability in the meantime. It is a recipe for disaster.
In the last two decades, the worlds economics has in my humble opinion completely taken leave of its senses. Is this planet really so chocked full of idiots that they think we can run the world economy, both public and private sectors completely in defecit? Greece is in trouble because it traded it's sovereignty for the EURO, and now it cannot take the devaluing measure needed to ease it's burdens. I am sure that when the EURO was adopted they felt that there was no way the Germans and the French would let their economy flounder, I think this assumption has just been tested and the results are not encouraging.
When EU leaders met last week, like with Old Mother Hubbard they declared the cupboard to be bare. The big economies of Europe have inflated their public sectors and grown an unproductive intra-national nightmare in the EU and they have done it by borrowing and by taxing the productivity out of the markets. Take a moments pause and you can hear the pips, squeaking. Two to Three years ago the warning signs were there, and these governments could have made cuts to help reduce these deficits, but they failed to do so. Instead, we have taken up the last of pour lines of credit, and are at breaking point. We owe more than we can pay... so does everyone else.... and the debt bubble is about to burst.
EU Leaders can't help Greece, because we are all in the same boat, we have debts coming out of our ears. Greece is just a little more exposed and thus ahead of the curve. The QE Programme has kept us afloat but we will feel the sore pinch of that in the next decade. Britain was able to exercise this option because it is not in the EURO, but it is not an exercise that can be repeated. There is only one thing left to do, and it is what should have been done two years ago... The borrowing has got to stop, and the cuts need to begin. We in the UK will pay more on debt interest this year than we will on our armed forces and about half of what we spend on the NHS. It has got to stop.
Old Mother Hubbard
Went to the cupboard
To get her poor doggie a bone,
When she got there
The cupboard was bare
So the poor little doggie had none.