Greece – All Solutions Make it Worse?

Most of the talk in the news these days is about Greece:

“Greece gripped by general strike over austerity package; Greece could run out of money in weeks; Default of Greece;Possible return to Drachma…”

For months there have been protests in Greece. Hardly a day has passed without strikes.

However the “Greek” problem is not only “Greek” at all.

As David Cameron says, “Britain suffers when the eurozone struggles. Forty per cent of our exports go to eurozone countries. Turbulence in the eurozone is not good for Britain.”

Eurozone ministers are worried that if Greece were to default it would make it even more difficult for other countries such as Portugal and the Irish Republic to borrow money.

“The debt crisis enveloping the eurozone is “the most serious and immediate” threat to the British economy”, according to the first report from the UK’s Financial Policy Committee.

European Central Bank President Jean-Claude Trichet said this week that the link between the region’s debt crisis and its lenders is “the most serious threat” to financial stability in the European Union.

If the Greek MPs vote “no” to austerity measures then Greece is heading for bankruptcy in mid-July and the eurozone will be thrown into turmoil. George Soros warned the other day: “Let’s face it, we’re on the edge of an economic collapse.”

All over Europe our rotten and creaking financial system is threatening to collapse – taking savings, pensions and jobs with it. This is an extremely serious development – the true extent of the danger to economies all over Europe is only now emerging.

Eurozone officials are trying to find a way for banks to support Greece’s bail-out without the country being judged to have defaulted on its debt.

So, what solutions do the experts propose to solve the problem? Bailouts, bond rollovers, bond swaps, relax conditions on the previous bail-outs, a full restructuring, leaving the euro completely… Yesterday French president Nikolas Sarkozy proposed a new solution: postpone repayment for 30 years…

None of these “solutions” however are able to really solve the problem.

According to The Wall Street Journal, Tuesday, June 28, 2011

“If Greece votes against the austerity program agreed with its lenders, thereby triggering a default, the euro zone probably will be forced to provide emergency lending anyway to prevent the total collapse of Greece’s banking system and protect what value remains of the ECB’s existing collateral. It also would need to shore up other euro-zone countries vulnerable to contagion, with debt guarantees and further ECB support for their banking systems, deepening economic integration.

“But even if Greece does adopt the austerity program, the euro zone won’t be off the hook. Confidence in the euro zone’s willingness to support bigger and more interconnected economies, such as Spain and Italy, has taken a hammering…”

Even the Bank of England governor Mervyn King warned that stop-gap measures to extend yet more loans to Greece wouldn’t solve the eurozone debt crisis, according to The Telegraph, Monday 27 June 2011

These debts are unpayable. Once the lending stops the bottom falls out.

The real game here is only about delaying the inevitable.

The situation in Greece is not simple. It’s true that the Greek government spent more than it should have, and yes, Greece went on a big, debt-funded spending spree, including paying for foolish high-profile projects such as the 2004 Athens Olympics, which went four times over budget … but think about this:

Would it be possible for the banks to have lent so much if they had to actually find that money from savers, rather than simply creating it out of nothing through a clever accounting process?

For a bank (or another financial institution), it is one thing to lend money that they had to borrow and they have to return to their depositors with the interest, and it’s a completely different thing to lend money which they just created by typing numbers into a computer system.

There is something fundamentally wrong with fighting a debt crisis by offering yet more debt?

How comes that such economic nonsense is widely considered accepted wisdom?

For sure there are politicians and economists who see that all these measures only shift the need of solving the problem to the future. There is a number of economists, who call for an end to fractional reserve banking. And for sure, there are politicians who know that only radical reform of the money creation process would be the real solution.

But would they have the courage to propose such a radical reform? If people don’t even know that there is a serious problem in the way how money is created, if they don’t understand where lies the root of our economic and social problems?

That’s why it’s so important to spread the word about the true nature of our money, so that a critical mass of people start to understand what’s going on.