Thursday, June 21, 2012

Should Greece have voted out of the Euro?

By voting to stay with the euro and complying with austerity measure, Greece will face widespread unemployment and other hardship due to budget cuts. More crucially, however, what is really saved are the lending banks, not the future of the Greeks. The way I see it, the bailout of Greece is actually a bailout of the banks in Germany and France. The banks (mostly privately held, I presume) will stand to lose a lot if the euro collapses. So the clever governments of Germany and France choose to use its taxpayers' money to save Greece, in order to stabilize the financial system based on the euro, so as to benefit those in high places (which most likely includes themselves).

Of course, this is no bailout for Greece. Think of it this way. If a man owes the bank a lot of money and is insolvent, the bank stands to gain nothing if the man declares himself a bankrupt. Assuming the man is still capable of earning an income, the bank would want to keep him alive so as to recover as much money as it can. Yes, give him just enough to stay alive and make him pay back 90% of his income each month. He will be denied any luxury - austerity measure. Isn't this exactly what is going to happen to Greece?

In the business world, when a company is insolvent, the logical thing to do is to declare bankruptcy and then start business again as a new entity. But if the bank is allowed to take over as administrator, the bank's sole intention is to recover as much money as it can, even at the expense of running down the company. Isn't this the same fate facing Greece now that it has voted to stay with the euro?

In summary, the winners are the fat cats in Germacy, France, and Greece. The losers are the taxpayers in Germany and France and the hoi polloi in Greece.

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