March 29, 2024

News Cymru

Two sides to every headline

I’ll get straight to the point.  This is the quote


“It would not just be a bad turn of events, it would be a living nightmare,” she writes. “And I am being very honest when I say this. I know firsthand what it would be like. I have watched countries default back when I worked with Latin American countries in the 1990s and early 2000s while at the World Bank.”
As for the threat of Greece being evicted from the eurozone today, she says it’s “very real”.

These are her qualifications
Panaritis was one of George Papandreou’s top economic advisors. She was actually handpicked by Papandreou, who personally called her in 2009 to request she serve as one of Pasok’s statewide MPs.

If this is the quality of the people Papandreou was taking economic advice from then his disastrous economic decisions now make a lot more sense.
This chief economic advisor to the Greek government Panaritis says a Greek default can be compared to the Latin American defaults of countries such as Argentina and it is on this basis why I say she has misled Papandreou, either through ignorance, deliberately or she has been grossly misquoted.

This statement shows a massive miscomprehension of the situation Greece is in. I might even go as far as to say, Panartis, as a chief economic advisor to Papandreou has failed to understand the most fundamental and most basic concept of why Greece joined the Euro in the first place.

Greece joined the Euro as it was said that it’s currency was too small and too vulnerable to compete on the global stage. The Euro is the economic form of  “safety in numbers”.

The Euro was formed specifically to allow government to default without the member citizens from paying the price for government excesses.

The Euro was to act as a metaphorical shield for the people against economic turbulence at home and abroad.

Finally, a factor which may be particularly important for small, open economies is that adopting the euro may provide stronger protection against international financial disturbances. Such disturbances have often had a disproportional effect on smaller economies, raising the risks of external shocks. – Gertrude Tumpel-Gugerell, Member of the Executive Board of the ECB Conference “Poland and the EURO” Warsaw, 26 November 2007

And yet despite the massive benefits the Euro supposedly gives Greece, Panaritis in her role as a chief economic advisor to the Greek government either chooses to ignore this crucial fact or is simply not aware of it, either way the consequences, if  her advice has been heeded have been disastrous.

Looking at Papandreou’s economic decisions through the eyes of someone who views the Greek economic situation as if Greece still had the Drachma, Papandreou’s decision actually make more sense.

Don’t get me wrong, Papandreou has detonated a large explosive under the Greek private sector but his words and speeches now make much more sense assuming he was treating the financial situation as if Greece still had the Drachma.

All his speeches of saving the country, the future of the country depends on this and that, Greece is staring into the abyss etc etc suddenly bear a closer resemblance to reality.

Unfortunately for Greeks, as I thought, Greece’s political elite appear to have been taking completely duff advice and are responding to a reality that does not exist ie Greece with the Drachma.

As I have written many times before, a Greek default will unlike any other default in the history of the world.

Whereas in Russia and Argentine to give 2 examples, the value of the currency was demolished which made the money in people’s pockets almost worthelss.

After a Greek government default Greeks will still have Euros in their pocket and their Euros will be worth the same even after the default.

If and when the Greek government defaults the Greek people will still have money, the Greek people will still have more or less the same purchasing power as they did before the default.

Apart from banks going bankrupt, pensions being cut and hundreds of thousands of government workers being made redundant, the country will carry on just like it did before the default.

And given that pensions are being slashed at the moment, thousands of government workers are being laid off Greece is almost at the same point except the country still has the huge debt.

ie today, Greece is feeling almost all of the consequences of a government default and none of the benefits. The only parties getting a benefit from Greece’s current situation are the banks, who even to this day, Greek and European tax payers are still bailing out through inflation of the Euro currency

Bonds worth about €3 billion are now being purchased on every trading day, with €2 billion of the bonds coming from Athens. At the moment, there is no improvement of the situation in sight. “The ECB and the national central banks operating on its behalf are currently the only buyers to speak of,” says one market insider.

This policy effectively makes the ECB a so-called “bad bank” (a bank that buys up toxic assets as a means of helping out other institutions), all protestations of its president to the contrary. The pile of junk bonds on the ECB’s balance sheet continues to grow. The fact that the ECB is keeping prices artificially high is downright encouraging banks to unload their risky assets onto the central bank.

Thorstein Polleit, the chief economist of Barclays Capital Deutschland, puts it this way: “The ECB is creating excess supply by buying at overinflated prices.” In other words, many creditors are more inclined to sell their risky assets to the central bank under these terms. “It’s a free lunch,” says a top Frankfurt banker. “Anyone who doesn’t take advantage of this opportunity to get rid of his securities now only has himself to blame.”

We can only hope for the sake of the Greek people that Papandemos will be getting sounder advice than that detailed above but I do not have much hope of that as no private sector tax cuts are on the table, at least at the time of writing.

Footnote: Panartis, according to her Wikipedia page has made massive strides in strengthening property rights as a means of developing economies, a method I agree with totally

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