Not Greecing the Wheels

Bloomberg reports that the bailout package for Greece, which is an EU and IMF package, has not convinced investors as it is still just a backup and only kicks in if Greece runs out of other options. Apparently investors believe, as I do, that Greece will soon run out of other options. It is certainly a problem for the EU. They are on the edge of violating some of their basic rules/premises. They do not want IMF involvement as that is a sign of EU failure. And they certainly do not want an EU country bankruptcy, though their very structure could lead to it.

Greece by any analysis is a problem child of the EU, though not the only one. They are the leading chin of the PIIGS. More will come if/after Greece fails. Yet Greece is a poster child of what went wrong in the bubble days. Their debt versus GDP went through the roof, real estate prices were sky high based on buyers with bubble financing, the economy has very little left to sustain it in the long term, tax evasion is rampant and the populace is not likely to be willing to go through the pain they need to in order to repair all this damage (few countries are today). Don't believe me, click on this link to Sudden Debt where the author has covered Greece in good detail.

http://suddendebt.blogspot.com/2010/03/greek-experiment.html

At the end of the day, I do not see Greece being able to do what it needs to do to address its problems. It did a number of financial tricks to kick its debt problems down the road and those will be showing up for years to come, and the citizens there are simply not going to put up with the necessary pain when they take the punch bowl away. Then again, I do not see the EU or IMF providing enough support to avoid that punch bowl leaving. So soveriegn bankruptcy is certainly in the cards in my book. Sure, if this were the only problem country for the EU it is small enough to figure something out, but it is not and those citizens footing the bill in other EU countries will not put up with saving all the PIIGS.

For countries around the world with problems, and I definitely include the U.S., it is time to get our house in order and stimulus spending is only making the long term picture worse, not better. Time to take our medicine.

Disclosures: None.