Friday, July 22, 2011

Another Quick Fix for Greece

Germany has agreed to a new Eurozone bailout for Greece amounting to a $ 157 guarantee for Greek debt. Gradually, Germany and France are underwriting the sick Greek economy. While most observers are concerned about "contagion" spreading to Spain and Portugal, the real "contagion" is that Germany and France are en route to becoming a future Greece. The strategy of throwing good money after bad will ultimately bring the financial status of German and French sovereign debt under scrutiny.

Nothing in the bailout package alters the fact that Greek sovereign debt is growing daily and will continue to swell to ever higher numbers. There will be more hand wringing and bailouts down the road until the road comes to an end and Germany and France become the focus.

The only plus tick in the package announced today is that bondholders take an estimated twenty percent haircut on their principal. That is good news. But, it is not enough.

The cold facts are: 1) the Eurozone is not growing economically and will not grow economically over the next few years; 2) sovereign debt in every Eurozone country is growing and in most countries is exploding. Nothing changes these two facts and these two facts spell future disaster.

Absent reform of entitlements, government spending and restrictive regulatory and tax policies, there is no real hope of economic growth in the Eurozone (or in the United States which is currently in copycat mode).