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GREXIT - Greece Wants to Become Scotland, Seeks Permanent Subsidy from Euro Tax Payers

Interest-Rates / Eurozone Debt Crisis Jun 18, 2015 - 07:39 AM GMT

By: Nadeem_Walayat

Interest-Rates

The Greece debt crisis is marching towards its end game of GREXIT, as the socialist Syriza government continues to up the anti every other day by threatening to blow a hole in the euro-zone through defaulting on overdue debt payments that now total Euro 1.6 billion, having already delayed payment of for several weeks through the use of the euro-zone rule book as Greece demands bailouts forever to permanently service Greece's debt AND finance government deficit spending.


GREXIT has been a near certainty for some time now as I have often written of the fundamental fact is that Greece cannot function without printing money that induces INFLATION that would be far in excess of which the likes of Germany would ever consider entertaining as other euro-zone members would also demand similar money printing inducing inflation.

The only thing that has surprised is that GREXIT has not already happened, for I had thought that Greece would not make it past Mid May 2015, but I did not count on the Syriza government grabbing funds on deposit in a myriad of government institutions and then finding the loop hole that allowed debt repayments to be delayed until the end of June, thus allowing Syriza to hold a GREXIT gun to the euro-zones head for an extra month.

20 Apr 2015 - Stock Market Bears Get Slaughtered Despite Greece Counting Down to Grexit Financial Armageddon

The bottom line is that Greece WILL exit the euro-zone, and looking at my stock market trend forecast then maximum uncertainty should be by no later than Mid June as by that time the Stock market should have embarked on its bull run to a series of new all time highs. Therefore Grexit should be some weeks before then which implies Greece will exit the euro-zone BEFORE the end of May 2015. I'll stick my neck out further and forecast that Greece will exit the euro-zone on 16th May 2015 due to some Euro 1 billion of interest payments falling due in that week that will trigger a debt default exit.

So don't be under any illusion that the worlds central bankers have not been busy preparing a myriad of contingency plans to limit Greece Grexit contagion as the primary objective of all central bankster's remains which is to continue to INFLATE the DEBT bubble indefinitely!

Run on Greek Banks

Frightened depositors in Greek banks have not been sat on their loral's awaiting financial armageddon Cyprus style or worse. Instead there has been an accelerating run on Greek banks that has seen at least Euro 30 billion taken out of Greek banks so far this year, leaving a balance of approx Euro 120 billion left to evaporate. Whilst the financial markets have been busy discounting a Greek debt default that most visibly manifests itself in soaring Greek bond yields that now stand at over 30% for the 2 year bonds, a collapse in value for those who had been suckered into buy at much lower ECB subsidised bond yields.

Even the head of Greece's central bank has warned that failure to do a deal with the Eurozone will result in Greece not just being ejected from the euro-zone but also the European Union that prompted the ECB to step in and prop up the Greek banking system with extra liquidity that now totals Euro 87 billion.

Greece Seeks to Become Scotland

The fundamental big picture remains that GREECE can only remain in the euro-zone if the likes of Germany permanently subsidies the Greek lifestyle in perpetuity which includes periodic write offs of most of Greece's government debt as it should not be forgotten that Greece has already enjoyed a 50% debt write off! Despite which Greece again relentlessly ratchets up NEW debt that once more totals an economy bankrupting Euro 320 billion, 180% of the Greek economy and thus Greece is currently seeking another 50% write off, which if achieved would then surely will be back in a few more years time for another 50% write off. So you get the debt dynamics picture of a basket case economy that effectively seeks to become Scotland i.e. for Greece to borrow in the Euro-zones name and thus like Scotland has zero official debt as it is all issued by the UK Treasury and backed by UK tax payers.

Greece seeks a permanent subsidy from the Euro-zone to finance a perpetual large budget deficit as a consequence of the socialist programmes that Greek governments tend to bribe voters with, which again is just like Scotland where the SNP continuously huff and puff about North Sea oil despite the fact that a) Scottish oil output has been falling for decades and is now at less than 50% of peak output, and b) The year long collapse in oil prices means that North Sea oil is UNPROFITABLE - I.e. instead of yielding revenues of £13 billion a year as the SNP were fantasizing of instead is currently resulting in LOSS of over £1 billion a year as the UK steps in to financially support the Scottish oil industry in its hour of need. SNP mass delusion was further exposed recently by the OBR which estimates that from 2020 to 2041 Scotland would only generate £2 billion in oil tax revenues in TOTAL, a fraction of what SNP expects PER YEAR.

Therefore Greece, like Scotland seeks all of the trappings of power through the printing of money, all without the inflationary, insolvency and ultimately economic collapse consequences that would take place if they borrowed in Greece's name, rather than in the name of Euro-land or for Scotland, the UK. Let alone the social chaos that such a calamity would yield for both nations in terms civil unrest at the loss of value of the peoples hard earned savings which would effectively be stolen by the government through hyper-inflation Whilst most western currency blocks such as as the UK, US, and Euro-zone steal purchasing power more stealthily by slowly eroding the purchasing power of savings and earnings over time whilst their central banks issue economic propaganda reports so as to condition the population to look favourably upon Inflation as being a good thing rather than plain and simple theft of purchasing power.

Independant Scotland Would become Greece

Whilst in Scotland there are the SNP Independence zealots who blackmail the rest of the UK for an ever expanding bribe from mostly English tax payers as they advance their fanaticism right to the edge of the cliff where should Scotland in its ever-endums eventually vote YES then an Independent Scotland would soon find itself where Greece is today, worse an Independant Scotland instead of being 2nd in a union of 4 states would be 1 of 30, an inconsequential entity right on the edge of euro-land that would soon have its illusions shattered as unlike England, Germany is no fool! For there are NO ancient geographic, social and economic ties that will draw favour from the Germanys financiers.

The point is that neither state can print money within the euro-land or sterling-land, so both outside of these currency blocks would be INSOLVENT, as no one would loan them money. For Greece the exit door beckons to be followed by several years of pain as prices come to reflect the true bankrupt state of the Greek economy. Whilst for Scotland, there will come a time when England has had enough of the screaming of being owed this that and other and say please just go, and then it will Scotland's turn to enjoy the Greek experience. Both trends are in motion, where one is imminent and the second is perhaps some 3 years away from fulfillment.

Of the two the future actually looks brighter for Greece outside of the Eurozone than for Scotland in the Eurozone, because as I warned in Feb 2014 that the Ukraine example of first stealth invasions that heralded the start of an ever expanding civil war and Russian annexation that many at the time disagreed with as being impossible for the fact that Russians and Ukrainians were brothers and so they would never go to war, instead now some 16 months later, Ukraine remains in the midst's of an ever escalating war and so would the crisis in the bordering regions of Scotland begin where what was perceived impossible would slowly become manifest.

24 Feb 2014 - Scottish Independence Economic Consequences for England, UK, Ukraine 2014, Britain 2016?

The Balkanisation of Britain

Alex Salmond and his merry band of scottish nationalists quest for dominance over a small part of the Island of Britain have failed to calculate that they will no longer have Westminister to blame for this, that, or other latest socialist deficit spending induced crisis. Which implies that the first port of call for disintegration will likely be in Scotland itself, as a vote for Independence at best would only marginally carry more than 50% of the votes. Therefore the Scottish nationalist government would within a couple of years start to hear highly vocal demands from parts of Scotland to rejoin the United Kingdom, the refusal of which could trigger the start of civil conflict, which as we have seen in Ukraine and elsewhere that it does not take much for crisis to spiral out of control.

As for the rest of the UK, unfortunately Scotland attempting to tear itself away from the United Kingdom would set in motion a chain of events that would destabilise the whole Island of Britain as many separatist movements would be emboldened to exaggerate their own sense of injustice mostly based on semi-mythical histories and as remedy seek their own autonomous or even independent states, such as Wales, Cornwall, Mercia and off course heavily subsidised Northern Ireland.

Scottish independence would result in increasingly chaos across the Island, as growing civil unrest would spread as a contagion infecting many other regions of Britain.

The first consequences of the start of UK fragmentation would be in the economic arena as regions would seek to exert greater autonomy and thus increasingly implement differing rules and regulations that would disrupt economic activity that would further accelerate the breakup of the Union as regions would continuously become poorer thus blame others for their circumstances and see further separation as the solution.

The European Union fears this which is why senior EU politicians have been lining up one after another to state that contrary to SNP propaganda, an Independant Scotland would not be fast tracked into the EU, for they understand that just as a disintegrating Ukraine would destabilise the whole eastern european region so would a disintegrating UK destabilise many western EU nations such as Spain, France, Belgium and Italy all of whom have their own separatists movements.

It would be difficult, if not impossible, for Scotland to join the European Union - European commission president José Manuel Barroso

The bottom line is that Scottish Independence would open a Pandora's box that would result in a state of Britain that is far removed from the rose tinted glasses picture that the likes of the SNP are painting today, because the UK has always been MORE than the SUM of its parts. Therefore a fragmented UK will be far LESS in EVERY respects than that which the UK is today.

Gangsters and Paramilitaries

Gangsters that would eventually become paramilitaries are waiting in the wings to capitalise upon the many opportunities they will be presented by the breakup of the UK, as separation will result in a boom time for criminal enterprises such as smuggling, gambling, drugs and extortion protection rackets amongst many others at huge cost to civil society in terms of the day to day lives of ordinary citizens becoming subject to the whims of flag flying criminal gangs.

A situation that the people of the Scotland or bordering regions of England could never imagine today much as the peoples of Northern Ireland could not imagine what lay in store for them following the breakup of Ireland. Where today, even over 15 years on from the Good Friday peace agreement the people of Northern Ireland still have to contend with the consequences of more than 180 well organised armed gangs, most of whom use the cloak of republicanism and loyalism to engage in high level of criminal activities that are beyond the experience of the peoples of mainland Britain. To imagine that this would not be replicated in a disintegrating UK and that on a far greater scale is ignoring what has taken place following the breakup of virtually every nation state in history. Weakened states act as magnates for organised crime, just as today Ukrainian, Russian, Polish gangsters are busy capitalizing on the chaos that is taking place in Ukraine.

So whilst it is unimaginable today for the SNP to have a paramilitary wing, however that does not mean it will be so a decade on from Independence as a consequence of the chaos that would follow the break up of the United Kingdom as we could see Scottish Nationalist paramilitaries battling against Loyalist paramilitaries as they attempt to carve up areas between themselves to profit from criminal activities as a consequence of weakened states that apart from terrorising the general population will have a huge impact on legitimate business activities.

The bottom line is should the UK start to breakup starting with Scottish Independence then several decades from now people will look back at today's UK as being a golden era of political, social and economic stability.

And so if Scotland chosen to jump off the cliff at the September 2014 referendum then that would eventually have led to the breakup of Scotland itself as bordering regions would increasingly demand their own referendums to rejoin the stability of the UK sterling zone.

The Big Problem is PorExit, SpaExit and ItaExit.

Greece in economic terms is a flea on the back of the Euro-zone elephant that could easily survive a GREXIT. But the real problem is who would be next, for soon the pressure would mount on the other PIIGS, with Portugal, Spain and Italy vying for who would be next to EXIT the euro-zone, something which the Euro-zone would not survive. Therefore that remains Greece's 'Ace in the hole', which is why they are still in the eurozone, so probably suggests that some sort of fudge will be arrived at that would only DELAY GREXIT for the fundamental reason Greece is BANKRUPT!

A GrExit would also make a BrExit more probable, whilst Putin would be dancing in the Kremlin.

HYPERINFLATION

My earlier articles covered in detail what could happen following a GREXIT:

26 Jan 2015 - Greece Votes for Syriza Hyperinflation - Threatening Euro-zone Collapse or Perpetual Free Lunch

Grexit - Greece Euro-zone Exit

A Syriza majority government will embolden the radical left to embark on a suicide mission to demand freshly printed ECB Euros to finance an ever expanding socialist spending binge where the price expected to be paid will be by the rest of the euro-zone in terms of printing money to finance unproductive activities such as the public sector and the life styles of corrupt politicians. This puts Greece ultimately on the track towards being ejected out of the Eurozone with the consequences of there being high inflation (at least 30%) if not an hyperinflationary panic event for Greece and its new currency.

Greece Contagion

The last time Syriza threatened to seize power in Greece was in Mid 2012 which put the markets on red alert for financial armageddon that triggered banks literally to start exploding across the euro-zone most notable of which was Spain's Bankia.

08 Jun 2012 - Bankruptia Spain To Seek Imminent German Bailout to Limit Greece Election Contagion

Reuters has let the cat out of the bag Friday concerning secret panic driven talks concerning an imminent bailout of Spain's bankrupt banks, possibly as early as Saturday afternoon. Which follows fast on the heels of the credit ratings agency Fitch downgrading of Spanish Government bonds to just above junk status less than 2 weeks away from the contagion inducing Greek elections. All of which were contributing to what amounts to a state of Financial Armageddon in progress as a chain reaction of detonations takes place across the Euro-zone.

Reuters - Spain Poised for bailout request

"Spain has so far resisted pressure to seek a bailout for its crippled banking sector. But sources say Madrid is now poised to ask for help. It's expected to apply for European funds over the weekend. That would make Spain the fourth - and largest - country to seek a bailout since the euro zone debt crisis began. Two senior EU officials say euro zone finance ministers will hold a conference call to discuss the aid package. "

Meanwhile a whole host of Spanish Government Ministers have been busy all week denying that a bailout was imminent and that Spain did not need a bailout as they attempted to fight to keep their jobs as Spain would effectively follow Greece, Ireland and Portugal in giving up control of most aspects of their economy over to Germany.

ECB QE Money Printing

This time around with lessons learned the ECB has laid the ground work to cushion the immediate contagion consequences of a Syriza election victory on the Eurozone banking system under the cover of fighting deflation by announcing that the European central bank would print Euro 60 billion every month to a total Euro 1.2 trillion to buy mostly government bonds held by the banks (initially excluding Greece). This illustrates the degree to which the ECB feared the Greece Election results as it goes against virtually every statement made of the past 5 years that the ECB would not print money (QE). However given the crisis that the euro-zone will soon find itself in the rate of monthly money printing could easily double or even triple so that a couple of years from now the Euro-zone could have monetized as much debt as Japan has (60% of GDP, UK 25%, US 25%).

Possible Mechanisms for Greece Euro-zone Exit

Greece will effectively run out of money by the end of February, by which time if Syriza has made good on threats of starting to default on debt then the euro-zone will likely hold payment of the next tranche of bailout monies due by then of approx Euro 8 billion that could embolden Greece to threaten a default on total debt of Euro 250 billion most of which it owes to other euro-zone members (Euro 200 billion). Understanding fully that a total default would mean an exit from the eurozone that could trigger other highly indebted in permanent economic depression members such as Spain and Portugal to possibly also declare their intentions for an orderly default / exit from the eurozone. Additionally, Germany after 5 years of funding the Greek black hole has finally indicated that Germany would now be prepared to see Greece leave the euro-zone, so signaling that euro-zone would no longer bend over backwards to keep Greece within the Euro-zone.

This will probably trigger a series of Euro-zone summits during the year where the terms for exit from the Euro-zone will be agreed upon. What is unknown at this time is whether Greece will also have to leave the European Union as the Lisbon Treaty implies. My opinion is that Greece will be allowed to remain in the European Union to salvage something from the unfolding chaos.

Hyperinflation Consequences for Greece

In conjunction with the summits formulating the mechanisms for Greece and potentially others leaving the euro-zone there will be real world consequences for Greece in terms of the currency in circulation as a new currency would need to be printed and distributed (we may in the interim see vouchers or even photocopier paper currency used to pay public sector wages) causing chaos across Greece in terms of the standing of contracts such as Mortgages made in Euro's but no longer honoured in Euro's triggering a collapse of its banking system as no one will want to hold its new currency. This would result in a continuation of the slide of the existing Euro and a collapse in the value of the new currency (when eventually printed) potentially in the form of an hyperinflation panic event, i.e. we will see the Greek inflation rate soar as a consequence of Greece no longer being able to buy any goods or services from abroad due to the capital markets being closed to Greece. I had previously estimated that Greece could experience an annualised rate of at least 30%, which given the nature of the new government that would do nothing to address the requirements of capital markets could probably soar far higher amidst panic driven spike as any money left in Greece flooded out of the country before capital controls came into force.

Greece Exit Consequences for the Euro-zone

All of the weak euro-zone countries are waking up to the fact that they have been in a state of denial because they are NOT Germany they cannot compete against Germany that effectively holds a captured market for its goods and services, and therefore are only delaying the inevitable by remaining in a currency union with Germany that ensures their economies are also in a state of slow motion death spiral of economic collapse. In which respect they are in fact making the economic pain of their populations far worse as a consequence of dragging out economic collapse over many years if not decades rather than months as would have been the case had they had their own currencies and money printing presses such as that deployed by the UK that has successfully used smoke and mirrors inflation to mask the truth that Britain is in a far worse state in terms if indebtedness than most of the euro-zone countries that it has been busy monetizing (stealth cancellation).

Greece exiting the Euro-zone would put immediate pressure on all of the other weak Euro-zone members, with Spain and Portugal the next targets for exit as a consequence of these countries being on the same unserviceable debt fuelled economic collapse trajectories as Greece. In my opinion Spain and Portugal will both exit the Euro-zone within 12 months of Greece leaving.

The following list suggests the probable order of Eurozone exits from the single currency based on debt to GDP coupled with the the level of economic contraction to date.

  • Greece
  • Spain
  • Portugal
  • Italy
  • Belgium
  • France

Though I have to state that courtesy of ECB bond buying, there is no sign of contagion yet in other PIIGS nations as illustrated by low 10 year bond market yields, all of which are trading at well below 2%, apart from Greece's debt that is nudging towards 10%, though even here it is still well below the 2012 crisis highs of over 33%.

The wild card in all of this is Germany for as I originally speculated over 4 years ago (May 2010) Germany may decide to alleviate pressure on the rest Eurozone by planning its own exit. However all this would amount to a desperate belated attempt to buy more time to slow down the rate of collapse of the Euro-zone so as to allow the financial system to better survive a breakup of the whole eurozone.

Consequences of Euro-zone Collapse

Whilst contagion amongst euro-zone members may be a slow motion affair as countries line up one by one line up for an orderly exit, however the contagion amongst the banking sector will be immediate and europe wide as credit markets could freeze once more even despite ECB money printing that has the potential to accelerate the collapse of the euro-zone as the potential bailout costs for preventing financial armageddon soar far beyond the means of any of the euro-zone member states to cover.

Off course the worlds central banks will do their utmost as they did during 2008 and then again in 2012 to prevent financial armageddon by trying to contain the damage through a myriad of means that they are now well rehearsed in such as bank capitalisation's, providing foreign currency swaps, and in the final instance introduction of capital controls and bank bail-ins cyprus style.

The bottom line is that it now looks probable that Greece will leave the Euro-zone within the next 12 months, during which time it will become clearer which other euro-zone members will start to formulate their own exits from the perpetual economic depression of the euro-zone. Especially if after the initial pain (inflation) the Greek economy actually does start to strongly recover which could result in a stampede and collapse of the euro-zone.

Source and Comments: http://www.marketoracle.co.uk/Article51123.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2015 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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