I would have titled this post “Another Greek Bailout”, but I’m pretty sure I have already used that in the past.
Another “deal” has been reached to again avoid a Greek exit from the euro and the European Union. It is more of the same. It is like the movie Groundhog’s Day.
After Greece already missed a major payment to the IMF (i.e. defaulted), the European bureaucrats did not want to see Greece miss its next payment to the European Central Bank.
So Greece will get a bailout of about $95 billion over the next three years. They call it loans, but why will Greece be able to pay back these future loans if it can’t already pay back the ones it has?
The Greek government cannot even afford to make the payments on its loans, so the ECB is going to go ahead and give out more loans. The Greek government can use these loans to fund its banking system and pay the interest payments on the other loans. Do you have all of that?
If a family has $50,000 in credit card debt, you don’t help them out by loaning them another $10,000.
Greece is supposed to enact reforms, which basically goes against the vote that took place last week. It is probably worse for Tsipras and the Greek government that there ever was a vote. Now he is just going against the will of the people.
Greece’s reforms include increasing the VAT (tax), which is a terrible idea. It will just stifle the economy more and hurt business and consumers more. Reforms also include simplifying the pension system. The pension system desperately needs reform. The payouts need to be reduced dramatically.
Greece is also supposed to run a surplus over the next several years, but how can this be enforced? What if the economy is so bad that the tax collections just don’t add up?
But the Greek parliament is supposed to approve all of this. What happens if it doesn’t approve? In other words, this story may not be over yet.
We can call these loans, but it is simply a bailout. The reason is because the loans will never be paid back. Any system can be sustained if there are others outside the system willing to continually fund it.
Greece is a massive welfare state. Now it depends on outside welfare from the ECB, the IMF, and the various European governments. As with any forced welfare, it ends up being bad for both parties in the end. The only ones who may benefit are the bankers and politicians.
The welfare recipients (the Greeks) may get temporary relief, but it is just temporary. It just creates more dependency and it will be that much harder down the road. The welfare payers, particularly the Germans, end up resentful. They are being forced to throw money down a hole right now.
This is just another attempt to delay the day of reckoning. It will only make things worse in the long run as wealth is depleted. Maybe the Greek parliament will reject the measures and the deal will fall through. Stay tuned.