That’s the question on everyone’s mind these days. Is it better for the Greeks to commit the sovereign equivalent of the ancient Japanese samurai ritual of seppuku and default or continue with the long slog to austerity?
It’s a fair question. Because what’s really at stake is not the credit rating of Greece. Far from it. It’s the stability of this:
The channel on the daily chart is still firmly intact. Because every day this situation lingers, drags on, languishes, or whatever other verb you want to use that equates to slitting your wrists in a warm tub, the Euro will continue to get punished. And make no mistake: for all the debates on the Continent about the correct course of action, it’s just talk. And that’s the European strategy: to jawbone the situation away and pray it works. How many times have we seen or heard of a rescue package being put together just to find out later it’s a discussion? Or a “written commitment of solidarity?”
But as Tim Backshall’s excellent analysis points out, it’s all for naught:
Cash spreads continue to head wider while the synthetic spreads (i.e. CDS) lag. Make no mistake: the availability of CDS protection is keeping cash spreads from blowing out wider. Plus, it’s preventing the Euro from being picked up by Procter & Gamble as an alternate paper product to make toilet paper with. Reduce, reuse, recycle.
But back to Greece. An internal devaluation of wages will cause even more civil unrest while the Greek government’s austerity measures are chasing GDP lower and lower.
But so would higher taxes and spending cuts.
The one thing nobody is talking about there right now is the privatization of government services. They could spin-off some services, which would help them raise money to pay down the debt they borrowed. Or they could look into privatization with debt assumption by the new owners. Who knows why they won’t entertain these things…
But for now, here’s Ambrose Evans-Pritchard on the subject:
In my view, the IMF should not agree to take part in a joint rescue with the EU unless it calls the shots. It should take charge and impose a Uruguay solution. If the Europeans demur — as they surely will — it should make it clear that creditors from the US, China, Japan, Canada, Saudi Arabia, et al, will not waste their IMF money prolonging a dysfunctional foolery by EU institutions. It should walk away, and slam the door.
The longer this situation lingers and holds the rest of the continent hostage, the more reasonable his idea looks.