The financial world is breathing sighs of relief because the Greek parliament has adopted some cosmetic financial reforms, a.k.a. an austerity program, that will give their fellow Europeans cover for providing funds to enable Greece to avoid -- for now -- a default on its debt obligations.
Don't be fooled about what actually is taking place. It's the same old game of extend and pretend. At 155 % of the country's GDP and with that ratio to rise to 170 % next year, Greece's indebtedness is not repayable. It's just too large and what is now occurring actually is increasing it.
The other Europeans are not participating in the current charade for any noble purpose, out of the goodness of their hearts, or because of any benevolent feelings for the Greeks. They are acting to try to save themselves . . . for the time being.
Greece's indebtedness, in the form of bonds, is held by Europe's big banks and those holdings exceed by some pretty hefty margins the net worth that is the capital of those banks. Accordingly, a default by Greece in meeting its payment obligations on those IOUs would bring down those financial houses and their ruin would threaten the political stability and structure of the nations in which they are located.
So it's extend and pretend . . . for now. Shove the problem down the road, and hope that some miracle will occur to stave off the eventual inevitable default and collapse or, more realistically, to delay it until those now in charge will have departed from the scene and left others to face the music.
Does anyone recognize this as having any relationship to what we are seeing in the U.S.?
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