AS THE ESTIMATES DEBATE CONTINUES, it is expected that though the international recession would be blamed for our economic woes, it is more probable that the consequences of uncontrolled debt and deficits on small countries would be conveniently ignored.
Last Thursday, the world’s biggest debt restructuring in history was completed, accepted by an overwhelming majority of Greece’s private creditors. It was a means of averting a so-called technical default.
Last Friday, Charles Dallara, head of the Institute of International Finance, a Washington-based group representing major private banks and global financial institutions, warned against any more Eurozone sovereign debt restructuring in the wake of Greece’s huge write-off deal.
The fear is that Portugal or Ireland, currently undergoing European Union and International Monetary Fund (IMF) bailouts like Greece, could follow suit to lower their debt service costs.
This cautionary note notwithstanding, what’s going on in Europe has nothing to do with solving a debt crisis and everything to do with preserving an unworkable system based on limitless debt and growing government power.
The sooner that is understood, the sooner we will be able to prepare for what happens next. First, it seems strange that all of Europe could be brought to its knees by a small country like Greece.
Greece’s gross domestic product (GDP) is just 2.4 per cent of Europe’s. In economic terms, it doesn’t matter. Its lack of growth or economic competitiveness should not be factors that could destroy Europe’s
13-year single currency experiment. Yet, financial markets are celebrating the latest US$130 billion bailout.
Why should Greek finances be of global concern? The deal before Europe reportedly would reduce Greek debt to 120 per cent of GDP by 2020. Unbelievably, the IMF says that level is sustainable; not so in the case of Barbados or Jamaica.
This plan is not really about debt reduction. It is about preventing a technical default, even though Greece has already defaulted in a real sense. So why is avoiding a technical default so important to the European Central Bank (ECB) and the IMF?
That honour belongs to the International Swaps Derivatives Association (ISDA), a trade group made up of banks and financial firms that have the most to lose if Greek bonds default. It’s in the interest of ISDA members that a non-voluntary credit event in Greece not be called a default so as not to compromise their insurance.
It certainly looks like a default as under the plan, $100 billion worth of Greek debt would disappear, thanks to a debt swap agreement with private sector investors.
The ECB has twisted enough arms to get creditors to accept a 70 per cent haircut on their current Greek debt without actually calling it a default.
The Greek tragedy must be contained because it affects all European banks.
This scenario is about preserving a global system based on debt and growth of government for the benefit of transnational bureaucratic elites.
