September 20, 2011

Just how likely it is that entire budget of Germany, The Netherlands, Finland and Austria could soon be used to make interest payments to bondholders on the eurozone’s growing souvereign debt is underlined by events in Greece.

All the revenue of the Greek government – amouting to 15 billion euros for the next four months from September to December — will not be enough to meet the interest payments to its creditors due in that same period at 19 billion euros, according to Die Welt newspaper.

Greece is, therefore, going to be forced to take up new debt because it is following thevery package of fiscal austerity coupled with staggering interest payments on its souvreign debt rolled out by the EU, IMF and ECB . The shortfall to Greek creditors has to be met by eurozone tax payers.

Die Welt reports that 2 billion euros of interest payments to Greek bondholders are due in September; 3.65 billion euros in October and 3.3 billion in November. In December, 10 billion euros are due to be paid to fractional reserve banks.

But the Greek government only generates a monthly revenue from taxes and other income of 3.75 billion euros, leaving it short.

Greece says it has enough cash to cover pension and salaries until the middle of October and is waiting for the next „installment“ of eurozone tax payer money to continue to make interest payments of 19 billion euros to creditors and also keep some of the functions of a state going by paying salaries and pensions.

The next installmet of a 110 billion-euro ($151 billion) bailout will only keep Greece going until the end of the year.

How is Greece ever going to get out of this deepening debt death spiral?

More austerity is not going to help Greece and for German and other politicians to suggest otherwise is an outright lie. If I was able to explain accurately the economics of the debt death spiral on this blog one year ago and predict what is now unfolding, government economists could certainly have.

Axing state-employed workers – something demanded by the EU/IMF and ECB — will only reduce debt if they are thrown on the street with no unemployment benefits – and with no jobs in sight that is a recipe for a revolution.

Greece has lost competitiveness since joining the euro currency zone and become semi deindustrialised. In fact, as German economist Hans Werner Sinn has pointed out, Germany has actually subsidised its imports into Greece over the ECB system in the last few years.

When Greece defaults, eurozone tax payers will also have to meet the losses of the ECB which has been buying Greek bonds from commercial banks and just as the flow of interest generated by these bonds is set to dry up.

It is not clear how many tens of billions if not hundreds of billions of euros will have been squeezed out of Greece by the time this unprecedented act of financial warfare by the EU, IMF and ECB comes to an end but the damage to the Greek economy by the banks and complicit politicians could exceed that of a real war.

Die Welt recently reported that the damage inflicted on the Greek economy by the German army in the second world war — including a forced bank loan — was 70 billion euros in today’s terms. The damage inflicted on Greece by the EU/IMF and ECB financial assault on behalf of the mega banks will certainly be higher.

Leave a Reply