Germany Drawing Up Plans For Greece To Default And Leave The Euro

It seems Germany is finally ready to pull the trigger now that it's obvious Greece is likely to default on its debt with or without a second eurozone bailout:

But the severe austerity measures being demanded have caused such fury in Greece, and the cuts required are so deep, that Wolfgang Schäuble, the German finance minister, does not believe that any government would be able to implement them.

His pessimism has been tipped into despair with a secret European Commission, Central and IMF report that even if Greece made good on its promises, it would not be enough to reach the target of bringing total debt to 120 per cent of GDP by 2020.

"He just thinks the Greeks cannot do what needs to be done. And even if by some miracle they did what has been promised, he - and a growing group - are convinced it will not pull Greece out the hole," said a euro zone official.

Of course it won't...and it was never really intended to. That became obvious after the first bailout failed. Greece agreeing to reforms in exchange for billions of euros was one thing but implementation was always the problem, just as it's likely to be after another bailout. Demonstrations and riots in the streets, high unemployment, strikes, an unwilling bureaucracy and a power struggle as different politicians play football with the unrest all make Greece an unlikely candidate for instituting the reforms called for by what Greeks refer to as 'the German diktat'. At least one Greek politico is using stories of the Greek resistance against the Nazis as a rallying point.

Even if the Greeks did manage to implement all the reforms properly, the euro zone's own figures now show it would still fall short, with debt likely to total 129 per cent of GDP in 2020.

None of this was any secret even before the current crisis. However, the kabuki was needed because there are certain legal problems with kicking Greece out of the euro zone.Unless the country fails to honor its agreements to implement reforms and pay back its creditors as agreed. So the solution is to hold out the carrot of another bailout while asking for reforms that are impossible to implement and debt service levels that are unsustainable,nicht wahr?

Under the current austerity demands, 20% of Greek civil servants are going to lose their jobs, a substantial rise in unemployment where a major percentage of the country's labor force works in the public sector and unemployment is already at over 18%. The minimum wage would be cut sharply, public sector salaries would be slashed even further,pensions reduced, taxes raised and the defense budget slashed to the bone.

No Greek politician wants to have him or herself associated with this.

In Greece itself there have been widespread increases in crime. Greeks are heading into the national forests to cut firewood to get them through the winter, and a barter economy is becoming common in some parts of the country.Greece's National Gallery has already been burgled, and a gang of armed thieves looted a museum in Olympia on Friday, stealing bronze and pottery artifacts for sale. Meanwhile, many Greeks, especially those 25 and under with educational qualifications or practical skills like plumbing or electrical work are leaving the country, because there simply aren't any jobs to be had.

In a very real sense, the country is already bankrupt. And even many Greeks are saying what's been obvious to me for quite some time. They'd be far better off defaulting on their debts,going back to the drachma and starting fresh. No one is going to lend Greece money or buy their public debt anyway for quite some time.Provided they make necessary reforms, reign in corruption,cut the public sector sharply and take steps to make Greece a preferred place to do business, getting out from under the euro might be the best thing that ever happened to them.

The country still has its gorgeous climate and its picturesque beaches, islands and scenery, and if they can manage to get their current law and order problem under control Greece has the potential to become a major tourist mecca for all budgets. In fact, tourism accounts for about 20% of the country's GDP right now as it is.

Greece also has its fishing industry, its shipping industry with the largest merchant navy in the world and the possibility of increasing its market share in commodities like olives and olive oil, tobacco, cotton and other agricultural products due to the reduced labor costs. And a fresh start might even encourage high tech companies to start making things like computers, cell phones and silicone chips in Athens.

The real downside of Greece defaulting is more of a problem for Germany, France and the other members of the euro zone. Once countries like Portugal, Italy, Spain and Ireland see the Greeks getting away with walking away from their debts, they're likely to make a move to do so too.