Greek PM faces showdown.Is Papandreou saving his career at the expense of the global economy or is a referendum the only way to save it? Some see his referendum as a reckless move by a cornered politician who refuses to shoulder the legacy of brutal cost-cutting measures. Others charge it is a brilliant, gutsy strategy designed to silence his critics and ultimately garner the support the bailout needs to be successful.
When we hear French President Nicolas Sarkozy say, "This announcement took the whole of Europe by surprise," on the steps of the Elysee Palace in Paris yesterday. "The plan ... is the only way to solve Greece's debt problem" with Jean-Claude Juncker, the chairman of euro zone finance ministers saying, "Greece could go bankrupt if voters rejected the bailout package" and Japanese Finance Minister Jun Azumi saying, "Everyone is bewildered."
You know the players are getting desperate, especially when we read "That's enough now: Greeks out!" from Kronen Zeitung, on the front page of Austria's biggest-selling paper with more vitriol from the Greek press; including dailies traditionally friendly to the government, almost unanimously condemning Papandreou. Centre-left newspaper Eleftherotypia even described the prime minister on its front page as “The Lord of Chaos.” Ethnos, another pro-government paper, called the referendum “suicidal.”
Which brings us to question Ontario's future should the Greeks decide that onerous debt brought to them by back-room money dealers and assorted hangers-on does not fit into their future plans. Once the economic engine of Canada when Bill Davis was Premier and after only 6 years of unbridled socialism under Dalton McGuinty's leadership, no less, Ontario became an official have-not province in 2009 collecting a government cheque for the first time in our history! Shameful!!
With little to show since and notwithstanding taxpayer encouragement, is it possible that Dwight Duncan's meager attempt at finally reigning in his uncontrolled spending habits by reviewing the deceiving FIT energy program could be just a long overdue attempt to forestall a bond holder haircut resulting from Ontario's mind-boggling annual budget deficit of $16.3 Billion dollars," as in $16,300,000,000 and the "accumulated debt exceeding $235 Billion dollars," as in $235,000,000,000? I mean, little Greece was allowed to grow their accumulated debt to $500 Billion before they came to the crossroads! When will the ponzi-schemers in Ontario realize we have come to ours?
Rating agencies, in a clear declaration of skepticism regarding this government's capacity to rein in its spending have already expressed their concern that these folks are capable of implementing a multi-year financial plan, with the intention of restoring a balanced budget by 2018. Meeting that target would require ongoing expenditure restraint in divergence from historical growth trends while achieving forecast revenue targets through projected tax increases.
But with the province’s long-term debt rating already at a AA downgrade; resulting in a raising of Ontario’s cost of financing and reducing our credibility in global markets, has the 'proverbial horse already left the barn'?
Another downgrade, with others to follow as we roll down the other side of this mountain is frustrating for those who see the folly of onerous public debt as new bondholders will doubtless demand double-digit yields; but they'll be taking a greater risk, assuming they are willing to part with their capital at all and certainly would expect to earn a greater reward for buying any sovereign debt, should they ever get paid out! But with interest payments threatening to become our largest expenditure after health; as Greeks and Americans are finding out, many know this can't go on much longer!
But the way things have been; up to yesterday, at least, that risk was being masked by an insidious fairy tale that sovereign debt somehow comes with a repayment guarantee but the unfortunate victims of this fairy tale are young Greeks, Americans, and yes Ontarian's, too when they realize they are tied to a debt run up by an older generation. If the Greeks can walk away, why can't we?
Attracted by unprecedented yields, will high-risk betters bail before the inevitable bondholder haircut leaving the hapless to pick up the pieces anyway? Just like the credit squeeze in the run up to the Great Depression, ignoring the reality that bills have to be paid and instead choosing endless band-aids only feeds a deep moral abyss creating an even deeper hole for the younger generation. In Ontario specifically, some fault lies with the post-Davis administrations, specifically the Peterson Administration, doubtless more with the Rae Administration when assistance from the IMF was starting to look good, but some fault lies with investors for making risky bets! Shouldn't they pay too?
As unpleasant as it may sound, to default and restructure remains the method of last resort for loans that should never have been made in the first place. The reality is that governments do default; it has happened before to Argentina and will happen again! If Papandreou’s Socialist government falls, it would not be the first in Europe to be toppled by the austerity demanded by European debt relief. In Ireland and Portugal, governments fell after accepting bailouts from the European Union and the IMF, and last month the Slovakian government fell over a vote on whether to participate in the European Union’s rescue package. But these lessons are being ignored in an over-borrowed Queen's Park as if it doesn't fit with someone's economic fantasy. But all of this may be a moot point if, and when investor's say, enough is enough, as France and Germany have just done to the Greeks and China has just done to the Americans! The only question is...should Greeks, and then Italians, Spaniards, Americans, and yes Ontarian's, too continue to pay never ending interest on top of interest payments, seemingly without end or say NO and pull the plug?
Despite plenty of complicating factors, not the least of which is the viability of myopic banks who are now treading water with debt tied to stagnant CDO's and who no doubt regret pouring as much as they already have into these deep holes, don't our young deserve a new beginning?
Should Papandreou’s referendum gamble result in a “no” vote; as a recent poll says 60% do not support his government's austerity measures, this would have enormous consequences not just for Greece, but possibly for the rest of the world. It would no doubt lead to a disorderly Greek default, force Greece out of the 17-nation euro zone, certainly topple many European banks as well as other fragile banks around the world. Rejection by the Greeks of the continuing European bail-out saga; where the bondholders have already agreed to increase their haircut from 21% to 50%, will certainly cascade destruction through Europe and maybe into North America, too, so we may not even have a choice but to watch the unraveling of our joint financial architecture, such that it is that condones the mortgaging of our children's future.
Is it possible that wiping the slate clean with a general bondholder haircut may have always been the inevitable result when socialists are allowed to run amok? We may know the answer to that question before the end of this year!