A 1000 Bn USD waste of money for Greece

Greek interest rate spreads are back at crisis levels of just before the EMU bailout fund. After 1000 Bn USD bailout effort, we are back at square 1. The Greek crisis has not been ended because of several reasons:

• Greece has received credits to (re)finance its (growing) debt, but the debt servicing capacity has not sufficiently improved . In other words: it is like giving a sick patient a shot of morphine, but no treatment to overcome the disease.

• Greece continues to struggle with a huge competitiveness problem : it has a poor economy, with insufficient value added to support the current debt level.

• As expected, measure to cut the deficit are putting pressure on the struggling Greek economy. Negative growth and growing unemployment have always been an explosive cocktail in Athens and the rest of Greece.

Via Zerohedge and the council of foreign relations, we got an interesting chart of the Greek financial situation. It shows that the probability of a Greek default have decreased for the short term (next 2 years) after the bailout fund, but have actually INCREASED for the medium and long term. Giving more debt to resolve a debt problem is not part of the solution, it is part of the problem.

From the Council's view on Greece, we highlight their opinion that Greece will indeed default:

The CFR provides one interpretation, which speculates that once European banks find a firmer footing, that Greece, with the blessing of Europe proper, will be allowed to finally sever its mutated umbilical cord, and default. The catalyst would be Greece getting its primary deficit under control, at which point ongoing bad debt funding would no longer be necessary.