Friday, October 21, 2011

Update: Street Violence Continues in Athens, While EU/IMF Drags Feet on Bailout

After not expecting best results all week from Athens, Germany said today (October 21) that it expected the EU summit in Brussels would produce no deal to approve a vitally needed bailout for Athens, which is to be used to prop up the country and convince the markets that Europe's shaky south and struggling banks are solvent.

Germany even hinted at postponing the summit, if a decision cannot be reached to obtain survival funding for Greece. To make matters worse, French President Nicolas Sarkozy warned of the "destruction of Europe" if EU/IMF leaders failed to take decisive action. The summit, which was to start with a meeting of eurozone finance ministers, has already been postponed by a week for the leaders to settle on a "comprehensive solution" to the economic infection that has ravaged first Greece and the 17-nation euro-zone.

After a second day of violence during the national strikes in Greece, the Greek Prime Minister warned his European colleagues of the dangers of delaying a decision. Further doubts also surfaced over Greece's rescue packages.

The vote in the Greek parliament yesterday (October 20) to pass a new set of austerity measures came after one man died and dozens were injured as violent clashes broke out among protesters in front of the Parliament in Athens. Tens of thousands of protesters filled the streets after similar demonstrations attracted more than 100,000 the previous day. In a country where protests often turn violent, several hundred youths professing to be anarchists, many of them wearing masks, hoods or crash helmets, turned on peaceful protesters. Extremists threw rocks, bottles, sticks and Molotov cocktails at hundreds of demonstrators belonging to the PAME, a communist-aligned trade union.

COMMENT: What most Greeks don't realize is that continued street violence is not going to make any difference to the decision of the EU and IMF. Unfortunately, Greece has been in trouble financially for several years and neither the EU or the IMF have proactively addressed it. Moreover, the establishment of the euro years ago and tying seventeen countries to it bordered on insanity, considering that the cultures of Europe are so different from one another, with some being physically disciplined and others not at all. Hence, it is similar to Europe booking passage on Titanic II.

Greece must realize that a bloated central government, like in the US, with out-of-control entitlements is a recipe for disaster. The only difference between the two is that the US must deal with its own problems because of the dollar, while Greece's excesses could pull the entire EU down. In five years, if the US does not get its house in order, it too, will become the Greece of today. As for the British, they made a prudent and astute choice when they decided not to embrace the euro.

Both the EU and the IMF must face reality: Either bail out Greece now, or in November, Athens will collapse fiscally, and the entire EU will be endangered. Comprehensive austerity measures are a MUST in Greece, which includes tempering the power of unions, extending retirement ages and dramatically cutting the rolls of the central government.

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