IMF pulls the plug on Greece as EU leaders fail to reach agreement on debt rescue plan
Posted on 23 October 2011 with 5 comments from readers
The International Monetary Fund dropped a bombshell on the EU leaders summit last night saying that it would not after all pay for a second Greek bailout, according to The Daily Telegraph. Senior sources said privately that the IMF has indicated that it will not be willing to bailout Greece any further.
Greek debts have topped $368 billion and the IMF is manouvering for a 60 per cent haircut for lenders to Greece. The IMF pulling the plug on the Greek bailout sends the whole crisis to a different level.
Bad relationship
At the same time reports from pre-summit meetings point to increasing acrimony between the leaders of Germany and France with stand-up rows more like a broken marriage than negotiations betwixt heads of state. The entente cordiale at the heart of the eurozone is clearly stretched to the limit.
If the leaders of Europe cannot decide what to do next then the financial markets are going to sort this out for them. They have patiently idled in a trading range waiting for a decisive pointer to the next direction, up or down. Gold and silver will follow the markets down but should bounce back quickly (click here).
As the ArabianMoney website has argued for many months it has never been clear to us exactly how the eurozone crisis could be satisfactorily resolved (click here). The main solution suggested by the US is for a repeat of the balance sheet expanding bailouts that have massively ramped up US debts and deficits since 2008 and done nothing to actually solve their problem of low growth and high unemployment.
The market ’solution’ is very different: bankrupt the bad banks, liquidate the banks, let stock markets crash and then the whole system will right itself at a lower level of debt. The problem of course is that for democratic politicians the collateral damage may be enormous, not the unemployment and public misery, rather then end of their political careers.
IMF strategy risky
The IMF is taking a high risk strategy itself by pulling the plug on Greece. Will this be enough to bring the naughty school children of the 27 EU states into line? Headmistress Christine Lagarde is taking the biggest risk of her political career too.
Financial markets may take a breath and give her the benefit of the doubt before casting their vote on this shambles. The eurozone summit is not yet over. Yet there is a growing sense about this EU summit not that time is running out but that is has already run out.
Greek debt is way too high for any bailout mechanism currently on the table to handle, and now the IMF is not supporting the current proposal anyway. The eurozone looks trapped in an impossible dilemma of its own making with the Greek default now a reality.
5 Comments posted by readers:
Your article highlights the IMF’s decision not to be involved in a second Greek bailout in a way that this news got rather marginalized in the Daily Telegraph’s other news and comment. So, I appreciate what you have written because it is important.
You warn us, as we must be warned, of another fall in gold and silver prices. I wouldn’t mind selling my bullion soon, which I bought at higher prices, and buying again at this much lower level.
Are we expecting silver to fall on the stock market crash to about $15 per ounce? At £9 per ounce this will be well below what I have paid this year and last.
Perhaps this stock market crash will be worse than in 1929/31. So will silver fall to $2-3 per oz? However, it can never be worthless nor fail to rise upwards again because it is money. Money, unlike currency, always has intrinsic value to it.
Greece will suffer from its many sins over the past 40 years . . .
and the entire Eurozone, as you say, is trapped in the convoluted & corrupt web of its own making. There is no escape.
Giving more money to Greece was never going to help, other than to kick the can down the road. There are no pain free solutions, we’ve got to bite the bullet and take the un-anaesthetised sooner or later.
(My bullion is for my “armageddon” survival kit along with the water purifiers and fire-started, fishing line, hunting knife, trapping snares etc, not so much an investment, if things go really bad people won’t be taking paper money for things.)
Obewon, I think you’ll find the fall-out from Greece will spread further than the Eurozone (as does the convoluted corruption).
@ Tiu:
I totally agree with your comment, Tiu!
Greece is only the first domino in the global chain. The Eurozone is next, followed very quickly by the USSA (formerly known as USA); then the repercussions will be global in nature.
I didn’t mean to suggest that the damage would be limited to Europe. The big US banks have sold hundreds of billions in Credit Default Swaps to Europe; what most people don’t realize is that these CDSs, which are supposed to act as “insurance against a default”, have very little backing (approx. 10% to 15% of the payout that’s insured). So when Greece falls, Euro & US banks will be hit hard a few seconds later!
P.S. Your “survival kit” (water purifiers, hunting knife, etc.) purchases are vital. Physical gold and silver are not only good investments, but also serve as great insurance, when the government paper that they call “money” becomes unacceptable.